Manufacturers Fear a Slump in Local Economy : Survey: Purchasing managers in Orange County are bracing for declines in sales and output, according to a Chapman report for the first quarter of 1990.
Manufacturers in Orange County have less confidence in the economy than at any time in the past two years and are bracing for declines in sales and output, a survey released Monday reveals.
The pessimistic outlook expressed in the first-quarter 1990 survey marks a “drastic change” from the previous quarter, as manufacturers’ inventories of components and raw materials declined for the first time in the survey’s history, said Raymond Sfeir, the Chapman College economist who developed and conducts the study.
Shrinking inventories indicate that manufacturers expect sales to drop off and do not want to have unusable material they must pay for.
According to the survey, released by the Chapman Center for Economic Research at the private college, the purchasing managers’ confidence index fell to 47.1 from 51.0 in the previous quarter.
It is the first time since the survey began in 1988 that the index has dropped below 50. A reading below 50 indicates that the manufacturing segment of the economy is generally declining; a reading above 50 suggests that it is expanding. (The index reached a peak of 67.4 in the second quarter of 1988.)
The drop in the Orange County index comes as the national index is inching upward. The National Assn. of Purchasing Managers’ monthly survey for March showed a slight increase in the confidence index, to 48.8 from 48.3 in February. The national index has not topped the 50 mark since last April.
The Orange County and national surveys poll purchasing managers because their decisions on acquiring raw materials and supplies are among the earliest indications of manufacturers’ expectations for the coming quarter.
In the first quarter, the Orange County survey shows that there was a decline in manufacturers’ inventories for the first time. Only 26% of the respondents said their inventories increased; 33% said they dropped, and 41% said they stayed the same.
Sfeir said electronics firms reported the largest inventory decreases. Electronics firms also complained of shortages of--and higher prices for--random access memory chips, a critical component of computers and many other electronic products.
Purchasing agents in the county also reported having placed fewer orders for manufacturing materials for the future than at any time in the past two years. That, Sfeir said, means that it is likely there will be a cut in output at many firms, especially those making electronic and medical equipment.
Sfeir was unsure whether the anticipated second-quarter cutbacks in those two industries--which have been declining for several months and have already been closing plants and laying off workers--would lead to further layoffs.
The survey polls purchasing managers at 60 manufacturing firms in the county each quarter. The respondents are chosen in proportion to their industries’ representation in the county.
MANUFACTURING SLOWDOWN
The survey reports on changes in inventory levels, the cost and availability of materials, and production. A value of less than 50--recorded for the first time last quarter--indicates a decline in manufacturing. A reading of greater than 50 indicates a period of expansion.
First quarter 1990: 47.1.
