Chapman Forecasts Growth : Expansion: University's annual study shows increase in housing prices next year and sustained growth through rest of the decade.

By JOHN O’DELL

Dec. 8, 1995 12 AM PT

TIMES STAFF WRITER

ORANGE —

In their most upbeat forecast in years, economists at Chapman University painted a portrait Thursday of a consumer-friendly 1996 in which Orange County will record its first increase in housing prices in six years.

The economic improvements expected in 1996 aren’t big ones, cautioned James L. Doti, Chapman’s president and the economist who began the school’s widely followed annual economic forecast program 18 years ago. But they are significant enough to point to sustained growth through the rest of the decade.

“This is one of our most optimistic forecasts,” said Doti, predicting that the appreciation in housing prices will be accompanied by increases in family income, consumer spending and employment. The county’s gross product, a measure of the value of goods and services produced locally, will hit $84.1 billion, up from $82.4 billion this year, he predicted.

The hike in the average selling price of a home in the county next year will be the first in a string of price gains averaging 4% a year through the end of the decade, said Esmael Adibi, director of the Chapman Center for Economic Research and author of the private university’s broad five-year economic forecast.

By the end of the decade, Orange County homeowners could recapture most of the equity they lost to declining home values from 1990 to 1995, Doti said.

Housing price hikes are vitally important in a county where much of the wealth is tied up in real estate.

The housing projections “will help solidify people’s already burgeoning confidence in the economy,” said Craig Morrow, Orange County residential loan officer for Sanwa Bank’s regional headquarters in Santa Ana. “We already are seeing that people feel maybe we’ve hit bottom and are starting to rebound.”

In another signal that the county is looking at a sustained recovery after several years of false starts, the Chapman economists said that hiring in the manufacturing sector, long on the decline in Orange County, should pick up slightly next year. The increase will be driven both by an improving climate for high-technology electronics companies and by the county’s first increase in defense contracts since 1987.

“Plummeting military budgets led to sharp cutbacks in defense-related employment,” Doti said, resulting in a permanent loss of about 17,000 jobs in the county in the last eight years.

“This loss of high-paying defense jobs over such a long period explains the severity of Orange County’s recent recession,” the economist told an audience of about 900 local business executives and politicians who turned out Thursday to hear the report firsthand.

While nationwide defense spending probably will continue to decrease, Adibi said, he and other forecasters expect the services portion of the defense budget--dollars spent for manpower--to take all of the punishment while spending on defense-related manufactured goods increases slightly.

As a result, Doti said, defense orders at Orange County-based businesses should increase 2%, helping manufacturers add about 3,000 jobs.

Most other employment gains for the year are expected to be similarly modest, but at least, Doti said, almost all employment categories will grow.

Only two areas--local government and finance--are expected to experience any shrinkage. Government employment could drop by just under 1%, or about 1,000 jobs, a lingering effect of the county government’s financial crunch. The finance sector could lose about 400 jobs, a 0.4% decline, largely because of continued mergers and closures in the banking industry, Doti said.

Overall, the Chapman forecast calls for an increase of about 24,000 jobs on local payrolls next year, up from a 17,000 gain this year. The added jobs would boost 1996 employment to 1.16 million in the county, approaching the prerecession level of 1.17 million jobs in 1990.

Employment growth, a low inflation rate and falling interest rates will help bolster consumer confidence and spending, Doti said.

He predicted that median annual family income in the county will rise nearly 3% to $57,106 from $55,507 this year. Higher incomes will help spur retail sales, which Chapman expects to rise to $31.4 billion next year, a 4% increase after adjustments for inflation. Chapman is estimating a 1.3% inflation rate in 1996.

The biggest shot in the arm to the economy should come from recovering housing values.

Doti said housing values should increase 1.4% for 1996, which would add about $2,700 to the value of the county’s median-priced home.

Values should be driven higher by demand. The economists said they expect residential builders to produce 13,000 units a year through the end of the decade, but supply will fall about 2,000 units short of demand each year.

The Chapman report is slightly less rosy than forecasts issued in October by First Interstate Bank and Cal State Fullerton, and a bit more upbeat than Cal State Long Beach’s Nov. 30 forecast for the county. But the differences are minor. All four reports generally call for 1996 to be the county’s first solid year of economic rebuilding since the 1990 recession.

The Cal State Long Beach report, for example, forecasts a 1.7% increase in local jobs in 1996 and a 1.3% hike in 1997, while Chapman’s report calls for 2.1% job growth next year and a 3% hike in 1997.

The chief difference is Chapman’s belief that Orange County’s already healthy export-import trade business will “have tremendous growth over the next few years,” Adibi said.

Chapman predicts a 15% annual growth rate for export-related business, from a gross value of $8 billion in 1994 to as much as $11 billion next year. Each $1 billion increase, Adibi said, creates 19,000 jobs in the region.

All four forecasts also suggest that the county government’s bankruptcy in December 1994 has been largely resolved and should have little lingering impact on business or on consumer confidence.

“There will be no recession” nationally or locally, Adibi said. County government’s plan to spread the cost of recovering its nearly $1.7 billion of investment losses over the next 15 to 20 years means a slight slowdown in the pace of job growth through the end of the decade, he said.

Chapman is forecasting 127,000 new jobs over the next five years; the total might have hit 132,000 without the bankruptcy, Adibi said.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Housing Hopes

Chapman University’s economic forecast for next year predicts the first increase in home resale prices since 1990. Percentage change in the average selling price:

1990: 7.2%

1991: -2.5%

1992: -1.4%

1993: -5.9%

1994: -5.2%

1995*: -1.3%

1996**: 1.4%

* Estimate

** Forecast

Source: Chapman University Economic & Business Review

Slow but Steady

Chapman University’s Center for Economic Research is predicting steady, if slow, growth in employment in Orange County through the end of the century. The prediction is based on the Chapman Indicator Series, which uses a weighted measurement of the nation’s gross domestic product and foreign trade balance along with local defense and construction spending. Employment tends to shadow movement in the indicator series. Percentage change from previous year: *--*

Indicator Employment 1990 -1.0 1.4 1991 -2.7 -2.5 1992 -1.5 -1.5 1993 0 -0.9 1994 2.4 1.0 1995 2.2 1.2* 1996 2.3 2.1 1997 3.3 3.0 1998 3.3 2.7 1999 2.2 1.0 2000 3.0 1.9

*--*

* 1995 employment change is estimated; 1996-2000 projected

Other Positive Signs

Chapman also is predicting increases in defense goods orders and consumer spending and foresees employers adding 24,000 jobs next year. Data for 1995 are estimates; 1996 figures are forecasts:

Defense Goods Orders

Percentage change from previous year:

1990: -8.7

1991: -4.8

1992: -11.5

1993: -9.7

1994: -9.5

1995: -9.8

1996: +1.8

Total Retail Sales

Percentage change from previous year:

1990: 0.2%