Orange County Manufacturing Growth Slowing, Survey Finds
Manufacturing activity in Orange County weakened in the fourth quarter of 2000, a survey released Monday shows. In addition, experts see trouble ahead as the energy crunch forces companies to shut down or curtail production.
Overall, manufacturing in Orange County grew slightly in the October-to-December period, according to Chapman University’s quarterly survey of purchasing managers. But factory production and employment grew at slower rates, and managers reported that new orders did not show any growth last quarter.
Raymond Sfeir, an economics professor at Chapman, said manufacturing in Orange County held up better than it did nationally, where there was a contraction in the fourth quarter for the first time since late 1998.
But Chapman’s latest reading of Orange County’s manufacturing activity--an index of 53--was down from 58 in the third quarter and just above the point that marks growth. A reading below 50 shows a contraction.
Similar monthly surveys of purchasing managers in the Inland Empire have shown a decline of confidence in that region as well. Managers in the survey were “relatively positive” until about three months ago, said Barbara Sirotnik,co-director of the Institute of Applied Research and Policy Analysis.
The institute’s latest report for December showed manufacturing improving a bit in the Riverside-San Bernardino area, to an index of just about 50. Still, she said, managers were expressing the highest level of pessimism about the economy since the report’s inception in 1993.
While there’s no comparable survey for Los Angeles County, the recent electricity crisis is having a broad effect on industries ranging from plastics to food processing to textiles, which use natural gas to dye and shape fabric.
In Orange County, Sfeir said, purchasing managers repeatedly complained that vendors were charging more for raw materials because of higher prices of natural gas and oil. Prices rose for a wide range of raw materials, including steel, copper and clothing materials, he said.
California’s recent electricity problems “will make the performance of the manufacturing sector even worse,” the Chapman report said.
Indeed, on Monday Boeing Co. announced production cutbacks in Huntington Beach to reduce power consumption. And Endevco Inc., a San Juan Capistrano maker of shock and vibration testing equipment, got notices from suppliers who said they have had to curtail operations because of electricity problems.
“It’s just now beginning,” said Don Minton, Endevco’s material manager. “I think most people are trying to anticipate what might happen, not necessarily what is happening. It’s an iffy time for everybody.”
Manufacturing in Orange County, which employs more than 233,000 people, was robust in the first half of last year, reflecting its diversity and a strong comeback after the showdown caused by the Asian financial crisis. But the activity has turned in the last two quarters, reflecting the softening in the general economy that is expected to continue through the year.
Hardest hit have been printing and publishing companies and the rubber and plastics industries, according to the survey, which reported layoffs of temporary workers at plastics companies.
In particular, Orange County’s high-tech manufacturing industry grew at a substantially lower rate in the fourth quarter than the third, even as these companies added employees at a faster rate than other manufacturers. Chapman’s report said a major downturn in the computer industry is feared.
One of the survey respondents, Meggitt Defense Systems in Tustin, reported that orders actually picked up at the end of last year. And so far this month, orders are “the same to better,” said purchasing manager Lorena Mague.
But Mague said she has also noticed that it’s costing more to have products plated and heat-treated. Outside processors blame their higher prices on “the energy crunch,” she said.
What’s more, with so much uncertainty swirling about, manufacturers are finding it hard to make plans.
At Endevco, for example, Minton said that if one of his suppliers shuts down for a while, the company will have the tough choice of deciding whether to take the hit or place an order with somebody else.
“To try to put a plan in place for an unknown is really kind of difficult,” he said. “It’s a dart game right now.”
Manufacturing Cools
Orange County’s manufacturing sector showed signs of slowing during the fourth quarter, according to a Chapman University survey.
Composite Index
The Orange County index, measuring the rate of growth of factory employment, inventories, deliveries and other production activity, remained ahead of the comparable national index.
Note: Index over 50 indicates growth, and a value below suggests an overall decline.
Source: Chapman University
