5-Year Study Sees New O.C. Growth : Economy: Chapman report predicts trouble for defense businesses but no sign of a new recessionary dip. Baby boomers are the key.

Defense-related businesses will suffer in coming years, but Orange County’s overall economy should continue to grow through 1996 after a sluggish start next year, according to a long-range forecast released Thursday.

It will not be the best five-year period the county has ever had, but there are no signs of another recession ahead, said Esmael Adibi, director of the Chapman University Center for Economic Research and author of the five-year local forecast.

With the exception of resale home values, construction and civilian government employment, Adibi predicted, most of the local economy will be growing through the middle of the decade.

Adibi’s prediction of a much slower recovery than the county has had after past recessions is partly tied to expectations of future spending habits of aging baby boomers.

“Those of us who were born between 1945 and 1955 spent our heads off in the 1980s,” Adibi said. “But now we are in our 40s, and we are not the big spenders we once were. This is the time we start saving for retirement, so we are cutting consumption, and consumption is two-thirds of the gross national product.”

As a result, retail sales will not climb the way they used to, job growth will be constrained and there will be a general slowdown in the economy’s growth, he said.

There will be a renewed demand for homes, Adibi said, but a limited supply because of a continued shortage of financing for building new homes.

But that will not mean a big rise in home values. Low inflation rates should keep real estate speculators out of the market, he said.

Still, with the opening of new markets in Eastern and Central Europe and expanding Pacific Rim trade, the county should benefit from its position as a major distribution and warehousing point for the West Coast, Adibi said.

While military spending cuts will force local high-technology and aerospace firms to pare thousands of jobs (Adibi predicts that nearly 5,200 high-tech jobs will be lost by 1996), growth in the trade and service industries should give the county a fairly steady annual job growth rate of 3.3% through mid-decade, he said.

About 190,000 new jobs will be created in the county in the next five years, Adibi told the audience of more than 1,000 business executives attending Chapman’s annual economic forecast conference.

Construction makes up a hefty 25% of the county’s economy, counting the ripple effect of furniture, car sales and other goods that are typically purchased by new-home buyers. Though the industry has been hard hit in 1991, Adibi said, it should begin to recover after 1992.

That is significant because the construction industry plunged into recession long before the rest of the economy; since 1989 about 11,000 construction jobs have been eliminated in the county. By the end of 1992 that total will be closer to 13,000, Adibi said.

But increased demand for housing and commercial office space after that should add about 9,000 construction jobs by 1996.

Other significant areas of job growth will be in non-durable manufacturing, expected to add about 11,000 positions in the next five years; wholesale trade, up 22,500; retail trade, up 25,500; finance, insurance and real estate, up nearly 28,000, and business and personal services--roughly defined as everything from shoe repair to management consulting--up 83,000.

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The Five-Year Forecast

The long-term outlook for Orange County employment is strongly influenced by both national and international trends. Gross national product, international trade, defense spending and, locally, construction, are key factors used by Chapman University’s Center for Economic Research to predict the county’s employment picture. Employment--While the recovery from the 1981-82 recession brought sharp and sustained growth in county employment, in the range of 7% to 9% annually, the current economic slowdown is expected to linger through much of 1992, followed by employment growth of 3% to 5%. GNP--The primary indicator in forecasting the status of the local economy is the performance of the national economy, as measured by gross national product, or the total value of goods and services produced over a period of time. Net Exports--After years as a net importer, the United States is expected to begin selling more than it buys abroad by 1994. But the county will continue to benefit from its role as a key distribution point for imports. Defense--The county’s economy is also influenced heavily by changes in defense spending. Continuing cutbacks will probably mean more job cuts in the county’s aerospace and high-technology manufacturing base. Construction--The sharp drop in construction spending in the county was a major factor in the severity of the recession here. No significant improvement expected until 1993. Source: Chapman University Center for Economic Research