County Sees a Decline in Manufacturing Index

Bucking a national trend, manufacturing in Orange County stalled in the second quarter but should improve in the second half of the year, according to a Chapman University report.

The university’s quarterly manufacturing index, which tracks industry’s expansion and shrinkage, declined by 13.4% in the three months ended June 30, after growing at a 36.7% rate in the first quarter, the largest gain in more than five years.

“I’m not very exuberant about the local manufacturing economy, but I expect moderate growth,” Chapman economist Raymond Sfeir said. “I don’t expect no-growth to be a trend.”

Manufacturing accounts for about 18% of the county’s employment.

Orange County’s technology industry, an engine in recent years for the region’s booming economy, showed no growth in the second quarter. Chapman economists recently predicted in an update of their annual economic forecasts that high-tech employment would grow this year by only 1.2%, compared with a blistering 7.8% jump last year.

Problems ranging from overcapacity to price wars to shrinking profits in some segments of the technology industry have led to layoffs and restructurings at some of the county’s biggest companies, such as computer distributor Ingram Micro Inc. and disk drive maker Western Digital Corp.

Sfeir said Boeing’s recent struggles may have contributed to the slowdown for some manufacturers.

The index tracks such things as production, employment trends, new orders and the cost of raw materials. (Price increases for raw materials often restrain manufacturing profits, which can decrease production and employment).

An index reading in excess of 50 indicates the manufacturing segment is growing, while a reading of less than 50 reflects a contraction. The index for the second quarter dropped to 50.7, from 58.6 in the first quarter, and from 55.5 in the 1998 second quarter.

The index for production fell to 54.2, from 66.3; the new orders index fell to 51.1, from 59.8, with furniture and electronics manufacturing showing the biggest dip. Overall manufacturing orders and employment were flat for the second quarter. Commodity prices increased for the first time since the first quarter of 1998.

Wallace Walrod, a vice president at the Orange County Business Council, said that a slowing in the manufacturing segment was worrisome. “But we’ve been generating manufacturing jobs here at such a hot level in the past two to three years that I expect this latest result to be a blip,” he said.

The Chapman report did contain a few bright spots. The surgical, medical and dental industries reported increases in both production and new orders. And nondurable goods, which include such things as canned and frozen foods and clothing, outperformed all other industry groups.

Sfeir said the disappointing quarterly results do not mean the county’s economic expansion has come to an end.

“The national economy is still growing, and so is Orange County’s,” Sfeir said. “The Asian economy is getting stronger and should improve things here in Orange County in the coming quarters.”

Nationally, the manufacturing index rose to 55 in the second quarter, from 52.1 in the first.

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Manufacturing Stalls

Orange County’s manufacturing index declined in the second quarter to 50.7, indicating virtually no growth during the three months ended in June. The composite index tracks such markers as production, employment, new orders, inventories, supplier deliveries and the cost of raw materials. Rates greater than 50 indicate manufacturing is growing; those lower than 50 reflect a contraction. The trend:

1994

3rd qtr.: 60.0

1999

2nd qtr.: 50.7

Source: Chapman University