Orange County Consumers Take Cautious View

Orange County consumers have become increasingly cautious about the economy over the past 18 months and are less inclined than in the past to make major purchases, according to a survey conducted for The Times.

Orange County consumers surveyed in March were considerably less sanguine about the financial future than they were in September, 1987, according to results of a five-question consumer confidence survey conducted for The Times by Mark Baldassare & Associates, an Irvine polling firm.

Even so, county residents remain more upbeat than their counterparts statewide and nationally, in large part, economists say, because of their relatively high incomes. Orange County’s median annual family income is about $45,000, one of the highest in the nation.

The poll of 600 residents has a 95% confidence level and a 4% margin of error, meaning there is a 95% probability that the answers to the five questions are within four percentage points of what they would be if every resident of the county had been queried.

The March poll reflects changes in consumer attitudes since the stock market collapse in October. It shows, among other things, that only 67% of Orange County residents believe that this is a good time to make major purchases, such as a new car, in contrast to 78% in September, 1987, and 83% in September, 1986.

A poll for another newspaper by Baldassare & Associates in November, 1987, just one month after the market crash, showed an even steeper decline, with only 56% of respondents confident that it was wise to make major purchases. That reading, however, reflected an element of panic in the immediate aftermath of the crash, Baldassare said. He said the March, 1988, poll is a more realistic assessment of consumer confidence.

A statewide consumer poll in February found that only 57% of California residents believed then that it was a good time to make major purchases. But a national poll conducted by the University of Michigan in January found that 72% of the respondents thought that it was the right time to buy big-ticket items.

The Orange County Consumer Confidence Index, reflecting the value of answers to all five questions, dropped to 100 in March from 104 in September, 1987, and 109 in September, 1986. The index charts confidence levels, with 100 being the base level for the nation and numbers above or below the norm showing increasingly optimistic or pessimistic outlooks.

The local index and survey questions are based on a national survey that has been conducted by the University of Michigan’s Institute for Social Research since 1946. The university’s national consumer confidence index, which uses 1966 as its base year at 100 points, hit 91.0 in January, the last month for which figures were available.

Baldassare, a professor of social ecology at UC Irvine, has been conducting polls in Orange County since 1982--both for the university and, through his outside company, for private clients.

Dip Called Significant

He said he believes that the dip in consumer confidence locally is significant because it extends back 18 months.

“It reflects a decline in income growth over the last year, plus concerns about the national economy that were spurred by the stock market crash,” he said.

But the lowered confidence levels don’t point to a recession, Baldassare cautioned. “They just show that people are in a cautionary mode, that they’re thinking of a possible recession next year.”

Several economists, including Adrian Sanchez, associate economist and California economic specialist for Security Pacific National Bank, agreed with that assessment.

“We are not looking for consumers to retrench and pull the economy into a recession,” Sanchez said. “We are just falling from a very high level of consumer confidence to more realistic and sustainable levels.”

The increase in consumer spending slowed to an annual rate of 1.9% last year after four years of near-record growth rates: 4.6% in 1983, 4.8% in 1984, 4.6% in 1985 and 4.2% in 1986, according to federal statistics.

Belief in Local Economy

Several county residents who did not participate in the consumer confidence survey expressed a sense of caution about the national economic scene and a relatively strong belief that the local economy will outperform the nation’s.

Judith Resupek of Irvine, one of several people interviewed separately by The Times, said she believes that “bad times are coming” for the national economy “because of the loss of competitiveness by U.S. industry.”

Resupek and her husband, who are employed in the electronics industry, make more than $60,000 a year. Both work for companies with extensive dealings in Japan and other Pacific Rim countries.

For that reason, she said, she is comfortable that her family’s income will be protected in coming years. “I’d make major purchases now because we both feel secure in our positions,” Resupek said. “But I don’t know that I’d think this way if we were in other businesses.”

She said she believes that “a lot of good business is going offshore. Americans can’t compete because we like living well. Maybe if we could export some of our decadence to the hard-working Asians we’d be better off.”

For Amy Duquett, an account representative with AT&T;, personal circumstances that have little to do with the economy are responsible for her reluctance to make large purchases. She said she recently was divorced, and her family income has been slashed by more than 50% to less than $35,000 a year.

“But unemployment is low, and I think the economy is going to be all right,” Duquett said. “I really believe that the job market and living conditions are what you want to make them. I was unskilled when I got divorced, but I went out and got the skills and got a good job.”

