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OC Execs Flex Their Optimism in Q3 Survey

Orange County executives expect the regional expansion to keep going in the third quarter. In fact, they pushed the optimism needle into the red. According to California State University-Fullerton’s Orange County Business Expectations Survey, the composite index touched an all-time high of 98.1, a decent pop from the second quarter’s 94.4.

The survey measuring hiring, sales, purchasing, capital investment and profit forecasts of local business owners and senior executives had been speaking to more modest growth just last year, 88.2 for the fourth quarter. But the spurt to a record level in the third quarter follows 95.2 and 94.4 readings in the first two quarters of the year, the highest sustained readings of the expectations gauge since Project Director Anil Puri of the Woods Center for Economic Analysis and Forecasting has been canvassing industry leaders small to large. The center is part of CSUF’s Mihaylo College of Business and Economics.

“Executives are still very optimistic about the economy,” Puri said. “In fact, on the list of their concerns, the overall economy has come down—they’re more concerned about regulations, which has more to do with Congress and the legislature.”

Seventy-three percent of owners and execs see sales rising in the third quarter, compared to 67% in the second quarter. And 65% predict a profits boost, versus 57% just three months ago.

“It’s basically been a great 10-year run,” said Rick Hoegler, the second-generation boss of Tustin-based property manager Pan American Properties Inc., which manages over 3,000 apartment units.

Pan American, which also manages industrial, office and retail, now does about $7.5 million in business and employs about 125. Both are records for the 35-year-old company.

But business isn’t about driving in the rearview mirror. “We’re already overdue for a correction,” Hoegler said.

“We have to get smarter.”

Price Perils

On all six of the survey’s business metrics, companies here are far and away in expansion mode this quarter. By margins of 10-1 or better, they’re looking to boost payrolls, inventories and capital investment.

“The acceleration of depreciation schedules, that’s going to be a big deal,” Hoegler said, pointing up a feature of the Tax Cuts and Jobs Act of 2017.

Respondents’ plans to add to payrolls dipped slightly to 47.1% versus 49.0%; less than 4% say they plan to cut jobs.

The bigger issue may be filling the openings, as the county’s jobless rate fell in May to a 19-year-low of 2.6%.

“There’s wage pressure, for sure,” Hoegler said. “And wages are just part of the inflation picture. Ask any property manager, there’s increases on pretty much what everything costs.”

Hoegler’s company also owns a piece of some of its apartment complexes but anticipates that sales transactions will slow. “Everyone thinks their sow’s ear is worth a million dollars now,” he said. “And with a strong economy and low unemployment, who wants to sell?”

Survey director Puri said he’s concerned about rising short-term interest rates, and something that used to be a chief concern in the survey: the rising level of U.S. debt. He pointed to a Congressional Budget Office analysis last week that projected a $15 trillion deficit by year-end. “It will be 105% of GDP in 10 years,” the economist said. “And that’s the highest level since World War II.”

The stock market’s been wobbly for most of the year, the recent worries being attributed to a brewing tariff war. Puri said some of his survey’s respondents think the U.S. stiffening its position on trade could yield long-term benefits, but “really they are split, and feel that companies here will be hurt in the short run.”

Method Used

The survey was based on responses of 58 senior-level OC executives, a 7% response rate of the 400 to 450 queried. Thirty percent of responding companies employ 20 to 100, 30% 100 to 1,000, 31% 20 or fewer, and 13% more than 1,000. Puri started conducting the survey in 2000.

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