For the 36th straight quarter, Orange County manufacturers plan to expand output—as measured by Chapman University’s quarterly survey of purchasing managers.
“It’s a good forecast for manufacturing,” survey Director Raymond Sfeir said. “Production levels are strong, led by food processing, also aerospace and specialty electronics, machinery and medical devices.”
Managers’ expectations on production levels, new orders, commodities prices, hiring and other activities are folded into a composite index, which registered 66.2 for the second quarter, a healthy leap from first quarter’s 60.6 and well above 50, which is treading water. Manufacturing activity here is now pacing better than the state, whose index registered 63.3, per the Chapman survey.
Manufacturing here has shown surprising staying power. The county still ranks No. 5 in the U.S. for manufacturing jobs, according to “Orange County Focus,” a research brief by Chapman’s Center for Demographics and Policy Research.
Some perspective: In 2000, OC manufacturing employment was 216,950, about 15% of all jobs. By the end of last year, that was 158,642, down to 10% of the workforce, a loss of more than 58,300 jobs, or 27% of the 2000 employment base, according to Sfeir and Chapman’s Anderson Center for Economic Research.
One purchasing manager in the quarterly survey laid blame on state and local regulation. “Many new regulation … to our industry in 2018 and it’s really causing our expenses to rise.” The Anderson Center is part of the Argyros School of Business and Economics. It doesn’t disclose the names of survey respondents or companies.
The rising expenses include labor and commodities prices, highlighted by proposed tariffs on Chinese steel and aluminum. President Donald Trump wants a 25% increase on steel, 10% on aluminum.
“Commodity prices will rise at a rate not seen since the second quarter of 2011,” Sfeir said. “The tariffs haven’t taken effect, there’s going to be talks, and already prices are higher.” That’s because of futures markets and countries not under sanction that will also raise steel and aluminum prices.
Managers said supplies and commodities costs could rise as much as 15% in the second quarter, including oil, plastic and chemicals.
“Second quarter will be good, but rising prices is a worry for second half,” Sfeir said.
There are bright spots, though. One buyer in construction said the company purchased automation machinery in order to keep up with orders, added employees in several departments, and that, “Overall we see 2018 beating out our banner year of 2017.”
There’s no brighter spot than Edwards Lifesciences Corp., which employs more than 4,000 at its home campus in Irvine, about half of them in manufacturing.
“We are very proud to have manufacturing operations in Orange County,” Chairman and Chief Executive Mike Mussallem said, “proud of the local talent … teams of employees who handcraft each valve, stitch by careful stitch.”
Specialty manufacturing, the work heart-valve specialists or technicians at Edwards perform, make up the types of manufacturing jobs and companies where a high-cost county can compete. Mussallem said many of the technicians have been with Edwards for more than 30 years.
Hiring Blip
Manufacturing jobs pay and multiply well—on average in California $82,900 a year, and for every manufacturing job, 2 ½ additional jobs are created, according to the California Manufacturers and Technology Association. “[But] manufacturing activity is up here because of automation and because manufacturers have added value to what they produce,” Sfeir said, “not so much because of hiring.”
Still, there’s a very modest trend forming. In 2016 manufacturing payrolls were in the black for the first time since 2012, plus 75 jobs. Last year producers added 1,600 jobs, and this past February alone, a healthy 1,700, led by nondurable goods, according to the state Economic Development Department. Nondurables includes food, pharmaceuticals, even some apparel, such as shoes.
The purchasing managers for the nondurables companies waxed most sanguine in the Chapman survey. “A very good, borderline excellent, year for us,” one in the food industry said. The nondurable goods industries index increased from 62.8 in the first quarter to 73.4, indicating that the growth rate in the industries would be much higher in the second quarter. The new orders index jumped from 62.5 in the first quarter to 77.8, a much higher rate of growth.
“Food is very cyclical,” cautioned Sfeir.
The durable goods industries index—home appliances, cars, furniture, medical equipment—also increased but much less, from 59.8 to 63.7, still a sign durable goods producers anticipate growth in the second quarter.
Kids These Days
Respondents sounded one more alarm bell: A spike in labor costs is being fueled by a labor shortage in what’s now commonly called middle-skill jobs: machinists, mechanics, construction workers, etc. One manager at an aerospace parts maker said it’s “getting tougher and tougher to hire any good tool makers, old ones are retiring and the new generation of kids want no part of working behind a machine.”
Purchasing manager respondents to the survey numbered 358 statewide, 108 of them in OC.
