O.C. Economy Expected to Drag in ’92
After suffering through a year of what is still considered only a “relatively mild” recession, Orange County shouldn’t look for things to be better in much of 1992 as home values fall and incomes remain flat, economists at Chapman University said Thursday.
Things will pick up after next year, according to the private school’s economic prognosticators, but 1992 will be a time of only sluggish recovery, Chapman President James Doti said in his annual economic forecast.
The recession--which started in the third quarter of 1990 and was supposed to end early this year, according to economist Doti’s year-ago predictions--finally did peter out in the fourth quarter, he said.
But Doti said that ending is visible now only to economists--who measure things under a microscope.
To the average construction worker, service station attendant, computer programmer or chief executive, the first visible signs of recovery probably won’t be seen until sometime in the third quarter of 1992--a full 12 months later than predicted last year. That, Doti said, is when employment stops shrinking, retail sales pick up and increases in income should once again exceed the inflation rate.
The message did little to cheer an audience of more than 1,000 local business executives who jammed into Chapman’s auditorium or listened on loudspeakers piping the speeches into a room halfway across the small campus that was specially prepared to handle the overflow when it became apparent that this year’s conference would draw a record attendance.
“There is nothing like a good recession to bring out the crowds,” Doti quipped in an interview before Thursday’s presentations.
This year, more than at any time in the Chapman forecast’s 14-year history, he said, local business executives have been telling economists at the school that they were awaiting the forecast to prepare their business plans for 1992.
“People are more uncertain” than at the tail end of past recessions, Doti said, because there are no clear signs that things are improving.
One piece of bad news for many Orange County residents is that Doti doesn’t see any chance of the kind of swift, inflation-driven recovery that pulled the county out of past recessions and resulted in the soaring property values that have created much of this area’s wealth in the past several decades.
He said he expects the value of the average resale home in Orange County--already down by 2.5% in 1991--to drop an additional 3.1% in 1992 to about $216,000.
In an accompanying five-year forecast, Chapman economist Esmael Adibi said residential resale values, when adjusted for inflation, should drop yet an additional 1% in 1993 before reversing the trend and again showing modest price increases.
But by 1996, according to Adibi’s peek into the future, the typical resale home will go for just about what it would have fetched in 1990--about $225,000.
One benefit of that sluggish performance, however, is that the price of homes in the county should be affordable to more people next year than at any time since the middle of 1987, according to the forecast.
The weak recovery doesn’t bode well for retailers though. Doti predicts that retail sales will remain almost even with this year’s--and state tallies for the first half of 1991 show that retail sales are off slightly more than 6%--the worst performance in more than two decades. On the employment front, Doti is predicting a net increase of about 9,400 jobs in 1992--a hike of just 0.8%, not quite enough to make up for the nearly 11,000 jobs lost this year. Almost all of the employment increase in 1992 will come in the third and fourth quarters.
The construction industry, already down about 11,250 jobs since 1989, won’t benefit from the year-end turnaround, however.
Doti said he expects residential and commercial building activity to remain stagnant next year at about $1 billion worth of new permits issued in each category. That is down from a pre-recession high of $1.75 billion for new commercial construction and $2.5 billion for residential construction in 1988.
The continued weakness will result in the loss of an additional 1,750 construction jobs next year, he said.
He also said he believes that the 1991 employment figures, prepared by the state Employment Development Department, substantially underestimate the degree of job loss that has been occurring in the county and throughout the state.
When the state numbers undergo their annual adjustment in March, he said, total employment in the county for 1991 “may be subject to significant downward revision.” Currently, however, the numbers project the year ending with 10,800 fewer jobs than in December 1990--a 0.9% loss to a total of 1.21 million jobs.
Most of the anticipated employment gains next year, Doti said, will come in services, wholesale trade--a category boosted by the county’s role as a major distribution center for imported goods--and finance, insurance and real estate.
The county’s manufacturing sector--which once accounted for a third of all local jobs--will continue to shrink as federal defense cuts force many of the county’s high-technology firms and aerospace subcontractors to further pare their payrolls.
Still, Doti said he can see “no strong evidence” that the county is plagued by manufacturers fleeing the area in droves to escape high costs and excessive government regulation.
While some firms are leaving for those reasons, the total number of non-durable manufacturing jobs--those involved in the manufacture of most types of consumer goods--actually increased in Orange County during the recession, growing by nearly 3% while the level of such jobs was unchanged nationally.
And the anticipated loss of 17,000 durable goods manufacturing jobs in the county between 1989 and the end of 1992--a 9.1% drop compared to a 3.5% national decline--is more the result of defense spending cuts than any “overt attempt by manufacturers to flee the county,” Doti said.
The durable goods sector job loss has been so pronounced here, Doti said, because Orange County--while no longer dependent on the aerospace industry for the bulk of its economy--still is tied more tightly to the fortunes of the defense industry than most parts of the country.
Doti said the gross county product--the value of all goods and services produced here--should rise to $80.3 billion next year, up 5.7% from this year’s $76 billion.
And while that keeps the county’s economy ranked among the healthiest in the world, it is a fairly anemic increase when adjusted for the 3% inflation rate the Chapman economists predict for 1992.
“It all combines to make 1992 a recovery year, but a very mild one compared to others,” Doti said.
