O.C., State to Remain in Slump Another Year, Experts Predict

Adding their voices to the chorus of economic woes being sung throughout the state, a panel of financial forecasters Tuesday predicted that Orange County and the rest of the state face another year of recession.

The prognosis seems grimmer in the face of growing signs that the national recession may have ended--albeit with a slow and sputtering recovery.

But the national situation has little impact on California, where, according to UCLA economist David G. Hensley, “there is simply no recovery in sight. There are no signs of growth.” Several other regions, including the Northeast and Mid-Atlantic states, also remain mired in recession.

Orange County has been unable to remain apart from this recession, as it has in some earlier downturns, said James Doti, president of Chapman University in Orange.

“This time, Orange County is indeed part of California and shares in all of its (economic) problems, said Doti, an economist who developed Chapman’s annual economic forecast for the county. Except for the county’s 1982-83 recession, the local economy usually has not suffered as much--or as long--as the rest of the state in economic bad times.

Hensley, Doti and Robert G. Dederick, chief economist of Northern Trust Co. in Chicago, delivered their messages to about 900 business executives at the annual Orange County Economic Conference of the county Chamber of Commerce.

Doti, citing the latest update in one of the university’s key forecasting tools--an Orange County leading indicator series--said the county’s economy bottomed out in the first quarter of 1991. But the economy has been “going nowhere since then, in contrast to past recessions” when the recoveries quickly built up steam.

Since it was started in 1971, the series--which measures changes in the nation’s GNP, foreign trade balance and defense and construction spending in Orange County--has accurately forecast each of the county’s recessions and subsequent recoveries, Doti said.

County employment typically follows the general pattern of the indicator series, although job gains or losses usually trail the series by nine months to a year.

Currently, he said, the series shows that the county is likely to continue experiencing a slow but steady loss of jobs for the next year.

He said the construction industry slump is a major contributor to the gloomy outlook. UCLA forecaster Hensley said the virtual halt in commercial construction and the slowdown in new housing starts are having a wide ripple effect, causing layoffs in the retail and service industries.

Hensley said he expects slight improvement in home building by the end of 1992, resulting in a renewal of construction industry hiring statewide.

Construction is a particularly strong part of the Orange County forecast, said Doti, because the county’s economy depends so heavily on the industry.

And in a report issued Tuesday, the Construction Industry Research Board in Burbank said permits issued to builders in August for new residential construction in Orange County fell to the lowest level since February. Permits were issued for 374 homes and apartments--the lowest August total since the 1982 recession.

The research board also reported that the value of non-residential construction permits issued in Orange Countyduring August fell 50% to $65 million from $130.7 million a year earlier.

For the first nine months of the year, the board reported, the value of residential permits has dropped 25.7%, while non-residential construction values are down 28.1%.

At Tuesday’s conference, even Northern Trust economist Dederick, whose national forecast was the most positive of the bunch, included some glum news.

Despite Tuesday’s government announcement that the U.S. economy grew at an annual rate of 2.4% in the July-September quarter and the possibility of lower interest rates this year, Dederick predicted a “very subdued” recovery that will take most of next year to make itself felt.

That is particularly bad news for California, where the impacts of federal defense budget cuts and the construction industry depression have exaggerated the overall impact of the recession, Doti and Hensley said.

Looking for the Rebound Orange County has bounced back with a major burst of energy from every economic slump since the mid-1970s. But this time researchers at Chapman University have found, the signs all point to a long, lethargic climb back from the bottom of this recession. 1974-1976 In the 1974-75 recession, Orange County was barely affected as employment growth remained positve in all but two quarters. 1980-1983 The county escaped the short-lived 1980 recession, only to be hit hard in late 1982 and 1983. Renewed consumer confidence spurred a housing boom in 1984 that ended the recession with a bang. 1989-1990 In the current recession, however, the Chapman Indicator Series is stuck, promising a slow recovery. The series, used to predict employment growth, registered -2.70 for the fourth quarter of 1991. * Employment figures are based on year-to-year percentage change in the number of county residents with jobs. ** The Chapman Indicator represents a weighted average of changes in U.S. gross national product, foreign trade, defense spending and construction spending. Source: Chapman University Center for Economic Research