Outlook Less Rosy for O.C. Economy

Chapman University economists have become more pessimistic about Orange County’s economy, saying Wednesday that employment won’t grow as fast as previously expected, a reflection of the national economic slowdown.

The midyear update trimmed projected job growth more than 25%, or 14,000 jobs. After earlier predicting annual job growth of 3.5% for the county this year, the economists now see a 2.4% gain, picking up slightly in 2002.

The economists said the national economic landscape has changed markedly since the initial 2001 forecast was issued in December, noting such factors as lower stock prices and the slumping high-technology industry. They predicted the nation’s economy will “narrowly skirt a recession” this year and recover in 2002.

The county also will avoid a recession, but higher electricity costs and blackouts could drain $700 million from the economy, they said. The technology slump will be especially painful for Orange County, because the high-tech sector accounts for a higher percentage of manufacturing jobs than elsewhere in the nation.

The county, with its relative affluence, also is vulnerable to stock market gyrations, said James Doti, president of the A. Gary Anderson Center for Economic Research, who presented the report to about 250 business leaders at the Orange college.

Lower stock prices will strip the local economy of an estimated $405 million as consumers rein in spending. But that drag on the economy should be partially offset by swollen home values in the area, which tend to make property owners feel wealthier.

Further, the report predicts a boost of about $520 million to the county, beginning next month, as a result of the retroactive federal tax cut.

But local residents and businesses are expected to shell out about $500 million more in electricity costs.

Although the overall projections are less optimistic than six months ago, economists say a variety of factors should provide a boost later this year, including a 12.4% increase in defense spending that will benefit local subcontractors.

Defense spending, which is expected to jump an additional 16.8% in the county next year, “should begin to resurface as a major engine of economic growth,” Doti said. “We have tons of subcontractors that are getting this business.”

Although most of the new jobs created will be in the services industry--which includes health care, computer programming and design engineering--the construction sector will enjoy the largest growth.

Lower interest rates should also provide a boost, as more people refinance their homes, freeing up additional money to spend.

Reflecting sluggish sales in the retail sector, Chapman also reduced its predictions of taxable sales for the year. Economists now say sales will grow 5.3% this year, well under the 8.5% gain anticipated in December. Still, the expected growth rate is above state projections.

Purchases of furniture, appliances and building materials should fuel much of the growth locally, economists said.

In the robust housing market, home prices will continue to go up, but not as rapidly this year. And the growth rate will fall further next year, economists said, a sign that homes have become too expensive for many residents, who are snapping up cheaper houses in areas such as the Inland Empire.