Asian Slump Has Arrived at O.C. Doorstep
After five years of steady growth, Orange County’s manufacturers have entered a slowdown as the slumping Asian economy begins to take its toll, an industry survey revealed Monday.
Jobs in manufacturing--still vital to the county’s economy despite their shrinking percentage of the whole--could drop this year for the first time since the recession of 1991-92, said Chapman University economist Raymond Sfeir, who conducts a quarterly local manufacturing outlook survey.
“The recession plaguing Asian economies seems to have finally had its full impact on the Orange County manufacturing economy” as orders for electronic components, machinery, chemicals and even paper products have slowed down, he said.
Manufacturers in every segment--from electronics to industrial machinery--are seeing a decline in business, the survey found. Many manufacturing companies were anticipating payroll reductions in the first half of this year--either through firings and layoffs or by not filling vacant slots.
The county is usually characterized as a hotbed of high-technology research, but manufacturing--from automobile wheels to computer disk drives--still provides about 18% of all jobs.
The 234,000 manufacturing jobs, many of them high-skilled and high-paid, also support about 117,000 service industry positions--from the accountants who keep manufacturers’ books to the short-order cooks who feed aerospace machinists at lunchtime.
The new survey caught Chapman economists by surprise, Sfeir said. Just five weeks ago, the Orange university’s widely watched 1999 county forecast predicted that manufacturing employment would continue to grow during the year, albeit at a much slower pace than in the past.
But the new survey found that manufacturing businesses started scaling back in the fourth quarter and expect to continue belt-tightening this quarter. Chapman contacted purchasing managers for the more than 120 manufacturers here between October and December for the quarterly survey.
The survey’s composite index, which reflects manufacturers’ outlook, dropped “precipitously” in the fourth quarter, trailing the national average for the first time since the fall of 1993, Sfeir said.
Local aerospace subcontractors also are pulling in the reins as they anticipate a slowdown in orders from industry giant Boeing Co., which is winding down production of the MD-11, MD-80 and MD-90 jets and has seen a dip in orders for its other planes, said Sfeir.
In Chapman’s manufacturing index, a rating above 50 indicates business is growing, while a rating below that level indicates recession or contraction in the industry. For the fourth quarter, the index plunged to 43.5, down from 54.4 in the third quarter and off almost 21 points from 64.4 recorded in the final quarter of 1997.
“We had a boom in ’97 and ’98 and I think we are going to see--we already are seeing--a leveling off through 1999,” said Herb Conway, president of Sun Eight Co., a Placentia aircraft parts maker that subcontracts from Boeing, Northrop Grumman Corp., Cessna Aircraft Co. and several other commercial and business jet makers.
Sun Eight, which had $13 million in sales last year and has 45 employees making aluminum and titanium structural parts for airplanes, probably won’t add workers this year but is expecting some revenue growth, he said.
But Conway is more sanguine about the future than economist Sfeir. His 27-year-old company has been through numerous ups and downs, and he believes “there are still a lot of opportunities out there for individual businesses even though there’s no growth in the big picture.”
It’s a scenario that other economists who watch the local scene also think is more believable.
“We’re starting to see a modest rebound in exports to Asia, so while the economy there is certainly not out of the woods, there is some improvement,” said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp. An uptick in exports to Asia would be a boon to manufacturers here, he added.
In his recent 1999 forecast, Kyser predicted that manufacturing employment in Orange County would increase by about 5,000 jobs this year to a total of 237,500. The county added almost 11,000 manufacturing jobs in 1998, Kyser said.
Forecasters at Cal State Fullerton also are sticking with their October prediction that manufacturing in Orange County will increase slightly in 1999.
“We see the first half of the year being quite weak” because of the Asian crunch, said Anil Puri, head of the state university’s Institute of Economic and Environmental Studies. “That’s no surprise.”
The Asian economies should start stabilizing in the second half and that, combined with a weaker dollar as foreign currencies are shored up by better economic performance, should help increase U.S. exports and manufacturing employment, he said.
But Sfeir says he believes the fourth-quarter survey tapped an unsuspected well of disquiet among manufacturers.
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Manufacturing Still In Decline
Orange County’s manufacturing sector slowed significantly in the fourth quarter. The Orange County index, which seeks to measure levels of production, employment, new orders, inventories and quantities of purchased materials, commodity prices and supplier deliveries, dipped below the national figure for the first time since the fall of 1993. The trend for the county and U.S.:
1993
1st qtr.
Orange County: 46.9
United States: 55.7
1998
4th qtr.
Orange County: 43.5
United States: 46.7
Source: Chapman University
