Crisis of Confidence : O.C. Survey Reflects Toll of Bankruptcy

Nine months after Orange County’s bankruptcy, a new poll indicates that the financial crisis has taken a significant toll on consumer confidence in the county.

The Orange County Annual Survey, released Monday, found that one in four residents has been personally affected by the county’s bankruptcy. And more than two-thirds of the respondents said they are fearful that the government’s $1.69-billion investment-fund loss will bear negatively on their lives, through cuts in county services or schools, for example.

Pollsters said this surprisingly large group of bankruptcy-affected and worried residents held down the county’s overall confidence index, which inched up to 90 this year from 89 last year.

If not for the bankruptcy, Orange County’s consumer confidence index this year would probably have shot up to the national average of 94 or surpassed it, said Mark Baldassare, a UC Irvine professor who conducted the survey.

“As much as people haven’t wanted to admit it, the bankruptcy is having an impact, and we see it clearly in consumer confidence,” Baldassare said.

Other analysts attributed the flat consumer confidence index more to the county’s and state’s tepid economic recovery. Nevertheless, the survey findings are significant, business executives said, because they suggest that a large number of consumers may hold back on making big purchases.

The survey also found that incomes of Orange County residents remained stagnant. Survey respondents have a median household income of $47,000--the same as last year and down from $49,000 in 1991.

The UCI confidence index is based on five questions measuring consumer attitudes about their personal finances and the economy now and in the future. The 14th annual survey, which polled 1,001 adult residents by telephone between Aug. 18 and 27, has an error margin of plus or minus 3%, said Baldassare, who chairs the urban and regional planning department at UCI.

This year the survey asked additional questions related to the county’s bankruptcy, enabling Baldassare and associate Cheryl Katz to gauge confidence levels for those who have been affected by the bankruptcy as well as those who said it has had no bearing.

The gap between the two groups was telling. For those who said the bankruptcy has not affected them, the confidence index was 94, comparable to the national rate. But it was a mere 79 for those reporting an impact from the bankruptcy.

Similarly, the confidence index shot up to 99 for the 31% of respondents who said they are not fearful of future effects from the bankruptcy. But the 28% who expressed strong fears had a confidence rating of 78. (The index was pegged at 92 for the remaining 41% who said they are somewhat fearful.)

The survey did not ask respondents to describe how the bankruptcy had affected them, so pollsters had no way of discerning whether the effects were direct or mainly psychological. Although no one knows exactly how many people have been laid off or how many vendors have not been paid as a result of the bankruptcy, analysts believe that the number directly affected by the fiscal crisis is relatively small. Also, the county’s unemployment rate has continued to improve from last year, dropping to 5.4% in August from 5.9% a year earlier.

Even so, as Baldassare and others observed, psychological outlook is as important as financial condition in determining consumer confidence.

“A lot of people have the perception of being affected by the bankruptcy, and that can have a very dampening effect on consumer confidence,” said Todd Nicholson, president of the Orange County Business Council, which represents 1,800 firms employing 350,000 workers.

Nicholson said he was struck by the large number of people who reported that they had been affected by the bankruptcy. Also, the survey indicated that the bankruptcy touched low- and high-income families alike and that both were equally fearful for the future.

Nicholson remains hopeful that county residents will become more confident, especially with the prospect of the state Legislature aiding the county and with groups like his working to make Orange County government more efficient. But if the bankruptcy problem lingers, he said, it could make for an unhappy Christmas shopping season.

Orange County’s confidence index this year compares favorably with a low of 73 in 1993 but remains well below the 100-plus ratings the county consistently registered in the booming ‘80s, putting it far ahead of the national average at the time.

Anil Puri, an economist at Cal State Fullerton, said he was not surprised by the survey results. Even without the bankruptcy, Puri said, it was unlikely that consumer confidence would have changed much in Orange County.

“Given the slow recovery in California,” Puri said, “that is to be expected.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Bankruptcy Touches 1 in 4

One Orange County resident in four has been affected by fallout from the county’s bankruptcy, and about the same number are very worried that they will be affected in the future.

Have you or anyone in your family been affected by spending cuts resulting from the Orange County government investment fund losses?

Yes: 25%

No: 75%

In general, how fearful are you that you will be affected--such as financially, or in cuts in local services and schools--as a result of the Orange County government investment fund losses?

Very fearful: 28%

Somewhat fearful: 41%

Not fearful: 31%

Toll on Confidence

Bankruptcy experiences and expectations have shaken the economic confidence of county residents. Those who have been touched by the county’s financial problems or are most worried that they will be affected are less optimistic.

Affected by bankruptcy *--*

They say: Yes No Better off now than last year 32% 40% Better off next year than now 43% 46% Good time for major purchase 55% 65% Good times in U.S. next year 40% 50% Good times in U.S. next 5 years 36% 49%

*--*

*

Bankruptcy fears *--*

They say: Many Some None Better off now than last year 29% 40% 43% Better off next year than now 41% 45% 48% Good time for major purchase 54% 63% 70% Good times in U.S. next year 38% 49% 55% Good times in U.S. next 5 years 35% 46% 54%

*--*

County Trails Nation

The five-question consumer confidence index has a decade-long history in Orange County and for most of that period exceeded the composite U.S. number. During the last four years, however, it has lagged behind the nationwide figure. Higher numbers equate with more confidence:

Orange County: 90; U.S.: 94

Source: UC Irvine’s 1995 Orange County Annual Survey