Economists Agree O.C. Better Duck This Recession Season : Conference: A panelist says plummeting construction will drag the county down deeper than the rest of the state next year because of the major role builders play in local economy.
The nation’s economy will slide into a mild recession by early next year--if one hasn’t already begun--and the rebound will be sluggish at best, three economists said Friday.
And Orange County, which nearly missed the last mild recession in 1980 because of its vigorous economy--is likely to be hit hard this time around, warned one member of the panel addressing the annual Orange County Economic Outlook Conference.
“The county is not recession-resistant,” said James Doti, a Chapman College economist who specializes in local economic forecasts.
He said plummeting construction activity will drag the county deeper into recession next year than most other areas of the state because of the major role construction still plays in this economy.
Doti and economists Allen Sinai of the Boston Co. and Norman Mains of the Los Angeles investment firm Bateman Eichler, Hill Richards Inc., agreed that the recession they and other economists predict will be relatively short--lasting three to five quarters.
While the recession of 1973-75 was preceded by a quadrupling of world oil prices, and the recession of 1981-82 was triggered by inflation and spiraling interest rates, there has been no one significant national or worldwide event feeding the current slump, Mains said.
The Iraqi invasion of Kuwait on Aug. 2 caused oil prices to double, but because the United States is much less dependent on foreign oil now than during the 1973-75 recession, the impact was lessened, he said.
And interest rates and inflation both remain relatively tame, said Sinai, adding that he does expect inflation to exceed 6.5% in 1991, up from about 5% this year.
Those factors suggest a shallow recession, Sinai said, but also indicate a less vigorous recovery.
Sinai also cautioned that any economic predictions are subject to changes in the Middle East situation.
While none of the economists speculated on the political climate, former Defense Secretary Frank C. Carlucci told the nearly 800 county business executives attending that the likelihood of a military conflict is increasing.
Carlucci, who used his luncheon speech for a ringing defense of the Reagan Administration’s arms policies, warned that congressional moves to trim military spending are premature, despite the diminished threat from the economically troubled Soviet Union.
But if the Bush Administration succeeds in removing Iraqi troops from Kuwait without an economy-shattering war, Sinai said, the domestic economic situation still seems headed for “a protracted period of anemic, sub-par, punky, lousy, crummy economic performance.”
All three economists suggested that a recession has already begun and that the gross national product--the official measuring stick of the economy--will decline in the fourth quarter.
Economists define a recession as two or more consecutive quarters of actual decline in the GNP.
Doti said the county’s annual economy of nearly $70 billion is in recession when there are two or more consecutive quarters in which employment levels are lower than in the same period of the prior year.
While the county’s total employment at the end of August remained slightly higher than at the end of August, 1989--1.22 million versus 1.2 million--the total has dropped each month since June.
Doti said his calculations show that the nation will be dragged into recession largely because of the construction slump.
He added that the resulting job losses in the county will not be fully felt until early next year.
“The nose-dive in construction, nationally and locally, is the culprit,” Doti said, “and right now we are seeing only the tip of the iceberg.”
“The drop in activity started in the third quarter, and it takes from one to five quarters for all of the employment impact to hit.”
Doti said he expects construction activity to “continue plummeting,” with a 12-month loss to the economy of about $3 billion when the total impact is tallied.
“That is about 5% of our total county product,” he said, “and that is a pretty big hit.”
“If it weren’t for these building permit statistics, there would be no significant signs of a serious downturn for the county” Doti said in an interview before his remarks Friday.
County manufacturers say “things are weak but that there is no sign of a big drop-off,” he said. “But there is just not enough going on in manufacturing and other sectors of the local economy to compensate for such a heavy hit from the construction slump.”
