O.C.’s Manufacturing Sector Slumps, but Worst May Be Over
After two years of consistent growth, Orange County’s manufacturing activity slowed significantly in the first quarter, with businesses reporting declines in production, new orders and employment, a survey disclosed Monday.
The severity of the slump surprised researchers. It was the worst downturn since the Asian financial crisis walloped manufacturers in 1998.
“The decline has been over almost all industries,” said Raymond Sfeir, an economics professor at Chapman University in Orange, which polls Orange County purchasing managers quarterly. “We’re hoping that this is the most severe we are going to see.”
The nation’s sluggish economy was identified as the main reason for the local manufacturing downturn, causing businesses to curtail or cancel orders for products made in Orange County, Sfeir said. Manufacturing represents about 16.5% of the county’s economic output.
The survey also found that purchasing managers are increasingly worried about energy costs and the possibility of blackouts.
Still, they did not indicate that they expect manufacturing to become more depressed. And recent improvements in the national economy bode well for the local economy, Sfeir said.
“We don’t expect next quarter to be fantastic,” he said. “But we do not expect things to get any worse.”
Indeed, sales at Santa Ana-based All Seals Inc., which sells sealing products to manufacturers, rebounded in April after being down earlier in the year, purchasing manager Laurie Blamey said.
“The second quarter is looking better,” she said.
But in the first quarter, the index measuring overall manufacturing activity fell to 43.7 from 52.7 in the final quarter of 2000, according to the survey. A number below 50 shows that manufacturing activity is contracting.
It was the first contraction since the final quarter of 1998. The index has registered below 50 only twice in the past five years.
Area Business Leaders Losing Their Optimism
Although the county and the state have performed better than the nation in recent months--and experts have remained generally optimistic about the local economy--there have been signs of a regional slowdown.
A UC Irvine survey of local executives released last week showed that business leaders feel less optimistic than a year ago. It revealed that a growing number of executives are considering downsizing or moving all or part of their businesses outside the area within five years. Manufacturers, among the hardest hit by the energy shortage, were particularly gloomy.
In the Inland Empire, production has slumped since September, according to the Institute of Applied Research and Policy Analysis, which surveys purchasing managers monthly.
Indeed, manufacturing in the Inland Empire “is at a standstill,” said Shel Bockman, the institute’s co-director. “The economy’s still growing, but at a much reduced pace.”
Purchasing managers in Riverside and San Bernardino counties cite the energy crisis as well as the nation’s economy as the causes, co-director Barbara Sirotnik said.
“They cannot produce what they need to produce if there are blackouts,” she said.
The electricity shortage may pose more trouble for manufacturers in coming months, Sfeir said.
“The impact of energy has not really hit us yet,” Sfeir said. “Probably it will show up this summer.”
The Orange County report shows changes in the levels of production, employment, new orders and inventories, among other things. New orders took the biggest tumble in the first quarter, falling 23%.
Computers, Electronics Are Hardest-Hit Sectors
Makers of computer and electronic equipment were among those hit hardest as companies throughout the nation curtailed purchases in these areas after spending heavily over the past couple of years, Sfeir said.
“Now it’s catching up with everybody,” he said. “It looks like business decided to spend a lot less on technology in the last two quarters.”
Manufacturers of food and related products, fabricated metals and transportation equipment recorded the biggest increases in production, according to the report.
Commodity prices continued to inch up, the survey showed, and increasing energy costs may push wholesale and retail prices higher still, Sfeir said. In addition to the headaches this may cause consumers, it also poses problems for businesses trying to remain competitive.
“Either way, they are in a squeeze,” Sfeir said.
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Negative Growth
Manufacturing has fallen sharply this year, with the overall index dropping below 50, indicating a decline in activity.
