O.C. Factories Bounce Back, See Healthy Gains Ahead

By MARC BALLON

Jan. 21, 2000 12 AM PT

TIMES STAFF WRITER

Manufacturing in Orange County, in a deep slump just a year ago, has come roaring back and appears primed for robust growth in the coming months, a new industry survey revealed Thursday.

Just about every manufacturing industry, from makers of computer chips and medical devices to food processors, says it is seeing sharply higher new orders--a sign of increased production and hiring ahead.

A Chapman University study found that manufacturing production, inventories and employment have already picked up substantially in recent months.

“There’s a lot of optimism, and my belief is that the year 2000 will be a very good one,” said Raymond Sfeir, the Chapman economist who directs the quarterly survey.

Just a year ago, Chapman’s survey showed sharply contracting factory activity and a “recessionary outlook” for local manufacturing.

But behind Asia’s surprisingly quick rebound and recovering demand worldwide, high-tech manufacturers have seen a turnaround in orders for computer chips and other electronics goods. Meanwhile, the long-running boom in the U.S. economy continues to stoke demand for other goods such as apparel and home furnishings.

“We’ve set records in the last three months, and I see that continuing,” said George Nagy, an executive at QSC Audio Products Inc. Sales at the Costa Mesa maker of amplifiers have grown 20%, he said, and the company recently added a large facility to meet rising demand.

Factories usually hire more workers a few months after demand increases. More than 240,000 people in Orange County currently work in manufacturing jobs, representing nearly one-fifth of the county’s employment.

Typifying the comeback are the surgical, medical and dental industries, where production and new orders increased.

At Baxter Healthcare Corp. in Irvine, sales of the industry’s best-selling tissue heart valves, which come from cows and pigs, grew 8% to 10% last year and are expected to increase more this year, spokeswoman Nolan Taira said.

Baxter Healthcare has already boosted employment by 10% in the last year, and payrolls figure to grow even more once it is spun off this year from its parent company, Baxter International Corp.

“Orange County has a lot of strong high-tech and biomedical companies, and those parts of the economy are doing really well,” said Wallace Walrod, the Orange County Business Council’s research vice president. “That’s where the world’s heading.”

Indeed, Conexant Systems Inc. is running at full capacity, and the chip maker expects revenue to grow 40% this year. “We are making every wafer we can make,” said Thomas A. Stites, a Conexant spokesman.

Quarterly results released earlier this week by Conexant and others reflect the county’s resurging manufacturing base. Another leading chip maker, Broadcom Corp. in Irvine, said sales last year topped $500 million, putting it on pace to become the fastest-growing chip company ever.

Chapman’s report, based on a survey of 109 purchasing managers, found only one dark cloud: Manufacturers are paying more for raw materials. In fact, commodity prices jumped for the third straight quarter. That could spell higher consumer prices in the future.

“It’s getting to be a serious concern,” Sfeir said.

In Chapman’s survey, the overall index that tracks manufacturing production, new orders, employment and other measures jumped nearly 8% in the last three months of the year, to almost 61. That was up dramatically from an index of 43.5 a year earlier, when the full brunt of the Asian economic crisis was felt by California’s export manufacturers.

A reading above 50 indicates manufacturing is growing, while a reading below that shows a contraction.

Orange County’s stronger manufacturing climate mirrors the generally improved outlook for factory production nationally. In the fourth quarter, the U.S. manufacturing index inched up to 56.1, from 55.1 in the third quarter.

Among industries, Chapman’s latest survey found that electronic and electrical equipment makers saw the fastest increase in new orders. Overall, the strongest improvements were reported by nondurable manufacturing such as publishing and plastics.

The survey showed a sharp increase in the overall employment index, which surged to 56.4 from 49.1 in the third quarter, indicating stronger hiring activity recently.

Nationwide, manufacturing employment has fallen sharply in the last couple of years. But last year, Orange County marked its fifth consecutive year of manufacturing job growth, even though California’s factory payrolls dipped slightly in 1999.

Led by makers of industrial machinery, electrical equipment and instruments, the county’s manufacturers employed about 240,000 workers last year, up from 236,000 in 1998 but still shy of the peak of 254,000 in 1988, according to the California Employment Development Department.

Times staff writers P.J. Huffstutter and Edmund Sanders contributed to this report.

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Manufacturing Bounces Back

Having weathered the Asian financial crisis, Orange County’s manufacturing industry is now seeing increased orders and brimming with optimism.

Composite index

The Orange County index, measuring levels of factory employment, inventories, deliveries and other production activity, has once again pushed ahead of the comparable national figure.

Orange County

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1997 4Q: 63.6 1998 1Q: 57.7 2Q: 55.5 3Q: 55.0 4Q: 42.9 1999 1Q: 58.6 2Q: 50.7 3Q: 56.4 4Q: 60.9

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United States

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1997 4Q: 54.3 1998 1Q: 53.5 2Q: 51.3 3Q: 49.3 4Q: 46.7 1999 1Q: 52.12Q: 55.03Q: 55.14Q: 56.1

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OC MANUFACTURING ACTIVITY

New Orders Pick Up...(seasonally adjusted index)

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1998 1Q: 55.82Q: 56.23Q: 55.44Q: 42.71999 1Q: 59.8 2Q: 51.1 3Q: 58.2 4Q: 63.8