A Question of When : Panel of Economic Experts Believes Recession Is Coming, but They Can’t Agree on Timing

A national recession that will depress Orange County’s economy appears inevitable, a panel of Southern California economic authorities agreed Thursday, but the timing of its arrival and the extent of its impact are uncertain.

A newly issued report by the Center for Economic Research at Chapman College, meanwhile, predicts that employment growth, the principal measure of Orange County’s economic activity, will drop sharply in the first half of 1988.

Lower employment, which precedes other signs of a declining Orange County economy by three to six months, greatly increases the risk of a recession, said economist James Doti, dean of Chapman’s School of Business Management.

Doti, one of several participants in an economic outlook conference sponsored by the Orange County Chamber of Commerce, said he expects the recession to begin sometime in 1988.

Another report distributed at the conference by economists at First Interstate Bank forecasts a recession in 1989 of “slight-to-moderate” magnitude that will affect Orange County by decreasing home construction, slowing personal income growth, boosting the unemployment rate and increasing the consumer price index.

Orange County housing construction, which is expected to climb by 9.4% this year, will fall 5.8% in 1988 and plunge 18% in 1989, according to the First Interstate report.

The report predicts that employment growth, which is expected to increase 4.7% during 1987, will rise by only 3.7% in 1988 and 1.9% in 1989. Personal income will increase by 9% this year, 9.7% in 1988 and 7.7% in 1989, the report projects.

And a five-county Southern California price index, which is expected to increase by 4.1% this year, will rise by 5.6% next year and 6.2% in 1989 as the rate of inflation gradually picks up, it was predicted.

While Doti said a recession will lead to the failure of many Orange County firms, other economists noted that the county may fare better than other areas because of its many technology firms. Those companies, they said, will be less affected by the downturn than capital goods manufacturers located in other parts of the country.

Although Doti said a recession will be “very difficult” to avoid in 1988, he said it might be delayed if the stock market recovers from its recent record-shattering decline or if the Federal Reserve Board lowers interest rates by increasing the supply of money.

But the Fed’s dollar pumping might make the recession even more severe, he said.

“The bears on Wall Street are going to be replaced by chickens in the consumer marketplace,” Doti said.

Kathleen Cooper, chief economist at Security Pacific National Bank in Los Angeles, told Orange County business leaders attending the conference that the stock market crash served notice on the nation that investors are preparing for a recession.

But, she said, “there have been major stock market falls that weren’t followed by a recession. . . . I still think there’s a pretty good chance we can get through 1988 without one.”

Cooper, who predicted that the U.S. economy will grow by 2% next year, said that falling stock prices have increased consumer fears that a recession is nearer than economists had predicted only months ago.

Cooper said Security Pacific’s estimate of the economy’s growth rate was lowered by half a percentage point following the record 508-point plunge in the Dow Jones Industrial Average on Oct. 19.

But, she said, there is a “good chance” that the nation can get through 1988 without a recession. While the stock market crash reduced the net worth of many investors, most Americans are more concerned about “whether they have jobs” than about stock prices.

In Orange County, at least, jobs remain plentiful. September’s unemployment rate of 3.3% is one of the lowest in the state and in the nation.

Panel member Sanford Goodkin, executive director of Peat Marwick/Goodkin, a San Diego-based real estate consulting group, said the stock market’s collapse has signaled a probable decline in U.S. employment.

In New York City alone, Goodkin said, as many as 46,000 investment community jobs may be jeopardized by the market debacle.

Goodkin said businesses should base their future plans on a “what-if” scenario that assumes the economic climate will soon sour.

“A lot of businesses are going to fail,” Goodkin said. “A lot will fail because they haven’t learned from the past.”

Cooper added that businesses generally should carefully review large purchases. “You don’t cut your spending, but if you are going to buy a new computer system, you must buy carefully,” she said.