Orange County business owners have lowered their expectations for growth in the third quarter, a posture that appears likely to continue through the presidential election toward year-end, according to the California State University-Fullerton’s Orange County Business Expectations Survey.
The index fell to 79.4, the lowest score in three years. That’s down from 85.3 the prior quarter and 81.7 a year earlier.
The index ranges from zero to 100; any number higher than 50 indicates that business owners expect future growth in the economy.
The current survey was based on responses from 54 executives in Orange County. About 44% employ more than 100; 26% have 20 to 100 employees; and the remaining 30% employ 20 or fewer.
The U.S. presidential election isn’t the only factor that seems to be driving uncertainty and putting a damper on the outlook, according to Anil Puri, project director and dean of the Mihaylo College of Business and Economics at CSUF. The pending effects of Great Britain leaving the European Union (see related Leader Board, page 67), and possible actions by the U.S. Federal Reserve Bank likely weigh on perceptions.
“Hopefully, this is a temporary dip and things will settle down,” said Puri, who last week added duties as interim provost of the school (see related news item, page 6). “But progress in the business environment is likely to slow at least through the current election cycle.”
About 87% of business owners, chief executives and managers indicated they expect business activity to improve or remain the same in the upcoming quarter. That’s down from 91% in last quarter’s survey.
About 52% of those surveyed expect some growth or significant growth in their own industries, down from 59% last quarter. An increasing number of businesses, 11%, up from 7%, predict some decreases in their industries. More firms, 37%, believe their own industries will remain stable, an increase from 34% the previous quarter.
Slightly more business owners expect their sales to increase in the third quarter, 57%, versus 56% reported three months ago. Fewer of the businesses surveyed expected lower sales, 7%, versus 13%; or a slight change to their sales, 33%, against the 37% reported last quarter.
Relatively Positive
The relatively positive outlook seems to indicate that survey respondents see Orange County’s economy continuing to outpace the national economy, Puri said.
“Their personal experiences are better than those expectations for the nation,” he said.
The outlook on jobs is mixed.
About 9% of respondents said they expect to cut jobs in the upcoming quarter, up from 7% reported three months ago. About 34% of firms surveyed expect to hire more, up 4 percentage points from the last survey. About 57% of firms said they expect no changes to their labor forces, down from 63%.
Puri said most of the expected job growth is in traditional OC strengths: entertainment and tourism, accounting and finance, and construction.
Expectations for earnings are generally up.
About 56% of the firms surveyed expected to have higher profits this quarter, up from 53% three months ago. Slightly fewer business owners, 35%, versus 36% last quarter, expected no change in profits. Fewer firms, 9%, expect lower profits this quarter, against 11% the previous quarter.
Inventory data also yielded a mixed picture.
About 32% of firms expect to increase inventory this quarter, up from 26% last quarter. Fewer firms, 54%, expect inventories to be unchanged, versus 63% last quarter. More companies, 14%, expect to reduce their inventories, up from 11%.
The survey asked participants to rank their business concerns in various categories. The top concern, at 39%, was the health of the overall economy. The second biggest was government regulation, at 33%. Labor costs were the third highest factor, at 15%. Taxes were No. 4, at about 4%.
Threats
The survey also asked executives to rank the five biggest threats to the U.S. economy.
Congressional inaction continued to top the list at 43%, up from 40% three months ago. Interest rate increases by the Federal Reserve were the second threat at 21%, down 8 percentage points from last quarter. The federal debt was the third on the list, at 21%, up from 15%. The performance of Chinese economy was the fourth concern, with 13%, down from 15%. Oil prices were the top concern for 2% of respondents, same as last quarter.
The survey also addresses housing as an element of Orange County’s economy, and 77% of respondents said they expect median housing prices to rise by up to 5% by the end of the year. About 15% expect up to a 10% increase, and 8% said housing prices may fall by 5%.
Survey respondent Steven Kaller, founder, president and chief executive officer of Ultimate New Homes Sales & Marketing Inc., a real estate brokerage in Anaheim, said a 5% increase in home prices is assured in OC.
“Demand for housing in Southern California has always been greater than the supply.”
The biggest need in Southern California is for single-family homes priced below $400,000, he said. “Most working families want to be close to work, have great schools for their kids, and live in safe neighborhoods.”
But those homes are difficult to build in the region, Kaller said, due in part to regulatory costs.
He said that about 200,000 housing permits were issued in 1983, the year he started his career. He expects about 60,000 to be issued this year.
