Decline in Exports Seen Tempering O.C. Growth in '98

By PATRICE APODACA

Dec. 5, 1997 12 AM PT

TIMES STAFF WRITER

ORANGE —

Orange County’s surging economy will slow next year as the Asian financial crisis tightens the spigot on exports and the national economy weakens. But a building boom will offset some of the damage.

That was the outlook presented Thursday by Chapman University economists in their closely watched annual economic forecast.

“The sharp growth will plateau out,” said Chapman President James Doti.

Orange County will suffer more than the nation as a whole from the turmoil in Asia because more of its exports--43%--go to that region, compared to 30% nationally.

“Our economy, not just Orange County but the United States, depends more and more on the global economy,” said Chapman economist Esmael Adibi, co-author of forecast. While that’s generally been a positive development, he said, “there’s no question we’ve become more vulnerable” to business cycles abroad.

With the county’s economy going full tilt and optimism riding high throughout the year, Chapman’s is the first forecast to cast a shadow on growth because of the recent currency problems in Asia.

In October, for example, Cal State Fullerton released a positive economic forecast based partly on expectations of continued strength in high-tech exports.

But Chapman economists project that the county will lose $150 million of about $1 billion in annual sales to Hong Kong, Singapore, Indonesia and other areas of Southeast Asia, resulting in a loss here of 2,400 jobs.

The county’s $2.6 billion in annual exports to Japan, South Korea, China and Taiwan are also at risk, Chapman said. Medical and computer-related products are among those expected to take the hardest hit.

Adibi, director of Chapman’s Anderson Center for Economic Research, said growing trade with other regions, including Mexico, Canada and Europe, will counter some of the damage to the county economy from the Asian financial woes.

Orange County exports are expected to grow 2.4% next year, well below 1997’s 3.6% increase and the double-digit gains registered in the previous two years.

A significant slowdown in the national economy next year will also curtail the county’s growth prospects, according to the report.

It predicts rather lackluster growth of 2.4% next year in real U.S. gross domestic product, which is the inflation-adjusted value of the goods and services produced by the nation. That compares with the estimated 3.7% growth in GDP this year.

Despite the cautionary tone, however, Chapman forecasters said the Orange County economy will still be in good shape. They said there’s enough momentum left to the expansion so that 35,000 jobs will be created next year--the same as in 1997--with the resulting growth rate slipping only slightly, to 2.8% from 2.9%.

Orange County’s growth will be propelled largely by the resurging real estate market, they said.

“We are in the midst right now of a construction boom,” said Doti, who is also an economist.

A sharp increase in the value of construction permits this year signals strong building activity in 1998. Permits are expected to hit $3.6 billion next year, the highest level in a decade.

What’s more, low interest rates and higher income levels are expected to help push local housing prices up 4% next year and an average of 4.2% annually over the next five years.

“This is a good time to buy a home in Orange County,” Doti said.

Spurred by the strong demand for housing, sales of furniture, appliances and building materials will also gain ground, the Chapman report says. Sales of new cars and gasoline will weaken, but the overall increase in the county’s taxable sales will be a respectable 6.2% for the second year in a row, it says.

Gross county product--the local equivalent of GDP--is projected to pass the $100 billion mark for the first time next year, shooting up 6% to $101 billion.

“If we were a nation, we’d be just above Greece,” with the 33rd-largest economy, Doti noted.

Most of the job growth in the county during the four-year expansion has come from the service sector, and that pattern is expected to continue. Total personal income will rise 6.6% to $85.9 billion, the report predicts, following this year’s 6.4% increase.

Taking a somewhat contrarian view, Chapman economists believe that the Federal Reserve Board will cut interest rates next year as inflation stays dormant. That should bolster stock prices, they said. But the stock market remains a wild card in the economic outlook, they warned, because slower growth in corporate profits could spook investors.

The Chapman forecast was presented before a crowd of about 900 gathered at the university’s Orange campus. Known for its accuracy in predicting economic trends, the report is closely followed by the business community. Executives use the data for planning purposes.

Some local company representatives say that in the past several weeks, they have felt negative effects from the turmoil in Asia.

Nancy Munoz, president of the 10-employee Specialty Vehicles, a Huntington Beach firm that sells tram cars and other specialized vehicles, said that her business in Singapore and other key Asian export markets “has just gone flat--totally, totally flat.”

Asia accounts for about one-third of Specialty Vehicles’ sales and is the firm’s largest foreign market. Since the crisis began, Munoz has had to lay off two international marketing representatives. “There’s tons of potential business there,” she said, “but everything is put on ice.”

Beckman Coulter, a Fullerton medical equipment maker, has also seen some slowing of its business in Asia, said company spokesman Jay Steffenhagen. But over the long term, he said, these are markets that want to upgrade their health care systems. The current crisis “hasn’t deterred us from our long-term vision of the growth that’s going to occur in Asian countries,” he said.

Some companies, however, say they’re continuing to see strong demand from Asia.

“It’s business as usual over there,” said John M. Kott, vice president of Kott Koatings Inc., a Foothill Ranch franchiser of bathtub reglazing dealerships. “It’s still one of our fastest-growing markets.”

Kott said that demand for his company’s products remains strong because in times of economic distress, businesses and individuals restore older bath fixtures rather than buy new ones.

The troubles in Asia have also had little effect so far on Aeromil Engineering Co. in Santa Ana, which sells components to Boeing and other big aircraft makers. Brisk orders for new planes from around the world have led to a rebound in the industry in the last year, and Aeromil Chief Executive Doy Henley doesn’t see that slowing down.

In fact, he said, his biggest challenge now is finding enough qualified workers to meet the demand for parts. He has 120 employees and wants to hire more.

“For companies in my industry, it’s very difficult to hire people,” he said. “We’re restricted in growth by the limitations on manpower.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Looking Ahead

According to the Chapman University Economic Forecast, economic turmoil in foreign markets, particularly Southeast Asia, will slow the county’s export growth. But the overall economic outlook is positive, with rising personal income and strong residential construction activity.

County Exports to Asia

In millions

*--*

1993 1994 1995 1996 1997 estimate Southeast Asia $733.1 $764.2 $854.9 $961.9 $811.9 Other Asian $1,439.0 $1,872.0 $2,362.2 $2,626.9 $2,400.0 countries

*--*

Note: Southeast Asia figures are for Hong Kong, Singapore, Indonesia and other Southeast Asian countries. Figures for other Asian countries include Japan, China, South Korea and Taiwan.

All County Exports

Dollar figures in billions

*--*

$ total % change 1994 $6.7 17.5% 1995 $8.0 19.4% 1996 $8.3 3.8% 1997 $8.6 3.6% 1998 $8.8 2.3%

*--*

Personal Income

The county’s total personal income, a measure of liquid income including wages and salaries, dividends, interest and rents, will increase 6.6% in 1998, boosting the county’s median family income past the $60,000 mark. Percent increase in gross personal income:

1993: 1.4%

1994: 3.4%

1995: 6.0%

1996: 6.2%

1997: 6.4%

1998: 6.6%

1999: 5.5%

2000: 6.1%

2001: 6.6%

2002: 6.2%

Residential Development

Home construction is expected to remain strong through 1998 and beyond. Percent change in residential building permit valuations: