O.C. Executives Foresee a Rosy Economic Future

An overwhelming majority of Orange County business leaders reported strong financial performance last year and expressed optimism about prospects for their businesses and the regional economy, according to a university study released Thursday.

But the rosy outlook was tempered by some recent troubling economic signs--the stock market turbulence and the specter of higher inflation and interest rates.

“We’re beginning to see some cracks in the plaster that might mean the expansion has peaked and could be moderated the next couple of years,” said Dennis Aigner, an economics professor at UC Irvine and director of the university’s annual executive survey.

The executives polled identified housing as the biggest barrier to doing business. More than 70% said the lack of affordable housing for workers was having a moderate or severe impact.

Even so, the survey painted a picture of optimism, and that mood was evident among many of the 100 business executives attending the UCI gathering Thursday.

“I think we’re going to get through these little dips in the market and that my business will continue to grow along with the economy,” said Al Delgado, president of Lauren Consulting Group, a sales training provider in Laguna Beach.

The latest poll, taken in January and February, found that 70% of Orange County’s top executives reported stronger business performance in 1999--11 percentage points higher than a year ago.

What’s more, four of five local executives surveyed said they expect their companies this year to outperform their 1999 results. About 80% of the 301 local executives canvassed also said they expect to add workers, expand plants or buy new equipment within the next five years. That’s nearly a record level of optimism for the survey, which began in 1986.

The World Wide Web appears to be playing an ever growing role in fueling the local economic boom. About half the executives said the Internet has improved productivity. It was the first time the survey asked the question.

Separately, economists at Cal State Fullerton upgraded their outlook for job growth for the county in a report Thursday, reflecting California’s strong performance in the early part of this year.

This year, the county is expected to add about 42,000 jobs, a robust 3.2% gain, Cal State Fullerton economist Anil Puri said. Last October, he had forecast a growth rate of 2.8%.

“I have an overall bullish outlook for Orange County,” said Puri, adding that the county has benefited from the booming national economy, which grew at an annual rate of 5.4% in the first three months this year. “The high-tech sector is doing quite well, and job growth is very healthy.”

Construction, one of the pillars of the local economic expansion, should continue at a healthy pace, he said, although the county is losing jobs in durable manufacturing such as aerospace.

Puri sees continued volatility in the stock market over the next six months, but most business executives aren’t fretting.

Dennis Reyling, president of R.D. Olson Construction LP in Irvine, described business as “superb.” The builder of hotels and resorts said sales grew to about $100 million last year, up 30% from the previous year. Demand for hotel projects in Southern California should push this year’s revenue up another 40% to 50%, he said, noting that his company is about to break ground on a hotel complex near Disneyland.

Nevertheless, Aigner of UCI added a strong caveat to these bullish reports.

He said inflationary pressures could push the Federal Reserve to boost interest rates next month by as much as half a percentage point. Such a rate hike could make it too expensive for some companies to borrow money, leading them to shelve or delay expansion plans.

Closer to home, companies are grappling with traffic snarls, high labor and housing costs and a dearth of skilled workers. The survey found, for example, that 45% of Orange County executives anticipate trouble finding technical and professional workers, and 37% say managerial jobs will be tough to fill--the highest prediction on record.

The Keith Companies Inc., an engineering and consulting firm in Costa Mesa, has hired a dozen workers in the past few months but needs 50 more to meet the growing demand for its services, Chief Executive Aram Keith said.

Even after boosting salaries and benefits, “this has been the toughest time we’ve had in 17 years finding qualified employees,” Aram said.

Stephen J. Duffy, a partner in the real estate group with Ernst & Young LLP in Newport Beach, said housing is a primary concern. “If we don’t solve this housing problem, many businesses will relocate some of their operations elsewhere, even if they keep their headquarters or R&D; facilities here in Orange County,” he said.

In the survey, 17% of the executives said their companies expect to relocate some or all of their operations outside of Orange County in the next five years. That’s nearly the lowest reading ever.

And for the fourth consecutive year, about 40% said Orange County was becoming a more attractive place to do business.

Hal Schultz, a partner at PricewaterhouseCoopers in Costa Mesa, said Orange County will continue to benefit from a highly skilled work force and its high-tech economy. “I think the economy will continue to do well,” he said.

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Executive Optimism

A UCI survey of Orange County business executives shows increased optimism about expansion and financial performance. Selected survey results:

LIKELIHOOD OF EXPANSION

Do you expect to expand operations in Orange County in the next five years?

*--*

Somewhat Likely Very Likely 1989 24.8 43.8 1990 27.9 40.1 1991 25.8 41.1 1992 33.0 27.0 1993 34.0 35.8 1994 32.5 39.7 1995 34.8 39.6 1996 37.0 41.8 1997 26.8 52.7 1998 21.4 61.2 1999 26.4 36.9 2000 27.3 50.5

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FINANCIAL PERFORMANCE

Which response best describes your financial performance outlook?

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Worse Somewhat better Much better 1988 -3.7 46.3 24.4 1989 -2.4 52.0 26.8 1990 -2.8 50.3 30.1 1991 -6.3 43.3 22.0 1992 -4.3 51.3 16.5 1993 -8.1 59.4 16.3 1994 -2.0 55.0 23.2 1995 -1.9 58.0 24.7 1996 -2.0 54.7 28.4 1997 -0.9 59.9 26.1 1998 -2.3 52.5 29.1 1999 -4.4 53.0 13.1 2000 -2.0 54.5 24.6

*--*

Source: Orange County Executive Survey 2000, UCI Graduate School of Management

Graphics reporting by JANICE JONES DODDS / Los Angeles Times