ECONOMY: Q2 outlook highest in two-plus years
By Murray Coleman
Sunday, April 4, 2010
Orange County executives have turned solidly optimistic in their outlook for the second quarter, shaking off some two years of negative expectations about the economy, according to economists at California State University, Fullerton.
A quarterly index of business expectations is at 65.2 for the second quarter, marking the fifth straight gain since the low of the recession in early 2009.
An index reading of 50 or more signals a positive outlook for the quarter.
The reading is up from 53.3 for the first quarter, which was the first in positive territory since the third quarter of 2007.
“This represents a definite turning point in the local economy,” said Anil Puri, dean of the Mihaylo College of Business and Economics at Cal State Fullerton. “This shows expectations are for continuing better news on the overall business environment and unemployment in the second quarter.”
The index hit a low of 15.2 for the first quarter of 2009, just after the financial meltdown that started in late 2008.
Its high of 94.9 came in the third quarter of 2004.
The index, based on a survey of executives, professionals, managers and business owners, is designed to be a leading indicator of quarterly economic activity.
Respondents were upbeat in just about all areas, even employment—a laggard in the county’s fledgling economic recovery.
In February, the county’s unemployment rate was 9.7% as employers shed 53,000 workers, a 3.8% decline from a year earlier, according to the state Employment Development Department.
Some Hiring
Respondents said they expect some improvement in jobs this quarter. About a fifth, 22.3%, said they plan to increase hiring.
That was up from 20.2% in the first quarter.
The vast majority of respondents, 61.2%, said they plan to keep their workforces steady. That was down from 65.8% for the first quarter.
The numbers tell only part of the story, according to Puri.
“We really saw very little change in sentiment readings right now for employment growth,” he said. “But additional feedback separate from the surveys and other data that’s starting to come in indicates growing sentiment that employment will pick up in the second quarter.”
Most respondents said they now expect an improved or at least stable economy, both locally and across Southern California.
That number, 81%, rose nine percentage points from a quarter ago to the highest positive sentiment toward overall economic activity in two years, according to the survey.
“We’ve seen a real turnaround in the economy,” said survey respondent Rick Lenning, vice president at electronics maker American Relays Inc. in Santa Fe Springs. “We’re at the leading edge of economic change since we manufacture electronic components that go into process control and testing equipment.”
The company’s customers, many of them in OC, “usually start investing in their businesses first before we see a general improvement in the businesses they supply,” Lenning said.
American Relays is coming off a “dismal” 2009, he said.
“But in December, we saw a real upsurge in our orders,” Lenning said. “It has gotten better each month since then. We’re seeing increased momentum in the marketplace.”
Still, business owners and executives remain cautious in their optimism. About a third, 34.5%, said they expect significant growth in their own industry, unchanged from the first quarter.
Small Businesses
Things remain tough for smaller businesses, said Greg Arbues, a Santa Ana-based consultant to businesses with yearly sales of $5 million to $25 million.
“It’s still a struggle to meet fairly modest expectations, said Arbues, who runs Client Advocate Network LLC. “Credit is still tight and taxes from healthcare and other government mandates are still major issues for many small-business owners.”
Bigger companies are benefiting from a freeing up of credit and government stimulus projects, he said.
“So they might be feeling more positive than small-business owners in Orange County,” Arbues said.
Still, fewer executives seem to be worried about a downturn. At the start of the first quarter, more than a quarter, 26%, predicted some decrease in their businesses.
That fell to around 22% for the second quarter.
Some 43.3% of respondents said they believe their segments will continue to at least hold steady this quarter, up from 38.9% for the first quarter.
