O.C. Economy Expected to Lose Strength

Despite a stellar performance so far this year, Orange County’s economy will slow considerably into next year because of Asia’s financial crisis, Chapman University economists said Thursday.

“We started out with a bang,” said Esmael Adibi, director of Chapman’s Anderson Center for Economic Research. “But it’s going to lose its steam in practically every area of the economy.”

Employment growth will average a still-strong 3.7% for the year, down just slightly from 1997’s 3.8% increase. And an equal number of jobs--45,000--are expected to be added to county payrolls.

But Chapman said the annual figure will be skewed higher because of the extraordinary 4.9% year-to-year gain in employment registered in the first quarter.

For the remainder of the year, the university predicts that payroll growth will retreat to about 3.2% and the county’s expansion will likely cool even more next year.

“The first quarter may have been a peak,” said Chapman President James Doti, also an economist. In 1997, “all the engines of economic growth were pointing up,” he said. “Now they’re all pointing down.”

The predictions were part of Chapman’s midyear update of its closely watched annual economic forecast last December. Although the projections have changed little, Chapman economists said that earlier expectations about the severity of Asia’s troubles are now being confirmed.

Japan has now fallen from its perch as the county’s top export market, as the value of goods shipped there fell 9.3% from the first quarter of 1996, to $348 million in last year’s fourth quarter, Chapman found. In the same period, exports to South Korea fell 25.4%, to $106 million, while exports to Singapore dropped 9.6%, to $85 million.

As a result of Asia’s troubles, the county won’t add about 6,000 new jobs this year that it otherwise would have. That forecast does not take into account the recent worsening of the situation in Japan, the Chapman economists said.

Responding to the forecast, Gary Liebl, chairman of QLogic Corp., a Costa Mesa-based semiconductor maker, said he was “surprised and a little bit sobered by a number of the trends” in the county’s economy. “I feel the high level of confidence and enthusiasm we’ve seen over the last 12 months are going to be tempered by realism.”

William L. Healey, chief executive of Smartflex Systems Inc. in Tustin, said “We’ve seen a lot of softness” in demand from Asia. His company, which manufactures data-storage products for firms that export to the region, restructured last year when the Asian crisis first hit.

County exports still will increase this year, but only by 8% compared with a 13.3% gain in 1997, as the problems in Asia are at least partially offset by growth in trade with other countries, Chapman said.

Mexico is now the county’s No. 1 export market, with the value of goods shipped there soaring 66.4% from early 1996 to $446 million in the fourth quarter of last year.