It’s Boom Times for Manufacturing in Orange County

The manufacturing industry in Orange County, led by high-tech companies and fed by faster employment growth, picked up more steam in the second quarter while the overall manufacturing sector nationwide lagged, according to a Chapman University survey released Tuesday.

Even the prices manufacturers pay for raw materials, from silicon to nails, subsided during the second three months, growing at a slower rate and easing for now worries about inflation and an economic slowdown.

“In general, everyone is talking about a slowdown in the growth rate of the U.S. economy, but in Orange County, that is not the case,” said Raymond Sfeir, the Chapman economics professor who directed the survey.

Chapman’s composite manufacturing index, which tracks production, new orders, employment and other factors, increased to 63.8 for the second quarter from 60.2 for the first three months. It’s the highest second-quarter figure since Chapman’s initial report in 1988 put the number at 66.4.

The overall U.S. composite figure dropped to 53.3 from 56.3. Any reading above 50 shows growth, while a reading below shows a contraction.

Two years ago, the county’s manufacturing sector slumped with the sagging aerospace industry. It jumped back to life in the last half of 1999, but the yearlong series of interest rate hikes helped to slow the sector in the first three months this year.

Sfeir said the arrival of new high-tech companies has helped compensate for the decline in aerospace business and should remain a leading force for the long term.

While high-tech companies outpaced other areas, however, the high-tech index stood at 62.5, about the same as the first quarter. Production grew only slightly faster in the second quarter, and the growth of new orders remained unchanged from the previous quarter.

Other manufacturing areas, especially durable goods, showed strength, according to the survey of purchasing managers at Orange County companies.

“We are just [going] gangbusters,” said Tom Flading, a buyer for Cannon Equipment West Inc. in Garden Grove. “We’re busier than we’ve ever been. There is much more activity than there was last year at this time.”

Cannon Equipment, which produces grocery store racks and various service carts, has doubled its work force in the last year to 200. The company said grocery chain acquisitions have led to upgrading of stores, resulting in more orders.

Manufacturers of electronic components and companies that produce surgical, medical and dental instruments are also doing well.

“Things have been on the rise since January,” said Barbara Laube, senior buyer for a Santa Ana subsidiary of industrial giant ITT Industries.

Laube, whose company produces electrical connectors and cables used in machines ranging from airplanes to VCRs, said operations now run around the clock with three full shifts.

“We hope it will continue,” she said. “Compared to last year, we are doing much better.”

Prices for raw materials were rising at a slower pace, helping spur business. The local commodity price index had jumped to a five-year high of 74.4 in the first three months this year, leading Sfeir and others to warn about growing inflationary pressures nationwide.

But the price index seemed to reach its peak then, Sfeir said Tuesday. It fell in the second three months to 68.4, still higher than in the last six months of 1999.

Chapman economists have predicted that the county’s economy will grow more slowly this year, adding 40,000 workers to local payrolls. That would be a 3% increase, the smallest since 1966.

The second quarter, however, has produced the fastest rate of employment growth since the last three months of 1997. The index hit 60, a jump from 55.1 in the first quarter. No industry reported a decrease in employment.

With jobless rates at their lowest levels through much of this year, managers reported that they are finding it difficult to recruit temporary workers.

About 228,900 people in Orange County work in manufacturing, accounting for 17% of the county’s employment, according to the report.

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Manufacturing Growth

The manufacturing industry in Orange County has continued to prosper for in recent months even as the overall manufacturing sector in the U.S. sagged, according to a new Chapman University survey.

Note: Index based on changes in levels of production, employment, new orders, inventories of purchased materials and supplier deliveries as reported by Orange County purchasing managers.