Chapman Forecasts Sunny Economic Outlook

With all key signs pointing to strong job growth, a widely followed economic report on Thursday painted a bright picture for Orange County in the coming year.

In particular, a booming import-export market, coupled with rebounding construction activity, will fuel the county’s economic growth in 1997, the report predicted. Two other leading sources of jobs in the county--the nation’s defense industry and a healthy U.S. economy--are also expected to contribute to the local economic expansion next year.

“The Orange County economy is firing on all cylinders,” said economist James Doti, president of Chapman University and one of the authors of the report.

The forecast by Chapman’s Center for Economic Research was presented before a crowd of about 1,000 local business people gathered on the university’s campus. It was the center’s 19th annual economic and business review.

The Chapman report, known for its accuracy in predicting economic trends, is widely used by local companies for planning for the year ahead. It follows the release in October of another closely watched economic forecast by Cal State Fullerton economists that also presented a sunny outlook for the county.

Doti said that about 27,000 jobs were created this year, a 2.4% uptick that exceeded the national rate for the first time since 1989 and returned county employment to pre-recession levels. The report projected that employers will add jobs at an even faster pace next year--2.7%--and that local payrolls will continue to expand at an average 2.6% rate over the next five years.

The mix of jobs is changing as the county continues to move to a service-based economy from its former manufacturing base, the report said.

Contrary to the widely held perception that service-related jobs are relatively low-paying, the report said, the average hourly wage in the service category slightly exceeds the average wage for all county workers. Doti noted that many of the new jobs are in high-paying fields, such as engineering, management and health services.

Economists expect the U.S. economy to grow at a rate of 2.1% next year. An expanding national economy is critical to local growth, Chapman economists said, because goods produced in Orange County are sold across the country.

Defense spending is showing signs of life after a deep slump, the report said. While Chapman economists projected a slow start for the year, the industry is expected to rebound in later months and finish 1997 with a 5% to 10% increase in spending nationally. Local defense contractors would share in the gain.

Chapman economists also said they expect housing prices to pick up, a further indication that the market is pulling out of its lengthy recession. Prices for previously owned homes will rise a paper-thin 0.3% this year--the first increase in six years--and a 2.2% gain is expected next year. That pace will accelerate to the 3% to 4% range in the next five years, the report indicated.

Chapman economists also cautioned that housing values won’t reach past highs until the turn of the century. Still, demand for new housing is growing and that will keep the construction market rebounding, the report said. Spending on new construction is expected to climb 17% next year.

Median family income in the county will continue to outpace inflation in 1997, growing by 4.4% to $59,629, the report said.

But the most important factor driving local growth, Doti said, is that “import-export activity is just going gangbusters.” Orange County now ranks sixth out of 253 metropolitan areas in the nation for international trade, he said.

Esmael Adibi, director of the Chapman economic center and co-author of the report, said that local companies have historically generated nearly all their sales from the domestic market, leaving them vulnerable to recessions in the U.S. economy.

The Chapman forecast “absolutely rings true,” said Louis B. Horwitz, chief executive of Irvine-based Datum Inc., which makes precision timing devices used in telecommunications markets. The company generates about 15% of its annual revenue from international sales. Horwitz said he believes Datum can double that in a few years as the company makes further inroads in Asia and Latin America.

In the next two years, Datum expects to add 50 to 100 manufacturing and administration positions to the company’s current Orange County work force of about 350 employees, with about half that increase related to the firm’s growing foreign trade, Horwitz said.

“At one time, eight or 10 years ago, nobody talked about anything but Japan,” Horwitz said. “But China, South Korea, Taiwan, the Philippines and Malaysia are all very, very large customers of American products. And being on the West Coast gives us a tremendous advantage.”

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Rosy Outlook

Economists at Chapman University expect Orange County’s economic picture to improve beyond this year’s gains, especially in resale home values, job creation and taxable sales.

(Please see newspaper for full chart information)

Property values

Resale home values are expected to increase slightly this year and continue improving through 2001. Percentage change in values:

2001: 4.1%

Job Creation

New jobs added annually, in thousands:

2001: 38.3

Taxable sales

Annual sales in millions:

2001: 43.4

Note: Figures for 1996 and beyond are forecasts

Source: Chapman University Economic & Business Review