Local company executives continued a recent run of optimism about the economy and their own business prospects going into the second quarter, according to the latest index published by California State University-Fullerton’s Mihaylo College of Business and Economics.
The index is based on a survey of 49 local executives that was conducted in the last week of March.
The latest reading showed a slight gain to 92, up from 91.5 in the first quarter and 88.1 a year earlier. It was the third straight quarter the index inched up, and it put the gauge at its highest level since the third quarter of 2013, when it hit 93.9.
A measure of 50 or more generally indicates expectation of business growth.
The survey asks for opinions on a number of economic and operational variables, including expectations for specific industries, revenue growth, profit margin and hiring (see related Addendum item, page 24).
Growth, Change
The majority of this quarter’s respondents—73%—said they expect “significant or some growth” in their own industries. That compares with 65% three months earlier. About 21% said they expect little change in their industries, down from 31%. About 6%, up from 4%, said their sectors will likely slow down.
Jerry Holdner, vice president of market research for Newport Beach-based Voit Real Estate Services, said he’s expecting a solid quarter for the commercial real estate market.
“As we enter into the second quarter of 2015, we are still seeing strong demand for commercial real estate,” he said. “With the ports back up and running, we should see a stronger-than-usual second quarter in Southern California.”
Holdner tracks commercial real estate statistics, such as property availability, absorption rates, and lease and sale prices. Voit is among the fastest-growing private companies with headquarters in Orange County, with about $49 million in revenue for the year through June 2014, a two-year growth rate of 24%, which landed the company at No. 65 on the Business Journal’s latest list of the fastest-growing midsize companies. Voit has about 110 local employees.
Factors
Holdner said factors such as “a decrease in the amount of vacant and available space on the market, even with new product being delivered,” plus positive absorption and higher occupancy costs, are expected to continue to help the market improve.
The survey asked executives about their hiring plans, and results show some firms that had been hesitant to make changes to their workforces early in the year have started planning hires.
About 52%—versus 43% last quarter—said they intend to increase headcount this quarter. The proportion of firms that plan on making no changes dropped from 53% to 44%. Those likely to make job cuts stayed at 4%.
Sales expectations have dampened, with 71% indicating they expect growth this quarter, down from 78% in the first quarter. About 4% said they expect weaker sales, a change of sentiment from January, when no survey participant anticipated lower sales.
Profit expectations largely stayed the same. About 63% of respondents said they project higher earnings in the next three months, unchanged from last quarter. A third said they expect no change, up slightly from 31%, and 4% expect lower earnings, down from 6%.
A smaller percentage of firms are planning increased investments in inventory or equipment this quarter—31% versus 36%. About 8%, up from 4%, said they plan on reducing inventories.
‘Most Significant’
The survey also asked what executives consider “the most significant factor” affecting business. More than a third responded that government regulations were a top concern, about the same proportion as a quarter earlier. About 27% said the overall economy was their biggest concern, down from 35% last quarter. Labor costs and taxes followed at 10% each.
Expectations about California’s economic growth improved. Half of the respondents, up slightly from 47% last quarter, said they think the state will outpace the overall U.S. economy’s growth. “This is the first time since the recession started that almost a majority feel that California’s growth will be faster than that of the U.S. economy,” the report said.
About 23% of the survey pool said California is likely to lag the nationwide pace of growth, down from 31%.
