Expecting a Smooth Ride : From Cycle Parts to Paper Products, Companies Say State’s Economic Outlook Is Good
The official economic barometers may be pointing to stormy skies, but some California companies say they’re not getting out the umbrellas just yet.
Despite a dramatic slowdown in national economic growth that threatens California’s fledgling recovery, many of the state’s business people remain optimistic and say they will continue with hiring and spending plans. An informal, unscientific sampling of businesses in the state yields the view that California has been through the worst and that signs that the national economy is slowing aren’t going to scare the state’s business people into easing up.
“Our outlook is pretty rosy, even if there is softening in the economy,” says 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.
Echoes Nelson Rising, chief executive of Catellus Development of San Francisco, a real estate company that owns Union Station and other properties: “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 Board 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 came after 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 going, they say, but now that the recovery is under way, the momentum appears to be unbroken no matter what is happening in other states.
What’s more, many companies have pared down and restructured themselves, becoming recession experts who can navigate around small economic disturbances, executives say. And many of the larger corporations have found that their foreign operations are unaffected by blips in the domestic economy.
Of course, California’s fledgling economic renewal has not reached all companies in every sector. Residential and office construction remain moribund, and retailers are still complaining about parsimonious consumers.
Laura Balverde-Sanchez, chief executive of El Rey Sausage Co. in Vernon, said she has been waiting for the rebound to reach small manufacturing companies such as 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 with corporate spending and in the way she schedules employees so as 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 number of incoming orders for 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 booms 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.”
As for Potlach, its paper business struggled through a long trough, but it is healthy again now. 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 past couple of months, it might actually be helped by an economic slowdown if interest rates are nudged down. Lower interest rates might spur home buying, home building and demand for wood products.
Catellus’ Rising said that he is upbeat despite “the bombardment of confusing statistics.” Rising points to job growth, tangible improvements in the industrial real estate market and a demand for rental housing.
“We have projects throughout the state . . , so we have a pretty good read,” Rising said. “What we’re seeing is vacancies are declining [in industrial real estate],” although 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 the recent economic slowdown, Kelly said. The company is looking for new suppliers, particularly in the Los Angeles Basin, which could lead to job creation here, he said. The company had nearly $75 million in sales last year and is looking for an 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,” DeDominic said recently.
“The information from our clients, which represent a broad range of all different kinds of companies, still is strong,” she said.
The slowdown is not nibbling at Bridgford Foods. The Anaheim-based food processor is “expanding across the U.S. in anticipation of greater volume,” Chairman Allan L. Bridgford said. 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 headquarters and processing plant.
Other of the state’s leading companies say they aren’t ready to concede a rough economic ride, even if they have no plans to beef up their staffs or greatly increase capital spending. At Chevron and Atlantic Richfield, major downsizing and restructuring has made the state’s two largest oil 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.”
At Arco, where staffing continues to be lean, the company has yet to see any downturn in demand for gasoline, spokesman Al Greenstein said. And the firm’s chemicals unit, which is fairly responsive to economic trends, had a strong fiscal first quarter, he said.
