Slower Economic Growth Forecast
The rate of economic growth in Orange County will probably slow during the second half of this year as the effects of tightened federal monetary polices are felt, according to Chapman College’s mid-year forecast.
Job growth, which had been expected to rebound during the final half of 1987, is now expected to continue dropping through the year’s end, said James Doti, dean of Chapman’s Business School and author of the report. In fact, the rate of growth in Orange County employment could fall from the 3% level to an annualized rate of just 1.5%--close to the national average, he said. Typically, Orange County job growth is several times greater than the national average.
And while Orange County’s median family income of $43,500 is far higher than the national average of $29,000, the rate of income growth has slowed to 1.4% annually, less than the national average of 1.6%, Doti said.
“The biggest change was the Fed tightening” of the money supply, said Doti about his more pessimistic view of the area economy. “If the Federal Reserve does not alter its (policy), a recession is certain in 1988.” And that recession, if it occurs, would hurt Orange County as much as anyplace else in the nation, Doti said.
He said, however, that he believes that Alan Greenspan, who has been nominated by President Reagan to replace retiring Fed Chairman Paul Volcker, will ease monetary policy--making credit more available and less expensive.
A local factor that also is having a negative impact on the economy is the drop in construction, Doti said. The value of new construction, as measured by building permits sought, will probably fall by 11.6% this year--or by about $400 million, to $2.9 billion, Doti said.
Dependence on Real Estate
“Orange County is much more dependent on real estate development” than other areas of the nation, he said.
Still, Doti was quick to add that the decline will be from a record level, following an unprecedented four consecutive years of increased building activity. Most of the reduction will be in non-residential construction such as office buildings, he said.
Housing prices are expected to climb by about 7% this year and, when compounded by increasing interest rates, should lead to an 8% drop in home sales, Doti said.
The increasing costs of housing are one factor contributing to the slowing growth in median family income locally, Doti said. As housing becomes more expensive, manufacturing firms are increasingly moving to the Inland Empire cities of Riverside and San Bernardino and to Pacific Rim countries.
And that takes relatively high-paid and skilled workers out of the Orange County economy. At the same time, the typically low-paying service sector--characterized by tourist attractions, restaurants, hotels and retail stores--is taking the place of manufacturing.
But overall, Doti is more optimistic than many economists. Even though his study points to a slowing of the local economy, he has yet to forecast an absolute downturn in job and income growth.
On the positive side, Doti said there are several factors that should keep Orange County growing: tax reform, the opening “new frontier” in the south county area and the outlook for expanded international trade. “Foreign trade is the engine that will drive Orange County . . . over the next five to 10 years,” Doti said.
