O.C. Business Climate in Trouble, Study Says : Survey: Traffic congestion and housing costs are the culprits, UC Irvine researchers say.
A growing number of local executives say Orange County’s healthy business climate is being severely damaged by traffic congestion and premium housing costs, researchers at UC Irvine said Monday.
And for the first time since the university began its Orange County Executive Survey in 1987, executives cited increasing problems in recruiting employees--especially for management, professional and technical slots.
Only 23% of those surveyed--most from the growth-dependent service industries--said the county’s attractiveness as a business location has increased in the past year--a significant decline from the 36% who found the county a more attractive place in 1987.
And more than half of the 196 executives who responded to the survey said they believe the county will become a less attractive place in which to do business over the next decade.
The declining approval rating “does not portend well for the future,” said Lyman Porter, a UCI management professor and co-director of the survey.
But while the findings of the university’s annual study are depressing news for area chambers of commerce, the county’s problems have not yet overshadowed the innate strength of the local economy.
Bolstered by expansions and new business formations in the retail and service industries, the county’s job base is expected to continue growing--albeit at a slower pace than in the past--for at least the next two years, according to UCI economics professors David Brownstone and Rob Valletta. The two prepared the 1990 Orange County Employment Forecast, a companion to the executive survey.
By the end of 1991, UCI forecasters say, businesses in the county should provide 1.3 million jobs, up 6.6% from 1.22 million job at the end of 1989.
And Orange County companies are not limiting their growth to the local area. An increasing number are turning to overseas markets--mostly in the Pacific Rim--to boost sales. But the survey’s most significant findings concerned the domestic arena.
Since 1987, when the first survey of the county’s largest employers was conducted, more than two-thirds of the respondents each year said they found the county’s attractiveness as a business location to be the same or better than in the past.
In this year’s survey--conducted between January and March--only 61% of the respondents said they believe the county is staying the same or becoming more attractive as a business location. The 39% who said they believe the county’s attractiveness is diminishing represent a growing minority. In 1987, only 31% had a negative outlook.
A majority of respondents--53%--said they believe the county’s business climate will continue deteriorating over the next decade. That compares to 42% who felt that way a year ago, the first time the question was asked.
The 1990 survey concentrated on large employers--those with 100 or more employees--but for the first time added a component of small manufacturers, defined as those with 10 to 99 employees. Of the county’s estimated 80,000 businesses, only about 1,400 have more than 100 employees, but they account for nearly half of all jobs in the county.
In all, executives of 175 large companies and 21 small manufacturers responded to the survey. Nearly two-thirds of the respondents were the chairmen or chief executive officers of their companies.
Employee recruitment problems were cited by 25% of those who said the county is becoming less attractive for business. It was the first time in the survey’s history that recruiting problems were listed as a greater problem than high housing and living costs.
Executives continued to list transportation problems as the county’s chief ailment, but fewer than 30% of the respondents said traffic was the worst problem--down from 42% in 1987 and from 35% last year.
Porter said that difficulty in employee recruiting probably ranked so high because it is a result of the transportation crunch and high housing costs and it began making itself felt for the first time in just the past year.
“So it is something that was on their minds,” he said.
Executives said hiring in the coming year will focus on professional, technical and managerial jobs, and they are worried that those will be the hardest to fill. In the survey, 46% said they expect to have problems hiring professional and technical workers, up from 24% in 1988 when the question was first asked; 26% said managers and officials, up from 10% two years ago; 28% said sales workers, up from 11% in 1988; and 32% said clerical workers, up from 15% in 1988.
And while 33% said they expect difficulties finding blue-collar workers, that was down from 35% in 1988 and from 42% last year.
Although it appears that dissatisfaction with the county is growing, the number of businesses anticipating moving out has not changed much in the two years executives have been asked about such plans: 13% said it is very likely they will relocate outside of the county, up from 12% in 1989; 15% said a move was somewhat likely, up from 12%; and 72% said their companies are not likely to move, down from 76% last year.
Conversely, 68% said it was very likely or somewhat likely that their businesses would expand within the county, down from 69% last year.
And in the short run, there is no sign that the county’s economic growth will stop.
The total local labor force should grow by about 5.3% in the next two years, compared to the 6.6% increase in local jobs--meaning county employers will have to import a growing number of workers from surrounding areas in order to keep their payrolls filled.
As have dozens of other studies, including UCI’s own previous employment forecasts, the 1990 predictions say the county’s employment base will continue moving away from manufacturing--which now provides only 21.2% of all jobs--and toward service-based jobs. By the end of 1991, researchers say, manufacturing will account for only 20.1% of all jobs in the county, while services will climb to a 26.5% share.
The researchers found, however, that ongoing cuts in federal defense spending are not having a particularly negative impact in the county, where about 25,000 jobs currently are centered in the fields of aerospace, missile and space-related manufacturing.
Overall, Valletta said, a $1 billion cut in defense procurement spending translates into the loss of 200 jobs in Orange County--a serious blow to those who lose their jobs but not a significant impact on total employment.
The county’s jobless rate, which has averaged just 3% over the past two years--the lowest of any of the state’s large, urbanized counties--should drop slightly to a two-year average of 2.9% through 1991, Valletta said.
Manufacturing is decreasing as a share of total employment largely because of growth-related pressures, including stiff new air quality rules, the high cost of land and building rents, the county’s transportation crush and a shortage of affordable housing for blue-collar workers.
Regarding foreign trade, the survey found less interest in the 1992 unification of the European economic community and more in the Pacific Rim. Orange County companies looking at expansion overseas are focusing on East Asia, particularly Japan, Singapore, South Korea, Taiwan and Hong Kong, said Kenneth Kraemer, a management professor and co-director of the executive survey.
A Less Desirable Place to Do Business In the four years since the start of the survey or Orange County chief executives, there has been a 21-point swing toward pessimism about the county’s business climate. The number of executives who see it as becoming more desireable fell 13%, while the percentage who see it becoming less desirable increased 8%. Less 1987: 31% 1990: 39% Same 1987: 33% 1990: 38% More 1987: 36% 1990: 23% Source: 1990 Orange County Executive Survey
ORANGE COUNTY’S BUSINESS CLIMATE The chief executive of the county’s 175 largest corporations and 21 small manufacturing firms were asked a series of questions about the county and its business activity, both domestic and international. Despite short-term expectations of improved financial results, the executives surveyed were much less sanguine about he county’s business environment. BUSINESS IN THE YEAR 2000 Looking 10 years into the future, the survey found that a 53% majority see the county’s future as less desireable for businesses, an 11% increase from 1989’s results. 1989 Less desirable: 42% More desirable: 32% Same: 26% 1990 Less desirable: 53% More desirable: 27% Same: 20% MAJOR PROBLEMS AFFECTING BUSINESS While traffic congestion continues to be the problem most often cited by executives, difficulty in recruiting employees has emerged as the No. 2 concern, rising from 3% in 1987 to 25%. 1987 Traffic congestion: 42% Employee recruitment: 3% Housing and living costs: 29% Other: 26% 1990 Traffic congestion: 27% Employee recruitment: 25% Housing and living costs: 19% Other: 29% Source: 1990 Orange County Executive Survey
