Manufacturers’ Confidence Index Jumps Significantly

The spurt of optimism that boosted home and retail sales in the final three months of 1993 appears to have grabbed Orange County manufacturers as well, according to a quarterly survey of industry purchasing agents.

The 6-year-old Orange County purchasing managers confidence index jumped more than 12 points in the fourth quarter to its highest level since the third quarter of 1988, said Chapman University economist Raymond Sfeir, who conducts the survey.

The confidence level of 62 represents a significant rise from 50.5 in the 1993 third quarter, Sfeir said. Levels above 50 track manufacturing industry growth while levels below 50 indicate shrinkage.

Sfeir said that last week’s Northridge earthquake should not shake the purchasing managers’ newfound economic confidence and result in a tumbling index when the 1994 first-quarter results are collected in March.

“There was no major damage to manufacturing plants in the county,” he said, “and most of our manufacturers’ markets are national and international, so the earthquake shouldn’t disrupt their sales.”

The survey of purchasing managers at 60 Orange County manufacturing companies found that while they see their industries as recovering from the recession that began in 1990, the improvements won’t be enough to spur any hiring.

Chapman’s Center for Economic Research predicted in December that manufacturing employment in the county would drop by about 2,000 jobs this year, to about 140,000, and Sfeir said he sees no reason to change that forecast.

The confidence index is based on reported changes in levels of production, speed of deliveries by vendors, purchases of raw materials and inventories of raw materials.

Most of the fourth-quarter result came from reports of major increases in raw materials purchases--which means the factories plan to step up production of finished goods in response to improving market demand, Sfeir said. The survey also found significant increases in factory production.

Sfeir said that because the survey is a snapshot that only measures changes from quarter to quarter, the big boost in the 1993 fourth-quarter confidence level doesn’t mean things have returned to pre-recession levels--just that things are improving.

“It’s a big increase from a rather small base,” he said, “so it means things are better than when they were really bad, not better than when they were good.”