Orange County business owners and executives enter this year with a level of optimism at a 15-year high, according to the California State University-Fullerton’s Orange County Business Expectations Survey.
The index rose to 97.9 for this quarter, up from 84.4 from the fourth quarter and more than 15 points higher than a year ago.
The index is at its highest point since 2002, said Anil Puri, project director for the survey and dean of the Mihaylo College of Business and Economics at CSUF, in an analysis of survey results.
The index ranges from zero to 100; a number higher than 50 indicates that business owners expect future growth in the economy.
The current survey was based on responses from executives at 37 businesses in Orange County, a group that was surveyed in the weeks after the election of Donald Trump, who will be inaugurated this month. About 43% of the enterprises employ more than 100; about 41% have 20 to 100 employees; and the remaining 16% employ 20 or fewer.
Almost all respondents, 99%, expect overall business activity to “improve or stay the same” in the next three months. Only 91% felt the same way in the previous quarter, and 89% held the same opinion a year ago.
“The overall economy has been steadily improving,” Puri said. “We started January a little bumpy, but the second half of the year was very positive, with several million new jobs added nationally.”
The U.S. added about 2.6 million jobs in November, and the unemployment rate dropped to 4.6% from 5% year-over-year.
OC added 38,300 jobs for the same period to employ 1.6 million, with an unemployment rate of 3.7%, according to the most recent report by the state Employment Development Department.
“Consumers felt better about their jobs and salaries, and they started to release some pent-up demand,” Puri said. “Combined with the new administration’s plans for infrastructure spending and tax cuts have created the perfect recipe for enthusiasm in the business sector.”
Executives were markedly more cautious about their own industries—59% said they expected significant or some growth in their sectors, while about 54% felt the same way in the last quarter.
None of the respondents predicted decreases in their industries, down from 8% in the previous quarter. About 41% of firms said they believe that their own industries will remain stable, up from 39% in the final quarter of last year.
More Jobs
About 35% of respondents indicated plans to increase their staffs, up from about 25% the prior quarter. About 3% of companies expect to cut jobs, compared with about 9% in the prior quarter. About 62% of companies expect no change in their labor forces, compared with 66% in the previous survey.
Many more respondents—65% versus 44% in the prior survey—said they expect their sales to increase. About 35% expect little change in sales, down from 43% in the prior quarter.
None of the respondents said they expected lower sales in the next three months, while 13% of firms held that outlook for the most recent quarter, which included the holiday season.
More business owners, 58%, expect higher profits this quarter compared to 37% in the prior survey. About 31% expected no change in profits, down from 46%, and 11% expected lower profits for the next three months, compared to about 17% in the last quarter.
Ed Laird, president and founder of Coatings Resource Corp. in Huntington Beach, said he’s already gotten a lift that points to a strong first quarter. The maker of paints and coatings used to manufacture automotive parts, televisions, and various consumer goods kept his operations running during the holiday season to meet customer demand.
“We’re usually closed for the holidays and take that time for maintenance work, but (December) has been a record-breaking month for us in revenue across the board,” Laird said. “We’re seeing a lot of manufacturing companies returning to Southern California (from overseas) because of quality issues. “We have a lot of regulations, but (customers) understand we are willing to work harder to provide the quality products they need.”
About 22% of respondents expected to see increases in inventory and investments in equipment this quarter, down from 32% in the previous quarter. More companies, 67%, expected no change compared with 54% a quarter earlier. And 12% of firms forecast a decrease in inventories, down from 15% that projected a similar move last quarter.
Concerns
The most significant factor affecting expectations was the state of the overall economy, according to 32% of respondents, down from 43%. Government regulation was the next-largest concern, with 30%, down from 20%. Labor costs were the third highest concern, with 16%, about the same as the previous survey. Taxes were the fourth-ranked concern, cited by 8% of those surveyed.
The survey asked two additional questions for further insight into business owners and executives’ concerns about the economy.
The biggest threat to the economy are interest rate increases by the Federal Reserve, according to 33% of respondents, up from 28% the prior quarter. Congressional action or inaction was next at 31%, down from 46%. Firms ranked federal debt payments third, with 25%, up from 11%. Concerns about China’s economy were fourth at 8%, down from 11%.
The survey also asked executives about their positions on trade policies.
A predominant number of firms, 68%, said they wanted the North American Free Trade Agreement to be renegotiated; 21% wanted the Trans-Pacific Partnership ratified; and 15% of respondents supported a tariff of 45% on Chinese imports.
About 6% of firms wanted to discard NAFTA, and the same percentage of respondents supported a 35% tariff on cars imported from Mexico.
There was no support for a 35% blanket tariff on imports from Mexico.
“Business executives see the value in NAFTA, but they want a tightening of a few trade issues (with Mexico),” CSUF’s Puri said. “Business owners want to see better intellectual property protections, better safety requirements for workers, and a more balanced field between American and Mexican markets.”
