‘86 Economy Was Sunny, but With Some Clouds

It was a good year for the American economy, but it was even better for Orange County’s.

Or, as UC Irvine sociologist Mark Baldassare said, “Everything good that happened in the U.S. . . . we had better.”

And on the surface, it appeared to be an easy call: Employment was up, personal income increased, housing became more available and more affordable and most of the county residents who responded to Baldassare’s annual opinion survey said they believed that the new year would only bring them more riches.

But while things were generally upbeat for the area’s economy, 1986 also brought some of the worst business problems in Orange County history.

A record number of Orange County financial institutions failed; some of the largest employers--including Fluor Corp., Smith International and Northrop--laid off thousands of workers, and high-tech companies such as Helionetics, ATV Systems and CompuSave sought the protection of bankruptcy court.

Averages Hide Problems

“The averages can mask some important changes,” said James Doti, dean of the business school at Chapman College and architect of an econometric model of Orange County.

What the averages tend to hide is that despite its overall strength, Orange County is not immune to nationwide problems.

The oil services industry here suffered right along with its kin in Texas. And high-tech manufacturers in the county were just as depressed as those in the Silicon Valley.

What offset the loss of jobs in the defense, manufacturing and energy segments of the economy was a booming services sector.

With the aid of continuing low-interest rates, the county’s financial institutions, retailers and housing-related businesses excelled during 1986 and look to perform well again in 1987.

Hotels and tourist attractions in Orange County stayed near the record attendance and occupancy levels they attained in 1985.

But even within the service sector, some Orange County businesses suffered from nationwide problems. Restaurant chains such as Carl Karcher Enterprises, Naugles and Rusty Pelican saw the same increased competition and drooping consumer demand that was reported nationally. And for several large medical service companies, including Westworld Community Healthcare and Comprehensive Care Corp., the national trend toward medical cost containment reduced patient loads and ate deeply into earnings.

Still, area businessmen are expecting a generally strong year for Orange County in 1987.

Key industries are expected to thrive on continued low inflation, low-interest rates and the lower federal tax rates that begin to take effect next year.

Interest Rate Factor

“Home building . . . really drives the economy here,” said John Hollenbeck, managing partner in the Irvine office of the accounting firm of Coopers & Lybrand. “If interest rates stay where they are, it could be a real good year,” he said.

But there are some clouds on the horizon.

Dick Ayer, a vice president in the economics department of Security Pacific National Bank, said that some segments of the construction industry will slow, especially office buildings and apartments.

Manufacturing, defense industries and oil services likely will remain soft in 1986, again counterbalancing growth in the service sector.

Ayer said he believes that while the county’s economy will grow in 1987, it will do so at a much slower pace than in past years. Employment, for instance, grew at just 2% in 1986--down from 4% to 5% in the prior three years--and could slow still more in 1987.

And at least one local banker is betting on the nationwide cyclical trends in the economy rather than on Orange County’s inherent strength.

“We’re still making lots of (business) loans, but we’re being more selective,” said Philip Inglee, president of Liberty National Bank in Huntington Beach.

Inglee said he is positioning the bank for what many economists believe will be a recessionary phase of the current five-year economic cycle.

And though he has not seen any customer weaknesses yet, “we’re now more concerned with longevity, cash flow and (are) looking for more security.”