Orange County Purchasing Agents See Inflation Rate Steady in Near Future

The rate of inflation, while expected to swell to 5% or more next year, should remain relatively steady for the next two quarters if purchasing agents in Orange County are any judge.

A new survey of county purchasing managers, released this week as part of Chapman College’s annual economic forecast, found that most are looking for slow-to-moderate growth and fairly stable prices in the near future.

Chapman economist Raymond Sfeir, who conducted the survey, said purchasing managers are uniquely situated to provide information for short-term forecasting because it is their job to be able to accurately judge prices of commodities, market conditions and production demands in order to keep their factories adequately supplied with raw materials.

Sfeir, working through the Chapman College Center for Economic Research, began surveying local purchasing agents at the beginning of the year but developed three full quarters of information before releasing any of the data. He said survey findings will be released quarterly in the future.

The consensus of the 60 managers in the survey--all from manufacturing industries--is that prices of raw materials are flattening after increasing during the first half of 1988 and that suppliers have adequate inventories to ensure timely delivery of the goods needed to produce finished products, Sfeir said.

For business, he said, that means a stable cost environment that will not appreciably reduce the ability to sell at competitive prices or dramatically affect employment and hiring.

For consumers, it means that retail prices of many manufactured goods could level off by the second quarter of 1989.

The survey was modeled after the monthly national purchasing agents survey conducted by the National Assn. of Purchasing Managers, Sfeir said.

Only purchasing agents in manufacturing businesses were polled. They were polled in proportion to their industries’ representation in the county’s manufacturing community.

The three largest segments represented were electrical equipment, including electronics, 27%; machinery except electrical machinery, 13%, and transportation, 10.6%.

Sfeir said 62% of the respondents said production was higher in the third quarter than in the second quarter of 1988 while 40% reported higher production levels in the first 2 months of the fourth quarter.

The national survey showed that production picked up in the fourth quarter after hitting a low for the year in the third quarter.

The local survey showed the prices of raw materials stabilizing, with only 45% of the purchasing managers reporting price increases in the first 2 months of the fourth quarter, compared to 47% in the third quarter, 61% in the second quarter and 66% in the first quarter.

In the survey, Sfeir asked purchasing managers to comment on the state of their industry and the economy as a whole. He said such comments were factored into Chapman’s 1989 economic forecast for the county and generally showed that concerns about materials shortages and inflationary pressures “decreased significantly” in the third quarter.

Sfeir said that as future surveys are conducted and the body of data builds up, the quarterly survey will begin to yield information about a broader array of subjects, including general performance of the overall Orange County economy.