Orange County executives are heading into the new year with a fresh dose of optimism, while they’re still keeping a wary eye on the how political turmoil in the nation’s capital may affect their companies, California State University-Fullerton economists said in their latest business expectations survey.
“The concerns that businesses had in the second and third quarter of the year have dissipated,” Fullerton lead economist Anil Puri told the Business Journal late last month.
“They’re feeling pretty optimistic about this coming year.”
The Orange County Business Expectations Survey for the first three months of 2020 rose from 90.9 to 92.9 in the final quarter of last year.
Fifty OC executives in late December responded to the OCBX survey, in which a reading of above 50 indicates expectations of future growth in the economy.
Political Scene
While up from a quarter ago, the CSUF researchers noted that the “value of the index is still below the levels of the last two years and [readings have] been fluctuating for the last four quarters—reflecting the uncertainty of the late business cycle and of the political scene.”
In addition, OC businesses are likely to be hit by a general slowing of GDP expansion this year.
The uncertainty also includes worries that infighting in Washington, D.C. will hinder the economy, continuing a trend the researchers also emphasized in October.
In the latest survey, respondents said “political turbulence” remained the No. 1 threat to the U.S. economy, while tariffs and trade negotiations remained in second place on the list of concerns, the economists said.
The quarterly survey was conducted before President Donald Trump ordered the killing of Iranian General Qassem Soleimani.
China Agreement?
“Trade with China, we expect, is going to be continuing to be subject to uncertainty, even though it might get a little better with this presumed agreement that is going to be signed soon, a preliminary agreement,” Puri said, though he emphasized there will be stress even after the deal is done.
Trump has said he expects Phase 1 of the deal to be signed shortly.
Survey respondent Tim Goff, vice president for commercial operations at hardware and home improvement company Spectrum Brands HHI, says he is also looking for a trade agreement with China.
“If a full trade deal can continue to be brokered with China, [I] believe the stock market will react favorably, which in turn should help consumer confidence particularly here in OC,” Goff told the Business Journal.
Goff said his company, which employs about 450 people in its Lake Forest headquarters, is looking to 2020 with “cautious optimism.”
Significant Growth
The proportion of owners, CEOs, and managers that expect overall business activity to improve or stay the same increased to 93.9% for the first quarter of 2020, up from 90.5% in the fourth quarter 2019, according to the expectations survey.
Some 58% of the executives expect “significant or some” growth in their own industry, compared to 54.6% in the last quarter.
Puri, director of the university’s Woods Center for Economic Analysis and Forecasting, also says “housing has recovered from another dismal performance at the beginning of 2019 because of low mortgage rates.”
He foresees the sector continuing to improve at a “moderate pace.”
Survey participant Rick Hoegler, president of Pan American Properties Inc., summed things up this way: “We’re in the property management business so as long as the economy continues to do well, we will as well, and see no issues as to the first quarter of 2020.”
Hoegler told the Business Journal he and his Tustin-based company, which counts 146 OC employees, are heading into 2020 with optimism.
Employment Increase
Puri says “firms that intend to increase their employment have gone up by 4% roughly, while a “small percentage” plans job cuts.
Finding new workers remains a key challenge.
“We, like other service providers, will ultimately be limited by the shortage of talent given the extremely low unemployment rates,” says Wayne Pinnell, managing partner at accounting firm Haskell & White LLP of Irvine and San Diego.
His company, OC’s No. 17 accounting firm last year by size, counted about 85 employees in OC with more starting early this year, he told the Business Journal.
Last year’s worries about a possible national recession are fading quickly into memory, but Puri cautions that won’t last forever.
“The absence of any reason for recession, we conclude, is a good reason to assume that there is none coming in the near term,” Puri said.
Still he cautions: “There will be one—one day.”
Hotter Analytics
Dean Stoecker, CEO of Irvine-based data analytics software company Alteryx Inc. (NYSE:AYX), says optimism in the technology sector remains high—in certain submarkets.
While “most research firms indicate a slowdown in IT spend from businesses, we do not see any such slowdown in the hotter analytics software space,” Stoecker told the Business Journal.
Alteryx is one of Orange County’s most closely watched technology firms; the firm counts a market cap of $7.3 billion, and is moving to larger offices in Irvine later this year to accommodate more growth.
“While OC, along with the broader national economy, has been in a 10-year bull run, it’s hard to believe it can continue for too many more quarters,” Stoecker said late last month by email.
“That said, we also appear to be more resilient than other global markets so perhaps this run can continue for a few more quarters.”
—Kevin Costelloe
OC Businesses Looking to Higher Profits
California State University-Fullerton economists led by project director professor Anil Puri have released their quarterly outlook for the Orange County economy for the first three months of this year. Here are some of the key findings at a glance:
• The business expectations index rose from 90.9 to 92.9 in the final three months of last year.
• The proportion of owners, CEOs, and managers who expect overall business activity to improve or stay the same increased to 93.9% for the current three-month period from 90.5% in the fourth quarter of 2019.
• 58% of the executives expect significant or some growth, compared with 54.6% in the last quarter.
• 42% of firms surveyed intend to increase their labor force, compared with 38.2% in the last quarter.
• 60% of the firms surveyed expect to have higher profits in this three-month period, compared with 40% last quarter.
• Politics in Washington, D.C., remains the No. 1 concern at 46% compared with 38.5% previously.
• Over 76% of the respondents believes that there is 20% or less chance of a recession by the end of 2020, compared to 60% last quarter.
The Fullerton survey of OC business executives was conducted from Dec. 16 to Dec. 23. Fifty executives responded for a response rate of about 7.5%.
—Kevin Costelloe
