O.C. Manufacturing Growth Slows

Growth in Orange County’s manufacturing sector slowed in the second quarter, but it continued to outperform the nationwide manufacturing economy, a new study found.

The purchasing managers composite index, which measures the strength of manufacturing activity, fell to 55.6 in the second quarter from 57.4 in the first quarter, Chapman University reported Wednesday. An index higher than 50 indicates growth; below 50 means the economy is contracting.

The index measures changes in the levels of production, employment, new orders, supplier deliveries and inventories of purchased materials. The only component that registered an increase in the second quarter was new orders.

In the fourth quarter of last year, the index reached 64.4, the highest reading in the 10-year history of the survey. The two consecutive quarterly declines since then are a result of weaker demand for goods produced in the county because of a slowing national economy and the financial crisis in Asia, Chapman said.

“It looks across the board,” said Raymond Sfeir, an associate professor of economics at Chapman and author of the study. “Production is not growing as fast as it did at the end of last year. The growth in employment is not as fast as at the end of last year either. All industries have been affected.”

However, he noted, the high-tech sector performed better than other manufacturing industries, particularly the computer and aircraft and parts industries.

The study was based on interviews with 114 purchasing managers at manufacturing companies based in Orange County. It mirrors a study conducted by the National Assn. of Purchasing Management, which found that the national index fell to 51.3 in the second quarter from the first quarter’s 53.5, Sfeir said.

He believes growth will continue to slow throughout the rest of the year. “We have not seen the full extent of the impact of the Asian economic crisis yet,” he said.

The one positive result of that, he said, is that slackening demand will put downward pressure on prices for raw materials and finished goods. If inflation remains dormant, the Federal Reserve Board might avoid hiking interest rates, he said.

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Foot off the Pedal

The manufacturing segment of Orange County’s economy continued to grow in the second quarter, but slower than it did in the first quarter. In the purchasing managers composite index, a score of 50 or more indicates a general expansion, below 50 a contraction. The most recent index is the lowest since early 1996.

1998 2nd qtr.: 55.6

Source: Chapman University