For the first time since the onset of the recession, business owners and executives here share a bigger worry than the overall economy, according to the latest California State University-Fullerton’s Orange County Business Expectations Survey.
That worry, cited by 36% of respondents, is government regulation, and that figure represents a sharp spike from 30% in the second quarter.
“Look, the economy is still humming along here,” said Anil Puri, the survey’s project director and a former dean of the Mihaylo College of Business and Economics. “But it’s been nine to 10 years since the economy itself wasn’t the No. 1 concern.” Puri says hopes for regulatory relief and tax reform peaked right after the election, and have steadily faded since.
Still, the quarterly OC business-expectations index checked in at an improved 93.2, up from 92.4 at the beginning of the second quarter—and the third best reading since 2002. The index ranges from zero to 100; a number higher than 50 indicates that business owners expect economic growth.
Ignoring DC Turmoil
More than two-thirds of executives who answered the survey expect their companies to boost sales this quarter, 68%, with less than 2% concerned that the top line will shrink. And 63% hope to grow the bottom line, up from 56% in the second quarter.
“Most executives are positive about their industry, their company,” Puri said.
“Given all the turmoil on the political front, it seems to have little impact on our real economy.”
Faith Freeman and her husband, Scott, share the local optimism.
Their Primal Elements Inc. manufactures and sells high-quality bath and skin care products out of a 24,000-square-foot facility in Huntington Beach and now sells internationally.
“We’re doing great in almost every market except our own backyard,” Freeman said, at a loss to explain why California consumers are a little cool to Primal’s soaps and fragrances, but in the South, Northeast, “buying California is very cool.”
2017 sales are on pace to grow 20% at the family-owned business and should top $6 million for the first time, Freeman said. She expects record profits, as well, citing improved efficiency at the company they started in 1993.
Looming Threat
The size of the companies responding to the review range from over 1,000 employees to as few as one to five workers. Big or small, the employment outlook is also sunny, with 42% of firms expecting to be hiring, up from 40% in the prior quarter. Less than 7% anticipate cutting their payrolls. But the specter of a tight labor market is looming.
Primal has ramped up to 46 employees but lately “has been really struggling to fill a receptionist position.”
OC’s May jobless rate was 3.2%, described by some as “full, full employment.” The workforce here has shrunk by nearly 20,000 since last May, according to the State of California Employment Development Department.
“At the moment, companies are not really feeling the tightness,” Puri said. “But that will be a good question for next quarter.” For now, only 11% cited labor costs as a concern, down from 13% in the second quarter.
Fed is So Yesterday
The survey always ends with a “special question” for local execs. Asked this time around what they considered the biggest threat to the U.S. economy, they returned to the same theme when asked about the biggest threat to their own businesses: the government. Eighty-four percent believe that Washington will misfire on political and economic reforms; 66% fear lawmakers won’t do enough; and 18% believe that reforms will be enacted too quickly.
Brian Ruttencutter agrees. He just left the large project-management firm Cumming Corp., where he was chief financial officer for the past eight years.
“We saw strong growth in Southern California, across the country, in all sectors,” he said. “The unknown at the federal government level, the struggles to move forward with the Trump agenda, were my biggest concern.”
Rate increases by the Federal Reserve used to rate high on the threat meter. Not here. While the Fed has hiked rates three times in the last six months, less than 7% of respondents cited Fed tightening as the biggest threat, down from 13% last quarter. The performance of China’s economy checked in at 5%, and less than 2% expressed anxiety over low oil prices.
The survey was based on responses from 63 executives in OC. Forty-seven percent of the companies employ more than 100; 29% have 20 to 100 employees; and 24% employ 20 or fewer. Puri started conducting the survey in 2000.
