County Economy May Get Through 1989 Without Recession, Chapman’s Doti Says

Orange County’s economy appears poised to sail through 1989 without fear of recession, bolstered by moderate growth in the county employment scene, according to Chapman College economist James Doti.

Doti, acting president of the private college in Orange, said Thursday that a leading indicator series used to help project economic trends in the county posted an unexpected up-tick in the second quarter, reversing two quarters of sharp decline.

The indicator series, which roughly parallels real employment growth in the county, had plunged from 6.2% in the third quarter of 1987 to 2.8% at the start of the first quarter this year.

During the same period, the rate of new job creation in the county dropped from 4.9% to 3.3%.

Economists generally maintain that a recession follows two consecutive quarters of a real decline in jobs. The steep drop in the indicator series since the third quarter last year, Doti said Thursday, “was pointing to a drop in actual employment and a possible recession by mid-1989.”

But the second-quarter increase in the index to 3.26%--a boost of just 0.42 percentage points--reversed the sharp decline, Doti said--meaning that it now “is quite possible for the current local business recovery, which began in the fourth quarter of 1982, to continue through 1989.”

In the annual county economic outlook that Doti and other Chapman economists prepare and present each December, Doti had predicted a gradual but continuous quarterly decline in actual new job creation in the county, dropping from a 3.3% increase in the first quarter to a 2.2% growth rate in the fourth quarter. He said the annual rate would be about 2.8%.

On Thursday, Doti said the second-quarter increase in the indicator series, while significant, does not alter the earlier prediction of an annual new job growth rate of “about 3%.”

Dan Johnson, the state Employment Development Department job analyst for the county, earlier this year predicted a 3.7% increase in new jobs for 1988, a figure he said Thursday “was probably a bit optimistic.”

In his projections for 1989, however, Johnson said the number of jobs could show a slight but real decline. Because his projection is based on a 12-month spread and doesn’t look at each quarter, Johnson said the decline he foresees may not foreshadow a recession.

In fact, the extremely low unemployment rates posted in the county in recent months appear to indicate that jobless workers are leaving the county, he said.

A decline in jobs next year might have nothing to do with a weakening economy, he said, but rather may reflect a loss of employers who relocate because they can no longer find workers in the county.

Johnson said he also bases his 1989 prediction on an anticipated slowing of construction activity and a decline in military and defense contracts.

Doti said the increase in his leading indicator series for the second quarter was caused largely by a boost in the value of building permits issued in the county, which should signal continued hiring in construction and in finance, insurance and real estate, retail and wholesale trade and even manufacturing in the county during the third quarter.

Chapman’s leading indicators series is a weighted average of changes in the real gross national product, real nation monetary base, building permit valuation in the county and the New York Stock Exchange Common Stock Price Index.

Because all but the NYSE index posted gains in the second quarter, Doti said, “we are not seeing an imbalanced recovery or growth. This points to broad-based economic growth for the county.”