O.C. Business Executives See Good Times Ahead
Any doubts that Orange County’s economy is growing and prospering have all but vanished, replaced by a brimming optimism about the future, UC Irvine economists said Tuesday in their annual executive study.
The 222 county executives surveyed were more upbeat about a wide range of economic issues than at any time in the study’s 11-year history, economists said.
Executives were bullish about prospects for their corporations’ financial performance, expansion and job growth while playing down the likelihood of relocating, downsizing and laying off workers. Overall, 41% of those responding judged the county a more attractive place to do business, up from 29% last year.
The proportion of businesses expecting to expand in the next five years reached 80%, the highest level since the survey began. More than half of the respondents expected to hire more workers this year, the most buoyant employment outlook since 1988. Only 8%, the lowest rate ever, expected to reduce their work forces.
The forecast translates into 48,000 new jobs in the county this year, a 4% increase, said Dennis Aigner, dean of UCI’s Graduate School of Management. The county economy has not only recovered from the recession of the early 1990s, “but has switched into high gear,” Aigner told a crowd of business people who gathered on the UCI campus Tuesday to hear the survey results.
Many said they hoped the survey’s optimistic outlook would help single out Orange County for more attention. The county “is not really on the [national] map yet,” said Mark S. Stewart, president of the Irvine investment firm Trademark Investments Inc. “I think that’s going to change.”
About 70% of the executives responding to the survey said their companies’ financial position had improved in the past year, while 86% expected an even better performance in 1997. The growing importance of international trade was also stressed, particularly among high-tech companies, which derive an average of 30% of their revenue overseas. Within five years, 56% of Orange County firms expect to be serving international markets, compared with 44% today, the survey found.
Asia and Western Europe account for about two-thirds of total foreign sales by Orange County businesses, the survey found, although Mexico and Canada are fast-growing markets.
The municipal bankruptcy, a key concern in the past two surveys, was cited by only 13% of executives as a serious problem for the county.
One survey respondent, Jerry W. Carlton, a managing partner at O’Melveny & Myers in Newport Beach, said the positive attitude about county businesses is evident at his law firm.
“We spend a lot of time helping people raise money,” he said. “We’ve never been busier in the corporate and corporate securities area.”
Michael Meyer, managing partner of the Newport Beach office of E&Y; Kenneth Leventhal Real Estate Group, said the survey also confirms the positive outlook for the construction trade.
“Our home builder clients are experiencing better sales of houses than they have in seven or eight years,” he said. Although housing prices have yet to move much after years of declines, he believes robust job growth will spur an increase in values this year.
Despite the upbeat outlook, a few dark shadows hover over Orange County’s economy, the findings suggested.
Companies in the retail and wholesale trade sectors had lower expectations than those in business and professional services, finance, insurance, real estate and manufacturing. Businesses planning to expand also said they’re worried they won’t find enough qualified workers, particularly for professional and technical jobs.
The high cost of housing was seen as the biggest barrier to doing business in the county, although less so than a year ago. State and local taxes; litigation; the high costs of workers’ compensation, labor, land and buildings, and transportation problems were also seen as obstacles.
Last year, about half the companies considering relocating said they’d been contacted by other states. This year, it was down to 32%--possibly a sign that a steady flow of businesses out of the area is abating.
But Aigner said he found it “troublesome” that only 4% of the firms said that they’d been contacted by their local government, or by the state of California, with offers of assistance if they stayed put. “This is a conundrum to me,” Aigner said. “Something needs to change here in terms of how we retain the businesses that we have.”
Executives also said operating costs are more likely to increase this year. However, Aigner said rising costs should be more than offset by growing sales. Nine of every 10 firms surveyed expected their sales to increase this year.
Orange County’s task now is to better market itself, much as Silicon Valley has sold itself as a high-tech capital to the rest of the world, Alfred R. Berkeley III, president of the Nasdaq Stock Market, told executives at the survey conference.
Berkeley said that Orange County stocks account for $15.3 billion, or 3.4%, of Nasdaq’s total market value. “Not many counties in the country can say that,” he said.
“You’ve got all the pieces of the puzzle here. But you need a little more organized effort” to promote the county’s healthy economy.
Berkeley acknowledged that tougher financial standards recently adopted for Nasdaq-traded stocks will make raising capital through public markets more difficult for the entrepreneurs that are the backbone of the Orange County economy. Those changes were motivated in part by last year’s scandal involving Newport Beach-based Comparator Systems Corp., whose stock soared before collapsing amid allegations of fraud.
“Comparator was like insurance fraud raising the cost of insurance for everyone,” he said.
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High on Bottom-Line
Orange County executives are very bullish on the financial performance of their firms in 1997:
Much better: 26%
Somewhat better: 60%
Worse: 1%
Same/don’t know: 13%
Source: Orange County Executive Survey, 1997
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Growing Optimism
Top business executives in Orange County are optimistic about the business climate this year, with nearly two-thirds reporting their companies are at least somewhat likely to expand operations:
Expanding: 39%
Somewhat likely to expand: 24%
No change expected: 27%
Somewhat likely to downsize: 4%
Downsizing: 6%
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Hiring Plans
With the exception of retail, industry sectors are consistent in the scope of their plans to hire modestly more workers. Hiring outlook by industry sector:
*--*
Modestly Substantially Fewer more more Manufacturing 12% 51% 4% Retail 9% 18% 9% Wholesale 6% 51% * Business services 3% 40% 13% Professional services 9% 56% 3% Finance/insurance/real estate 10% 55% 2%
*--*
Note: “No change” and “don’t know” categories not shown
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Downsizing Downplayed
Just 19% of executives say their companies are somewhat or very likely to cut jobs during the next five years, the lowest figure during the last five years:
1993: 31%
1994: 23%
1995: 25%
1996: 26%
1997: 19%
Source: 1997, Orange County Executive Survey, UCI Graduate School of Management
