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Friday, Jul 19, 2024

OC Business Optimism Falls to 11-Year Low

Half of Orange County’s businesses expect to trim their staff during the coronavirus-caused recession, though the economy will start fighting its way back to growth in the second half of the year, according to economists at California State University-Fullerton.

The school’s quarterly Orange County Business Expectations Survey (OCBX), released late last week, reports that corporate optimism is at its lowest point since the Great Recession.

The OCBX index dropped from 92.9 in the first quarter to 22.7 for the current quarter. A reading of above 50 indicates belief in future economic growth, and the index itself is a measure of the overall view of the economy.

“This is the most significant decline in the index since the Great Recession of 2008-09,” the survey’s authors noted.

“It has been very sudden and very sharp because the coronavirus took us all by surprise, including the business executives,” CSUF lead economist Anil Puri told the Business Journal on Thursday, shortly after releasing the index and survey. Puri directs CSUF’s Woods Center for Economic Analysis and Forecasting.

“We expect a very sharp downturn in the county’s economy, based on what the business executives have said,” according to Puri.

Jobless Claims Surge

Orange County business leaders’ expectations for the current quarter “collapsed” due to the coronavirus pandemic and 50% of local companies intend to let employees go, if they haven’t already, according to the survey.

Nearly 10 million people in the U.S. have filed for unemployment the past two weeks. Projections last week from Michael Gapen, chief economist at Barclays, said the national unemployment rate, which in March rose to 4.4% from 3.5% in February, could eventually surge to 13% in April.

For perspective: Orange County’s jobless rate fell to an enviable 2.8% in February, shortly before the coronavirus swept across the world, turned all expectations upside down and sent stock markets tumbling.

The local impacts are apparent across all types of businesses as massive efforts continue nationwide to control and contain the coronavirus while reducing the number of infections. Many local offices are temporarily shuttered with employees sent home to do the best they can in hastily assembled offices in spare rooms and on dining room tables.

Restaurants have been brought to a standstill, with carryout meals and delivery the only lifeline (see stories, page 1 and 18). Shuttered hotels have let go or furloughed hundreds, if not thousands (see story, page 3).

Recession Arrives

“We are in a recession right now. The first quarter is going to show negative growth—some contraction in the quarterly output,” Puri said.

The second quarter—the three-month period that started last Wednesday—“almost certainly” will show a “rather sharp decrease in total business activity and output” with stay-at-home orders and temporary closures blanketing the country, he said.

A recession is defined as two consecutive quarters of economic contraction.

“Hopefully by the beginning of the third quarter, which will be July, people will start working, going back to work at least partially,” according to Puri.

“The third quarter should show a positive in the growth column” and with the pickup continuing in the final three months of the year.

Congress approved $2.2 trillion to pull the economy out of the slump marked by fear and rampant uncertainty. The pace of recovery will depend on numerous factors, including the ability to tame the pandemic and the willingness of Americans to accept higher levels of health risk to stave off a fall from recession into an economic depression.

Outlook Plunges

The latest findings from the OCBX index said the crisis “is likely to be a longer process than anyone expected.”

The first quarter survey showed 1 in 10 firms planned to shed workers; the current survey, charting expectations through June said, “few firms intend to increase hiring” and half of businesses would likely make cuts.

The quarterly survey was conducted from March 19-31, it was sent to more than 600 area executives.

Growth, Profits

Other numbers supported the difficult, but not hopeless outlook facing OC:

• The proportion of owners, CEOs, and managers who expect overall business activity to improve or stay the same fell to 9.1% for the second quarter 2020 from 93.9% in the prior quarter.

• 20% of the executives expect significant or some growth—compared to 58% in the last quarter—in their own industry.

• 14.8% of the firms surveyed expect their sales to increase this quarter, compared to 68% in the last quarter.

• 9.3% of the firms surveyed expect to have higher profits in the next three months, compared to 60% last quarter.

“We will continue to monitor business expectations as we go through what is likely to be a longer process than anyone expected,” according to the CSUF economists.

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Kevin Costelloe
Kevin Costelloe
Tech reporter at Orange County Business Journal

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