Growth of Manufacturing Slows in O.C.

Orange County’s manufacturing economy slowed for the third consecutive quarter as the Asian economic crisis led to a decline in exports, a new study found.

Based on a poll of purchasing managers at manufacturing firms in the county, the study by Chapman University found that employment growth and new orders slowed in the third quarter while inventories increased. One bright spot was a decline in commodity prices.

Chapman’s purchasing managers index fell to a seasonally adjusted 54.4 in the July-through-September period from 55.6 in the second quarter and 57.8 a year earlier. Although an index above 50 indicates growth, the measure has slipped each quarter since reaching a post-recession high of 64.4 in the fourth quarter of last year.

“There were more comments about the adverse effects of the Asian crisis on their industries than last quarter or the quarter before,” said Raymond Sfeir, a Chapman associate professor of economics who conducted the survey. The survey respondents indicated that sales had slowed overseas, while lower-priced imports were squeezing profits in the domestic market.

The index was based on the results of a survey of 114 purchasing managers regarding changes in the levels of production, employment, new orders, inventories of purchased materials, and supplier deliveries.

Despite the decline in the local index, it remains substantially higher than a comparable national index, which stood at 49.3 in the third quarter.

“Even though the growth rate is a little lower than last quarter, there is still growth in many sectors in Orange County, whereas in the nation as a whole we went below 50, which means we may be starting to have a shrinking in the manufacturing sector nationwide,” said Sfeir.

Although the drop in commodity prices reported in the Orange County survey is welcome news to consumers, the stiff competition from low-priced imports and among rival manufacturers is starting to hurt profits, the survey indicated.

The decline in the employment index, to 48.5 from 56.3 in the second quarter and 56.9 in the third quarter of 1997, was led by the high-tech sector. The electronics, computer, machinery and printing industries all reported slower job growth or reduced employment.

A separate composite index for high-tech industries declined to 52.6 in the third quarter from 59.3 in the previous three months and 64.6 a year before.

In another negative sign, new orders from local manufacturers have steadily eroded. The index fell to 55.0 in the third quarter from 56.4 in the second quarter, and well below the 65.1 in the final quarter of last year.

Nonetheless, Sfeir said there’s little cause for concern that the manufacturing economy will nose-dive.

“At the same time, there won’t be a resurgence to the high levels of this year or last year,” he said. “The fourth quarter will probably be around where we are right now.”

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Manufacturing Slips

Orange County’s manufacturing economy slowed in the third quarter, mirroring a nationwide trend. The manufacturing index is based on a survey of purchasing managers regarding changes in levels of production, employment, new orders, inventories of purchased materials, and supplier deliveries. Despite the decline, the county index continued at a higher level than throughout the nation:

1998

3rd qtr.

Orange County: 54.4

U.S.: 49.3

Source: Chapman University