REGIONAL REPORT : Southland CEOs Think Recession Has Bottomed : Economy: The same sampling of business leaders recognized the severity of the downturn before economists did. Now their timetable for a recovery is more optimistic than the experts’.
D. P. Kennedy has become a veteran of the recession front.
Orders slowed dramatically late last year at First American Financial Corp., the Santa Ana-based title insurance company that Kennedy heads. Layoffs have claimed 10% of the company’s 7,000-employee work force nationwide. Expenses have been slashed.
“It’s tough. You bet it’s tough,” Kennedy said.
But a funny thing happened on the way to doomsday. Orders for title insurance picked up a bit in January and even more in February, although most haven’t translated into closings yet because of the normal 30- to 90-day lag.
“We’ve got more orders. The question is, is it long-range consumer confidence that’s doing it?” Kennedy asked. “We don’t know whether those deals will close. We don’t know if they’re going to get financing for them. We don’t know the quality of them.”
Still, Kennedy is feeling good: “I think that there’s enough underlying strength that we’ll probably be all right.”
Despite a continuing flow of gloomy economic statistics, Kennedy isn’t alone in his optimism.
A sampling of Southern California executives found that most believe that the worst may be behind us--a call most economists have yet to make.
These are the same executives who in a survey conducted by The Times last October had no illusions of economic well-being. At a time most economists were still tossing around words like slowdown and slump, these executives said the economy definitely had stumbled into the recession.
The executives said then that the recession would be mild and last no more than a year. The bulk said that they were cutting costs and that many had frozen or were planning to reduce staffing.
To be sure, many of the executives still see fundamental problems remaining in the economy, led by the federal budget deficit, trade restrictions and the need for banking system reforms. But most take comfort in the postwar mood of the country as well as signs of life in their businesses.
“I’m sitting here feeling pretty comfortable,” said Peter Churm, chief executive of Furon Co., a Laguna Niguel manufacturer of industrial products, who was one of 16 executives interviewed about the recession in the past two weeks. “I think we can see signs of us coming out.”
Churm said that his business is “pretty strong” and that he is doing a little hiring with an eye toward an end to the recession by summer.
The recession has made itself felt at many companies, and economic statistics indicate that it slashed into the state with surprising vigor the past several months.
The latest California jobless figure--7.4% in February--was the highest in more than five years. But a separate government survey of businesses found a slight increase in the number of non-agricultural workers in February compared to the month before, which was generally seen as a hopeful sign.
One company featured in October’s look at the slowing local economy, Paramount Shoe Repair, went out of business. Its owner, James Hedge, could not be reached for comment.
The economic brownout has meant fewer new customers for Southern California Edison Co., an expected consequence of the slump in the building industry, said Chief Executive John E. Bryson. The decline was especially noticeable in Riverside and San Bernardino counties, which had been growing very quickly, he said.
Each of the past five years brought a record number of new additions to the electrical system, and “that will almost certainly not be true in 1991,” Bryson said.
Co-owner Joe Ingrande had complained last October that counter employees at his People’s Fish Market, a restaurant and fish market on San Diego Bay, ran the risk some days of “falling asleep standing up. . . . I think the recession is here.”
Since then, business has improved. The counter employees “woke up a little bit,” Ingrande said with a laugh. The retail business remains slow, probably because of competition from supermarkets, he said.
“We had to watch our belt. We had to bring it in a little bit, watch what we bought . . . but it’s worked out OK,” Ingrande said. “We’re doing all right.”
El Modeno Gardens in Irvine had experienced slow sales of annuals during part of last year, possibly because of a pinch in plant buyers’ discretionary income. But “we’re having a normal spring,” said Jo Anne Groot Beall, vice president of operations.
In fact, the drought is much higher on the company’s list of concerns than the recession, she said. El Modeno Gardens is publishing pamphlets to educate consumers in water-wise ways of planting, she said.
William Mortensen, chief executive of FirstFed Financial Corp. and First Federal Bank of California, said loan requests picked up in February after dragging in the fourth quarter and in January.
“Things look to me better than they did,” he said.
Lodwrick M. Cook, chief executive of Atlantic Richfield Co., said the recession has been “much deeper than we expected” because of the U.S. military buildup in the Persian Gulf and the subsequent decline in consumer confidence.
But Cook believes that the recession is “nearing an end, and the economy will begin to recover by the third quarter and perhaps as soon as the second quarter of this year.”
Bram Goldsmith, chief executive of City National Bank in Beverly Hills, is beginning to see “little visions of some daylight.” Goldsmith believes that the low point has passed and with the war’s end perhaps “consumers will get away from CNN and go out and do some shopping.”
Not every view of the immediate economic future is completely rosy.
Edward M. Carson, chief executive of First Interstate Bancorp, said, “We’re clearly in a position where the economy has stopped declining. How long it will be in that trough is anybody’s guess.
“How long we stay in the trough has a lot to do with the agendas and prioritizing in Washington and to some extent in Sacramento, and the sooner we do something the better,” Carson said.
Said Jerome Cwertnia of National Education Corp., an Irvine-based education and training firm: “I’m more optimistic than I was six months ago, but it is too soon to tell” if postwar enthusiasm will turn into economic enthusiasm.
Wilford D. Godbold Jr., president of Zero Corp., had hoped for an end to the recession by midyear but now isn’t so sure. “We’ve been seeing both a little strength and a little weakness” among customers at his specialty metal products firm, he said.
“People are still uncertain enough that their capital spending hasn’t increased,” said Godbold, whose Los Angeles-based company cut costs and consolidated facilities in response to the downturn. “I’m not seeing an increase in the rate of recession, but there’s no quick pullout either. It’s almost wallowing, but not quite wallowing.”
Eli Broad, chief executive of Broad Inc., a Los Angeles-based investment firm, doesn’t expect the recession to get any deeper, “but, on the other hand, I’m not as optimistic as many that we’re going to be out of it by summer.”
Although the country is experiencing a postwar euphoria, “we’re not 100% convinced that that’s going to turn into the kind of consumer confidence to get us out of a recession rapidly,” Broad said. “If you get rid of euphoria, we have not solved any of our fundamental problems,” including the federal budget deficit, relatively high interest rates and trade restrictions on U.S. goods and services overseas.
“I think a recovery will be slow, meaning a good year or so before we pull out of this,” Broad said. “I hope I’m wrong.”
But eventually the state and the country will rebound.
“If you look two years out, the California economy will be just fine. It clearly won’t be the kind of wild growth of the ‘80s,” particularly in real estate, Broad said. “But I think the state will be just fine, and it will be in better economic shape than any other part of the country through the ‘90s.”
