A Promising Forecast : Economy: Despite clouds on the horizon, state experts have a sunny outlook. O.C. firms plan to hire, spend.
The official economic barometers may be pointing to stormy skies, but some companies in Orange County and elsewhere in the state say they’re not getting out the umbrellas just yet.
Despite a dramatic slowdown in the national economy, many California business people remain optimistic and say they will continue with hiring and spending plans. An informal, unscientific sampling of businesses in the state yields views that California has been through the worst, and signs of a slowing national economy aren’t going to scare the state’s business people into easing up.
Orange County software developer Wonderware Inc., for example, plans to hire about 135 new employees this year--most of them in Irvine for the fast-growing company’s headquarters, marketing and research staffs. The new additions will boost its payroll by 57%.
“I read the same things everyone else does, and I know that one of the worries right now is the buildup of inventories in the commercial sector,” said Jerry Brooks, Wonderware’s marketing vice president. “But much of that is in consumer goods. The people whose job is to look down the road three to five years apparently think the future for industry is reasonably bright, because they are buying products like ours to help increase production.”
At worst, Brooks said, Wonderware’s blistering growth--sales have increased 75% a year for the past five years--”probably will drop a little, to 50% or 60% this year. But that’s not terrible. We think the future is pretty bright. That’s why we’ll be hiring more people soon.”
George Pfautsch, chief financial officer of Potlatch, a San Francisco-based wood and paper products company that had nearly $1.5 billion in sales last year, said the company’s outlook “is pretty rosy, even if there is softening in the economy.”
Echoed Nelson Rising, chief executive of Los Angeles-based Catellus Development: “I’m positive and planning accordingly. . . . There’s no doubt that we’re coming out of the recession. It would be foolish to say we’re in a robust economy, but it’s far from anemic.”
And at Custom Chrome, a Bay Area company that sells parts for Harley-Davidson motorcycles, the mood is high-on-the-Hog. The company is hiring and “I can’t see anything on the horizon that tells us we shouldn’t stay in the growth mode,” said James J. Kelly Jr., the company’s chief financial officer.
So what gives?
After all, Federal Reserve Chairman Alan Greenspan on Wednesday proclaimed the U.S. economy to be in a “pronounced” slowdown, although he added that he doesn’t see a recession on the way.
That assessment followed a parade of negative economic statistics: among them, a surprising drop in May employment nationwide, the third consecutive monthly decline in the Commerce Department’s index of leading economic indicators, and a larger-than-expected increase in wholesale inventories. Economists have been fretting that Greenspan’s sought-after “soft landing” for the economy would look more like a belly flop with the landing gear up.
But California executives have adopted a been-down-so-long-it-looks-like-up-to-us attitude. California’s share of the recession was late in coming and in going, they say, but now that the recovery is under way, the momentum appears to be unbroken no matter what is happening in those other states.
What’s more, many companies have pared down and restructured themselves into recessionary experts who can circumnavigate these small economic disturbances, executives say. And many of the larger corporations have found that their businesses in other countries are unaffected by domestic economic blips.
“With more than half our business outside the U.S., this [negative economic news] really has made no difference,” said a spokesman for Allergan Pharmaceuticals Inc., the Irvine eye care products maker. He said Allergan is in a product development period that should spur more hiring and increased sales of new products later this year and through 1997.
Of course, California’s fledgling economic renewal has not reached all companies in every sector. Residential and office construction continue moribund and retailers are still complaining about parsimonious consumers.
Laura Balverde-Sanchez, chief executive of El Rey Sausage Co. in Vernon, said she keeps waiting for the rebound to reach small manufacturing companies like hers, which makes chorizo, a spicy Mexican sausage.
“We’re seeing the light at the end of the tunnel, it’s just that the tunnel keeps getting longer and longer,” Balverde-Sanchez said. “But we can see the light, and it’s keeping us positive.”
Balverde-Sanchez said she is being careful in her corporate spending and in how she schedules employees to get the most out of her money.
“I’m not laying people off, which to me is a good sign,” she said. “I’m working harder and smarter for the same dollar of three or four years ago.”
But bad news is relative, said J. Michael Hagan, president of Furon Co., a Laguna Niguel rubber and plastics maker.
“Sure, there are pockets of the economy that are experiencing downward pressure, but most of them are coming down from a pretty good high and really are still way ahead of where they were two years ago,” Hagan said.
Furon is something of a gauge of industrial health because it sells its seals, cables, gaskets and manufactured components to several sectors, including electronics, aerospace, transportation and general industrial companies.
