Economists See Slower Orange County Growth

Orange County will enter an era of slower economic growth in 1990, economists say, with job creation expected to drop 50% from this year, housing sales and price appreciation to flatten, and other areas of the local economy to suffer mild retrenchments.

The forecast, released Thursday by economists at Chapman College, predicts that the county and nation again will avoid recession. And the county’s economy will continue to outperform those of the state and nation.

With inflation expected to run at about 4%, the gross county product--a measure of all the goods and services produced--should climb a healthy 6.1% to $67.5 billion, compared to a 4.6% increase in the gross national product. The prime rate should fall to 9% from 10.5% now.

“The economy will be weaker, but with inflation and interest rates being held down we will get the benefit of that ‘soft landing’ we’ve been promised,” said James Doti, a Chapman economics professor.

The study, based on a computerized econometric model, was released at the private college’s 12th annual economic outlook conference. The report is considered the most comprehensive and accurate look at the county’s economy available.

While a recession will be avoided, Doti said, layoffs caused by the federal defense budget cutbacks and a sluggish residential construction activity will combine to drive the goods-producing sector of the county’s economy into a slump. The result will be a loss of about 2,300 aerospace industry jobs in the county next year and as many as 8,000 in the next five years.

Esmael Adibi, director of the Chapman College Center for Economic Research, who prepared the college’s brief long-range forecast, alled for moderate growth through the middle of the decade, with considerable job growth in the service sector offsetting the aerospace job losses.

Next year, Doti said, could be the low point for the county’s economy in the coming decade.

While the overall job growth rate will be 1.5%, he said, that is only half of this year’s 3% rate and well below the 6% average of the ‘70s. Total employment at the end of 1990 should be 1,176,129, up from 1,158,247 this year, he said. But the growth will come in the service sector.

The number of jobs in the goods-producing sector, which includes manufacturing and construction, is expected to drop 1.9% to 321,822 at the end of 1990 from 327,943 this year, Doti said. Service-related employment should climb 2.9% to 854,3098 from 830,304.

Adibi said that a major factor in the job slowdown is the continued high cost of housing and the tremendous traffic congestion in the county.

“It keeps people from coming here looking for jobs, and forces companies with lower-paid workers to leave the county in order to find employees,” he said.

The slower job growth will result in a lower rate of personal income growth than in the past. Median annual family income in the county is projected to increase 6.2% to $53,000 from $49,916 this year. While that still is well above the national median--$32,681 this year--it represents slower growth than the nearly 10% average annual increase of the past decade.

The slower job and income growth, however, will have the beneficial impact of curbing the county’s increasing home values, which have soared in the last two years, the two economists said.

Housing prices, after jumping approximately 21% this year and last, will increase only about 2.3% in 1990. When inflation is factored in, housing prices actually will show a slight decline, Doti said.

The rate of appreciation will plunge because of an oversupply of homes caused by the high prices of the past five years, he said. Only 14% of the county’s families make enough money--nearly $80,000 a year--to qualify for a conventional mortgage loan on the $246,000 median-priced home in the county.

Other predictions by the Chapman economists for 1990 include:

A 7.1% increase in taxable sales, up $1.9 billion to $29.2 billion. The growth rate from 1988 to 1989 is estimated at 7.3% and the rate in 1988 was 7.6%.

Marginal drop in tourist spending in the county, linked to both the overall slowing of the national economy and the strengthening of the dollar, which makes U.S. services and goods more expensive to foreigners. The figure is important because tourism-related spending accounts for nearly 10% of the gross county product, Doti said.

Doti uncharacteristically prefaced his 1990 projection with a cautionary note: If the assumptions of low inflation and dropping interest rates prove wrong and a nationwide recession does occur, he said, there is no substance to a cherished belief of the business community that Orange County is recession-proof.

“People think the county escapes recession because it always outperforms the national economy,” he said in an interview before presenting the 1990 predictions to an audience of about 1,100 local business executives and political officials.

“In fact, our research shows that the county’s economy usually exaggerates what is happening nationally. So in good times, we have great times. But in bad times, we suffer more.”

ORANGE COUNTY OUTPUT

Researchers estimate gross county product wll reach $67.5 billion--about the same as Argentina’s GNP. Gross county product, in billions of dollars per year: 1985: 44.5 1986: 48.1 1987: 50.0 1988: 59.7 1989: 63.6 1990: 67.5 ORANGE COUNTY IN 1990: KEY ECONOMIC INDICATORS

Housing cools off, retail sales slow down, fewer jobs are created--but income keeps rising. JOB GROWTH Employment is predicted to increase 1.5% in 1990, bringing the total jobs to 1.18 million. Annual Percentage change: 1984: 8.8% 1985: 5.1% 1986: 4.1% 1987: 4.4% 1988: 4.3% 1989: 3.0% 1990: 1.5%