For the 37th straight quarter, Orange County manufacturers plan to expand output, according to Chapman University’s A. Gary Anderson research Center’s quarterly survey of purchasing managers.
“It’s a decent forecast for manufacturing,” survey Director Raymond Sfeir said. “Production levels are still strong, led by 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 61.2 for the second quarter, a worrisome drop from first quarter’s 66.2 but still well above 50, which is treading water. Manufacturing activity here is now pacing slower than the state, whose index registered 63.0.
The sector has shown surprising staying power. The county still ranks fifth 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, it 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.
The county has done well in a high-cost, high-regulation, high-tax environment to hang on to so many manufacturing jobs—which bring what economists term a great multiplier effect. For every new manufacturing job, 2 ½ additional jobs are created, according to the California Manufacturers and Technology Association. Veteran economist Sfeir has noted before that automation limits the labor-multiplier effect, but it’s been one of the bright spots, along with specialty manufacturing, enabling a challenged sector to hold its own.
Edwards Lifesciences Corp., which employs more than 4,000 at its home campus in Irvine, about half of them in manufacturing, is a great example of the type of manufacturing job the county and its workforce can compete for and keep—specialty manufacturing, high value-added, like the work heart-valve specialists and technicians there perform.
Sfeir said the bad moon rising in this survey relates to employment costs and commodity prices. “A large number of respondents have commented on the tight labor market that is resulting in higher starting wages, Sfeir said. “Many others have also mentioned the sharp rise in aluminum and steel prices at the same time that supplier deliveries are slowing further.”
One respondent who’s in charge of purchasing at a transportation equipment builder said, “Aluminum & stainless steel prices have jumped higher than anticipated over the tariffs. The 80% to 100% is just price gouging us buyers. Hopefully the prices will readjust downward by the fourth quarter.”
Commodity prices are going up very fast—aluminum and steel are among the steepest increases, said a buyer of fabricated metal products. “Insurance is our biggest problem with medical costs going up 19%. We’re losing money each month due to costs we have no control of.
Despite the impediments, at an index of 61 to 63 for the state, more manufacturers are growing their businesses than are contracting.
“We have seen a surge of business, which is a welcomed change. After many months of slow or no growth, this quarter has turned around nicely.”
New Threats
In the June labor report by the state Economic Development Department, the jobless rate jumped to 3.3%, still third-best of California’s 58 counties. Manufacturing employment fell over the past 12 months by 3,800.
The prospect for makers of nondurable goods took a hit. The segment index fell from Q2’s 73.4 to 60.5. Nondurable goods are everything from food to cosmetics to clothing and footwear, and many are in cyclical businesses. Last quarter, purchasing managers at nondurables companies waxed sanguine in the Chapman survey.
“A very good, borderline excellent, year for us,” one buyer in the food industry said. The nondurable goods industries index increased from 62.8 in the second quarter to 73.4.
“Food is very cyclical,” cautioned Sfeir. Good green and yellow flag by the economist.
And in the past few months, manufacturers and their trade group, California Manufacturers, have been sounding new alarm bells over, what else, a new type of litigation: climate-change suits.
La Habra Mayor Tim Shaw said the suits are the latest slap at manufacturers here, pushing them to expand out of state. Huntington Beach Mayor Mike Posey likened them to old-fashioned legal “shakedowns.” Fourteen filed against manufacturers so far, eight of them in California.
Going Forward
The purchasing bosses expect a better fourth quarter; many of their businesses are seasonal. “We have a seasonal outdoor pillow-cushion business. The above (slowdown) reflects the end of the 2018 season. Later this year we will ‘ramp up’ once again,” said one survey respondent.
That’s if those middle-skills workers can be found—machinists, mechanics and technicians—to facilitate ramping up. No small feat.
“Finding the right candidates to fill jobs is getting more difficult,” said an executive at an aerospace products and parts maker.
And then the frets return to rising commodity prices, rising faster now during the tariff tussle.
“Raw material prices are rising in China. No secret there.”
Purchasing-manager survey respondents numbered about 360 statewide, 110 of them in OC.