Furon had a record volume of incoming orders in the first quarter, “and so far the second quarter is running about the same,” Hagan said. “Our California-based business is really robust.”
The weakest industries in Furon’s customer base are those connected to the still-weak housing industry, he said.
But many companies hit hard at home are finding that strong overseas economies can assuage the pain.
Furon is sharing in the economic boom in Europe and parts of Asia, Hagan said. “Our European sales were up 27% in the first quarter. In Asia, things are still in the trough in Japan, but Korea, Singapore and Taiwan all are going like crazy. So there’s an awful lot of opportunity for overseas sales.”
For Potlatch, the paper business struggled through a long trough but is very healthy again. Healthy enough, Pfautsch said, that “I doubt a little softening in the economy right now would significantly weaken that upward trend.”
Although the wood products portion of Potlatch’s business has been “a little soft” in the last couple of months, it might actually be helped by an economic slowdown if it nudges interest rates down. Lower interest rates might spur home buying, home building and demand for wood products.
Lower rates would certainly be welcomed at First American Financial Inc., which has laid off 30% of its nationwide work force and hunkered down for a slow spell since rates began climbing and mortgage refinancing activity started drying up in April, 1994.
Even so, company officials are “that old cliche, ‘cautiously optimistic,’ ” about the future, said Thomas A. Klemens, chief financial officer of the Santa Ana-based title insurance and real estate services company. “About 30% of the title insurance business in the nation is in California, and with interest rates starting to fall a little, we think California is starting to move, although very slowly.”
Most of that movement is in the north, however. In Southern California, home sales--which trigger the demand for title insurance--are at their lowest level in years, and interest rate declines that can rekindle the refinancing furor have just barely started.
“Conversely, the rest of the country seems to be doing fairly well,” Klemens said. “Spring and summer are the peak periods and we see, excluding California, an OK real estate economy at least through the start of the third quarter.”
Developer Rising said he is upbeat despite “the bombardment of confusing statistics.” Rising points to job growth and tangible improvements in the industrial real estate market as well as the demand for rental housing.
“I think that there’s really almost a feeling that no one can be positive because it’s not socially or politically correct,” Rising said.
“We have projects throughout the state . . . so we have a pretty good read. What we’re seeing is vacancies are declining” in industrial real estate but not in the overbuilt office market.
The residential rental market “looks good,” he said. Sales are meeting a “psychological resistance” because of bad economic reports. Still, there is a pent-up demand that must be satisfied at some point.
Custom Chrome’s growth has not been broken by recent economic slowing, said Kelly. Custom Chrome is looking for new suppliers, particularly in the Los Angeles basin, which could lead to more jobs here, he said. The company had nearly $75 million in sales last year and is looking for a sales increase this year, now that its new distribution plant in Visalia is up and running.
Patty DeDominic, chief executive of PDQ Personnel Services, said that business at her Los Angeles-based staffing service is “very good.”
“We have about 800 people out on various kinds of assignments this week and--knock wood--things continue to look good,” said DeDominic, who is also president of the National Assn. of Women Business Owners.
“While everyone seems to be a little concerned about some of the reports we have heard about the slowing of the economy in California and nationally, we have not seen it yet here,” she said.
The slowdown is not nibbling at Bridgford Foods. The Anaheim food processor is “expanding across the [United States] in anticipation of greater volume,” said Chairman Allan L. Bridgford. That includes building manufacturing plants in Texas and North Carolina this year. He said the company will be adding employees to staff them.
Whatever direction the national economy is taking, Bridgford said, “we haven’t felt any effect yet. Our business nationwide is up moderately this year and in California our business is up even more.” The company recently completed an expansion of its Anaheim headquarters and processing plant.
Other leading companies in the state say they aren’t ready to concede a rough economic ride, even if they aren’t planning to beef up staffs or greatly increase capital spending. At Chevron and Atlantic Richfield, major downsizings and restructurings have the state’s two largest oil and gas companies leaner and better prepared to meet economic challenges, both companies said.
“Our business responds more to the price of oil on world markets than to the occasional swings in the U.S. economy,” said Chevron spokesman Mike Libbey, “and oil prices have been strong and relatively stable.”
California’s defense contractors and aerospace companies continue to look at reduced budgets for the Defense Department as their indicator of difficult times, rather than other indexes. Like Litton Industries of Woodland Hills, which has been acquiring other defense contractors, most of the state’s defense-related businesses are well into strategies designed to cope with the defense doldrums.
“We constantly fine-tune our employment levels to maintain our competitiveness. . . . We are a very healthy company,” said Litton spokesman Robert S. Knapp.