The fact that it is presidential election season makes forecasting the future difficult for Robert Uribe of Huntington Beach, a retired Los Angeles police force detective who said his income is less than $40,000 a year.

Uribe said he sees “nothing wrong with the economy right now, although there is controversy on both sides of the issue” as economists argue over whether the nation is heading into a recession.

“The trend to me seems to be that things are going good and that inflation is nicely under control,” he said. “There is no reason that the bottom should suddenly fall out, but it all depends” on the economic policies of the next administration.

Judy Gery of Yorba Linda said she and her husband would have no qualms about making major purchases now. But her reason was qualified: now is a good time, she said, “because interest rates are low, and they are going to go up,” a development that would make large purchases more expensive.

Gery, whose family income is more than $60,000 a year, said she has a lot of confidence in the Southern California economy because of its diversity. But she said she believes that other parts of the nation don’t share this strength. Like 63% of survey respondents, Gery said she believes that the national business climate will deteriorate somewhat over the next five years.

Baldassare said he does not expect the Orange County consumer confidence index to rise in coming months “because of the slowdown in income growth locally and because of other local concerns . . . (especially) the kind of employment growth we’ve been having. The growth is in clerical and retail jobs, not in the higher-paying, more stable professional occupations.”

In the consumer confidence survey, 62% of the respondents said they believe that they are doing better financially than they were a year earlier, a figure unchanged from September, 1987. And 56% said they believe that their financial condition will improve even more in the next 12 months, down from 63% in September.

A scant majority of 52% said they believe that the economic climate will be good for business over the next year, compared to 67% in the September poll. And only 37% said they believe that business conditions will be good over the next five years, down from 46% in September.

Sanchez, the Security Pacific Bank economist, said the March figures show that there continues to be a “great amount of uncertainty by business and consumers” in the wake of the stock market crash.

“Indicators now are mixed,” he said, “and there is still an unsettled feeling. People are saying ‘we have to be more cautious.’ While various business groups say they feel their industry will continue to do well, they all have developed if-the-other-shoe-drops contingency plans.”

Sanchez said he tends to agree with Baldassare’s assessment that consumers still are not seeing enough positive signs to increase their confidence this year.

But several economists are at odds with Baldassare over that reading.

“The timing of this (Orange County confidence survey) is ironic,” said Duane Paul, a Bank of America economist who studies the Orange County economy.

Until late 1986, almost all of the real growth in the gross national product--a key measure of the nation’s economic health--came from consumer spending and housing, said Paul.

“For several years, we were spending like crazy,” he said. “But in the first three quarters of 1987, consumer spending only accounted for about 55% of total GNP growth, and in the fourth quarter a drop in consumer spending actually subtracted from GNP growth.”

Paul and several other economists said consumer spending and consumer confidence are directly linked.

Paul said that GNP has continued to grow despite the shrinkage in consumer spending and that this growth comes from international trade, the import and export of both goods and services.

“This underlies a shift away from a consumer spending-based recovery to a production-based recovery,” the Bank of America economist said, and that is “healthier for the economy than being totally consumer spending-dependent because we are now producing to satisfy both domestic and foreign demand, and that creates jobs.”

And the areas that will benefit most from the new job creation, Paul said, are those that are affected by patterns of trade: “instrumentation, chemicals, high-tech electronics and medical goods.” All of those job sectors are represented in Orange County, he said, and that should improve employment, income and the general consumer outlook in coming quarters.

James Doti, an economist and dean of the Chapman College Business School, said the county consumer confidence numbers “seem to echo what we see on the economic side” in the college’s econometric model of the county economy.

“Employment growth has slowed in the last couple of months, and that cuts income levels and that cuts confidence levels,” Doti said. “The stock market news also has been a real downer.”

But, Doti said, Chapman’s economists “are calling for a slight pickup in employment growth in the second half of the year, and I wouldn’t be surprised to see an upswing in consumer confidence by the end of the year.”

Thomas Durkin, chief economist for American Financial Services Assn., said consumer debt has been increasing steadily in recent months, hitting $623 billion in February for an annualized growth rate of about 10%. That, he said, is a sign of increasing confidence in the economy.

“The most important reason for spending declines last year,” said Durkin, “was that income growth was very slow. But a lot of economists, including me, think that income growth will be higher this year. I’m looking for growth in consumer spending this year to hit an annual rate of about 2.5%. It was 1.9% last year.

“We’ve been slowly drifting downward in the last three years, but we are coming down from a very high point. So it (consumer confidence) is still high by historic standards.”