Prosperous ’86 Forecast for County : Chapman Dean Predicts New Jobs, 8% Economic Growth

Orange County should top national growth levels during 1986 with the total value of goods and services produced locally increasing by 8.1%, a full percentage point above the anticipated increase in the gross national product, according to the annual Chapman College economic forecast.

Unveiling his eighth Orange County economic forecast Thursday, James Doti, dean of the Chapman College School of Business and Management, told an audience of business people at the college that local employment levels should increase by 6.4% by the end of 1986, adding 58,000 to the employment rolls and reversing a decline in new employment rates that began after the second quarter of 1984.

Doti cautioned, however, that the 1985 increase in the basic money supply--which led him to predict improved employment rates next year--may be the result of declining interest rates draining money from less liquid reserves rather than evidence of increased consumer spending. Nevertheless, he said, his worst-case scenario still projects employment growth of 5.2% during 1986.

Service-related jobs are expected to post the greatest growth rates in 1986, posting an overall gain of 6.4% for the year. Jobs in manufacturing and other goods-producing sectors are expected to post a more modest gain of 3.3%.

Doti, who holds a doctorate in economics from the University of Chicago, led a team of Chapman College students in the creation of the school’s first economic forecast in 1978. Since then, the presentation of the forecast every December has become an annual event among Orange County’s business leaders, who count it among the crystal balls they peer into to see the coming year.

One new feature of the 1986 forecast was a survey that showed an overwhelming number of small business owners optimistic over the prospects for economic growth during the first half of 1986. Among the 200 businesses that responded to the poll, 93% believe business conditions over the next six months will either remain the same or get better.

The survey did not ask the business owners why they felt that way, said Essie Adibi, director of Chapman’s Center for Economic Research, who noted that the poll needed some “refinements.” However, Adibi suggested that owners of small businesses, like the investors who pushed the Dow Jones industrial average over the 1,500 mark on Wednesday, are optimistic about the prospects of an eventual reduction of the federal budget deficit and continued low interest rates.

In the local segment of the Chapman forecast, Doti predicted that the county will continue posting economic gains in 1986 but that most activity will be slower than in 1985.

Median family income is expected to rise steadily, from an average of $41,459 for a family of four in January to $45,753 by year’s end. Increased personal income and growth in personal bank deposits, coupled with low interest rates during 1985, are expected to boost the county’s building permit valuation rate by 12.5% during 1986 to an all-time high of $3 billion, Doti said. The record valuation he projects for next year should be divided almost evenly between residential and commercial properties.

At the same time, housing appreciation rates have dipped substantially since 1980. In adjusted terms, 1985’s 2.1% nominal increase in housing appreciation rates translates into an actual gain of 0%. The 1986 estimate of a nominal increase of 5.1% is equivalent to a real increase of only 1%, Doti said.