BUSINESS PULSE : ORANGE COUNTY ISSUES & ATTITUDES : Budget and Trade Deficits Darken Businessmen’s Outlook for Nation
Orange County’s business leaders may be wild about the local economy, but they’re more subdued about the national business scene.
Only 9% of the respondents in The Times’ executive outlook survey said they would consider U.S. business conditions to be excellent, contrasted with 35% who used that term to describe the Orange County economy.
In more than two dozen follow-up interviews with survey participants, executives invariably used the same examples--the federal budget deficit and the foreign trade deficit--to explain why they thought the national economy was not in better shape.
“I’m extremely concerned about the federal deficit,” said Larry Westen, controller of Humana Hospital in Westminster. “The economy will take itself into a recession to deal with it. I wish I could be more optimistic, but I don’t think anyone’s got a chance in hell to deal with that deficit. It’s too big, and it’s been going on too long.”
Compared to 1988, 1989 will be “a tougher year,” said Leland J. Hendrie, president of PHD Insurance Brokers in Garden Grove. “Once the election is over in November, inflation will take off because the federal government just will not control its spending.”
The national outlook “is only fair,” said Jack Enda, vice president and manager of Stewart Title Co. in Santa Ana. “It’s because of the government deficit. Until we trim that deficit, we will never have a stable economy.”
A cheerier assessment was offered by Anthony D. Christopher, president of A & J Manufacturing, a Tustin defense contractor.
“Things are excellent,” he said. “Inflation is under control, businesses have been profitable, workers are happy, we’re making inroads on the trade deficit. Things are 100% better than when (Jimmy) Carter was President.”
As for the federal deficit, Christopher, a retired Navy pilot and former securities broker, said he has yet to figure it out. “Nobody has been able to explain to me just what it really means,” he said. “I don’t know how significant it really is, but I don’t think it is terrible. . . . It’s just a political toy.”
But then there’s Mark Frazier, president of Barratt American, a major home builder headquartered in Irvine: “Things are good, but not excellent, because of the trade deficit, the lower value of the dollar and the federal deficit. Only Ronald Reagan thinks the economy is excellent. There are too many problems still to be solved.”
And Richard Boyle, president of Pioneer Bank in Fullerton: “Until the federal deficit and balance of payments (trade deficit) are resolved, they will drag down the economy. The federal deficit may be only psychological, but it is still a drag on the economy.”
A majority of the surveyed executives expect improvement in the foreign trade balance, but they believe the federal budget deficit will only get worse.
In all, 59% predicted that the federal deficit will increase by the end of the year, while only 25% said they thought it would shrink somewhat. And 54% believe the trade deficit will decline while 31% said they think it will increase. The government’s inability to cut spending was the overwhelming reason cited for the budget deficit outlook, while the declining value of the dollar was frequently mentioned as the reason that exports are expected to increase.
The business leaders aren’t looking for a recession in the next year, though. Only 26% believe unemployment will increase nationally, while 61% say it will stay the same and 13% are optimistic enough to believe it will decline.
While most local business leaders are subdued about the nation’s economy, they look like cheerleaders when compared to local consumers.
A 71% majority of the executive survey respondents said they think the nation will continue enjoying “good” financial times for the next 12 months. But in a separate survey of 600 Orange County residents in March, only 52% of county consumers said they expected good times nationally for the next year.
Bad times, marked by recession and higher unemployment rates, were predicted by 29% of the consumer poll participants, while only 9% of the business survey respondents thought things would deteriorate in the coming year.
The confidence gap narrowed in a five-year forecast, with 42% of the business executives and 37% of the consumers voicing confidence that the nation’s economy would remain stable.
Bad times over the next five years were expected by 29% of the business leaders and 45% of the consumers--a comparison that looks lopsided until the “don’t knows” are added in.
Of the business executives, 29% said they had no idea in which direction the economy would head in the next five years, while 18% of the consumers voiced uncertainty.
Richard Curtin, the economist who heads the University of Michigan’s respected consumer survey program, said research has shown that, among consumers, the “don’t knows” almost always are pessimistic. He said he expected the same would be true of business executives. Thus, adding the undecideds to those who said they believed the country is in for a rough financial ride would show that about 58% of the executives and 63% of the consumers think that bad times are coming in the next five years.
The unanswered--and apparently unanswerable--question is whom to believe.
Are business executives, with their access to financial information and analyses by highly trained economists and consultants more likely than the average county resident to be accurate when looking at the financial future?
Opinions seem to be about evenly divided.
Thomas Durkin, chief economist for the American Financial Services Assn., believes businessmen would have a better chance of being right.
Curtin, on the other hand, comes down cleanly in favor of consumer prescience.
“There is no convincing evidence that business is any better forecaster of these things than consumers. We have looked at a sampling of professional forecasters, and they did no better than the consumers. In fact, the consumer was slightly more accurate than the professional.”
But George Forrester, vice president and regional manager of the Newport Beach office of Christopher Weil, a national financial planning firm, says just the opposite.
“Historically, the consumer has been wrong about the stock market. . . . They’ve been bombarded with statistics that they perhaps don’t understand. All the talk about the 1929 crash and the Great Depression has made consumer opinion more negative. . . . They tend to be more emotional than the business executive and to react to perception rather than reality.”
But the businessman, Forrester said, “sees that inflation is not rampant and that we are in an election year, which historically have been good for the economy, and that we seem to be addressing the balance of trade. . . . So, in our opinion, the business executive’s opinion is a better leading indicator (of economic trends) than the consumer’s.”
Executives were as divided as the professionals on how to interpret the confidence gulf.
“In terms of who’s leading and who’s following, I would hope that we are following the consumer if we are doing our jobs,” said Larry Westen, controller for Humana Hospital in Westminster.
“I would be more concerned with what the consumers feel overall, perhaps, than I would with my own personal opinion or the opinions of my cohorts,” Westen said.
But Gary Bart, president of Weight Watchers of Orange County, said consumers are too emotional in their assessments.
“I tend to think the chief executives have the ability to see the future a bit better than the consumers,” he said. “I think consumers are more swayed by current events on a day-to-day basis.” If consumers in the county are pessimistic about the economy, he added, “they sure don’t show it when they go to South Coast Plaza.”
ECONOMIC OUTLOOK
CEOs are bullish on the short-term outlook for the U.S. economy, but divided on their five-year forcast. The public, however, is less upbeat.
Friday May 12, 1989
Good Bad Don’t Times Times Know CEOs 71% 9% 20% OC residents 52% 29% 19%
Wednesday May 12, 1993
Good Bad Don’t Times Times Know CEOs 42% 29% 29% OC residents 37% 45% 18%
