Chapman Sees Cool-Down in O.C. Economy
Orange County’s strong economy will weaken a bit in 2000 as the construction market cools, consumer debt hits historic levels and higher interest rates slow the national economy, Chapman University economists said Thursday.
The expanding housing market, in particular, will taper off, but perhaps not enough for most residents, according to the university’s closely watched annual economic forecast.
For the first time since the late 1980s, the report states, at least half the families in the county can’t afford a median-priced home, which the report put at nearly $300,000.
The county still should add about 40,000 workers to local payrolls next year, the report states, but that 3% job hike would be the smallest since 1996, when the county climbed out of the long recession--and its own bankruptcy.
Despite the expected cooling trend, Chapman’s president, James L. Doti, was enthusiastic about life in the county.
“It’s a wonderful time to be in Orange County, which is more dynamic than ever and has a lot of things going for it,” Doti said.
If the county were a nation, he said, its economy would rank 36th in the world, just behind Colombia, which had a gross domestic product--the value of all goods and service produced--of $106.1 billion in 1998. But that South American country has 40 million people, he noted, “and we have less than 3 million.”
Doti, who started the reports 22 years ago, and Esmael Adibi, head of Chapman’s Anderson Center for Economic Research, explained their findings to an audience of more than 700 people Thursday afternoon at the university.
Local business owners and operators were cheered by the report despite its cautioning nature.
“We’re moving from frenzy to very good,” said Richard Sim, group president for the Irvine Co., the county’s largest developer.
Chapman economists predicted that the national expansion will soon enter its ninth year, surpassing the economic boom of the 1960s during the Kennedy-Johnson era as the longest in the country’s history.
In the past two years, Chapman economists have predicted a local economic cooling, only to see robust growth. This year, they are not quite as pessimistic as their colleagues at Cal State Fullerton, who predicted in October that the county’s increase in jobs would slow to 2.8% next year.
Regardless, signs abound locally that various sectors are topping out or starting to lag.
Chapman predicts that housing values, which jumped 11% this year and show no sign of falling, will rise an additional 8% next year.
Also hurting the local economy is the fact that consumer debt is at historic levels, which should put a crimp in consumer spending, Adibi said.
And local construction spending, long a major factor, will increase by just 5.5% next year to go over the $4-billion mark, compared to the estimated 15.6% growth this year.
Building activity would be greater, especially for residential housing, if not for a scarcity of land to build on in the county, the report said.
“The construction [business] is still very strong, but it doesn’t have as much oomph as it once did,” Adibi said.
But a big reason for Orange County’s softening economy next year will be the slower growth in the nationwide value of goods and services produced, a slowdown caused partly by an expected hike in interest rates. The report predicts that the national gross domestic product would drop to 2.7% next year from an estimated 3.9% this year.
The lower number of new jobs anticipated next year marks the second straight year of smaller job growth in the county. Still, more than 41,000 jobs are expected to be created this year, and that 3.2% increase is greater than every other urban area in California except the Inland Empire, Chapman economists said.
Last year, the county saw 61,000 new jobs added to payrolls.
Executives and business owners are upbeat about the county’s and their own prospects.
Maria de Lourdes Sobrino said business has been so good at Lulu’s Dessert Factory in Huntington Beach that she plans to move her operation next year to a 70,000-square-foot plant in Rancho Santa Margarita.
“Right now, I cannot add any more customers because I don’t have the production capabilities,” she said. “At the new facility, I’ll be able to employ more people, expand my product line and increase my sales.”
Lulu’s makes gelatin desserts and all-natural frozen confections.
Business People Remain Optimistic
Victor Tsao said he expects sales next year at his Linksys Group Inc. in Irvine to jump nearly 80% to $180 million as the company expands its Asian operations and moves into Europe. He plans to hire up to 50 new workers in Orange County next year, bringing the total number of employees to 150.
Linksys, which makes computer networking equipment, recently made Inc. magazine’s list of the 500 fastest-growing private companies in America--its third consecutive appearance on the list.
“We’re seeing tremendous growth,” said Tsao, the company’s president. “The demand for networking products in the Internet age is incredible.”
Stan Oftelie, chief executive of the Orange County Business Council, also is bullish on the local economy. “We’ll look back on this period as the good old days,” he said.
Oftelie added a few cautionary notes. The county could suffer, for instance, if the Asian economic recovery stalls or the stock market suffers a major hit, he said.
Chapman’s economists also noted a potential black mark for the county. Over the next five years, an additional 187,000 new jobs will be created by local businesses, buoyed by increased defense spending and exports. That could further drive up housing costs as thousands of employees and their families move here.
The report predicts that the service sector, which includes tourism, law and engineering, will post the greatest job growth next year by adding more than 16,000 new workers, a 4% increase over 1999.
Other big gainers will be state and local governments, which will add 5,215 new workers, a 4.1% hike, and the retail trade, which will create 4,365 positions, a 1.9% bump.
High-tech should fall slightly, losing an estimated 142 jobs. It should eventually pick up as defense spending rises and Asian economies shake off their woes and increase their imports.
Thursday’s presentation of the Chapman report was co-sponsored by the Times Orange County Edition and City National Bank.
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Easing Up
Orange County’s economy will weaken a bit next year, but still will remain stronger than the national ecomony, according to the annual Chapman University economic forecast. About 40,000 new jobs will be created, a 3% increase over this year, the university predicts.
(Forecasts for 2000)
U.S. GDP Growth: 2.7%
U.S. Consumer Price Index: 2.5%
O.C. Job Growth: 3.0%
O.C. Personal Income: 6.3%
O.C. Home Price Inex (Resales single unites: 1990=100): 8.0%
Source: Chapman Economic Forecast
