O.C. Manufacturers Remain Confident of Strong Economy

By JOHN O’DELL

April 13, 1995 12 AM PT

TIMES STAFF WRITER

ORANGE —

Buoyed by a weak dollar and a sustained national economic recovery, Orange County manufacturers remain confident that the economy will continue improving in coming months, according to the latest quarterly survey by a Chapman University economist.

That confidence is accompanied by a sense that prices for wholesale goods and, ultimately, for retail manufactured products are on the rise, said Raymond Sfeir, the economist who prepares the survey, said Wednesday.

The university’s Purchasing Manager Index, which provides an overall measure of local manufacturers’ faith in the economy, rose to 65.4 from 61.8 a year earlier. Index readings above 50 measure growth while rates below 50 indicate that manufacturing is on a decline.

The first quarter confidence level was just slightly below the 66.2 index reading for the fourth quarter of 1994, a positive sign because the first three months of the year typically is a much slower period.

Purchasing managers are key manufacturing industry players because they are the executives charged with predicting and planning for economic ups and downs so that their employers aren’t stuck with too much or too little inventory when demand turns.

Managers responding to the quarterly survey said that a nationwide paper shortage has pushed up the price of paper products, including the packaging materials all of them use. Almost 80% also reported paying more during the first quarter for raw materials than they had paid in the fourth quarter of 1994.

Still, economists believe that inflation is under control. The consumer price index slowed in March to an increase of 0.2% after jumping 0.3% in both January and February, the Labor Department reported Wednesday.

“On the whole, it was a good quarter, and there is confidence about the next few months,” said Sfeir, adding that nearly 84% of the respondents reported that productivity rose or stayed level during first quarter.

In fact, optimism among Orange County manufacturers was higher than the national norm. A similar index prepared by the National Purchasing Managers Assn. stood at 54.6 at the quarter’s end--more than 10 points lower than the Orange County measurement.

Sfeir said that local manufacturers continued adding new employees to their payrolls during the first quarter, though at a slightly slower pace than in the final three months of 1994.

The employment increases are especially heartening to local economy watchers because manufacturers have been hard hit by the recession and federal defense spending cuts.

Since reaching peak employment of 254,300 jobs in 1988, the county’s manufacturers have cut almost 48,000 people from their payrolls, according to labor market analyst Eleanor Jordan of the state Employment Development Department.

Most of the job cuts have been in relatively high paying durable goods manufacturing--computers and other electrical equipment, high-technology instruments and aircraft and defense goods.

The overall job loss was greater, but in the past year manufacturing payrolls have grown by 2,700 jobs, to a total of 206,900. Most of the growth, however, has come in the lower-paying non-durable goods segment, which includes food processing, textile mill and apparel-making work.

Chapman’s purchasing survey also found that local manufacturers boosted their inventories of raw materials during the first quarter--a signal that they don’t expect production levels or employment demand to drop soon.

Many of the 80 manufacturers Sfeir queries each quarter said that the number of new orders they received during the first period also was higher than in the previous quarter.

Sfeir said Tuesday that purchasing managers whose companies had been pinched by competition from foreign manufacturers say the weak dollar has made their products more competitive both at home and overseas and helped boost sales, especially for electronic and computer components.

At Dana Innovations in San Clemente, for instance, purchasing manager Lisa Hernandez said she expects sales of the company’s home theater products to jump 15% this year as it adds new products and continues increasing international sales.

Purchasing manager Steve Williams at Allergan Medical Optics in Irvine said that while the company doesn’t anticipate much growth in its domestic market, it expects rapid international sales growth this year, especially in Asia.

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Manufacturing Sector Growing

Orange County manufacturing expanded in this year’s first quarter at roughly the same rate as the fourth quarter of 1994. The composite index shown below is based on changes in production, employment, inventory, new orders, speed of delivery, raw material purchases and raw material prices. Levels above 50 indicate growth; below 50 decreases:

1994

1st qtr

Orange County: 61.8

United States: 57.0

2nd qtr

Orange County: 56.8

United States: 57.6

3rd qtr

Orange County: 58.8

United States: 57.4

4th qtr

Orange County: 66.2