Orange County Now Feeling the Squeeze

Economists who keep careful track of California suddenly are asking what’s wrong with Orange County.

So is Milt Thomas, owner of Buena Park-based Wire Cut Co., a maker of medical devices and technology equipment whose annual sales have plunged to $4 million from $12 million since April 2001, forcing him to slash his work force by two-thirds and leaving him with just 27 employees.

So is Jesse Perez, who lost his print shop job almost a year ago when the Irvine-based business was sold and the new owner laid off several workers. At one point, he was in danger of losing his home.

For most of the last two decades, Los Angeles’ neighbor to the south epitomized all that was right with the California economy. Orange County was the most resistant to recession and often the first county to rebound from downturns. Its economy even withstood the county government’s bankruptcy, which was due to lousy investments. It generated well-paying jobs in technology, health care and apparel and was a key driver of the Southern California tourism economy.

Today, though, the Orange County economy is showing signs of fatigue:

* The number of jobs is declining.

* New claims for unemployment insurance are rising at a faster rate than in other Southern California counties.

* Weekly earnings for factory workers are dropping faster than in neighboring regions.

* Bankruptcy filings are increasing.

* The rate of growth in home sales is slowing and may flatten after rising at a torrid pace for much of the year.

Orange County is a victim of the broader malaise afflicting the economy. Its technology and tourism industries have been hit especially hard. At the same time, many analysts expect the Orange County economy to rebound much like Silicon Valley’s.

As the region’s woes have become more pronounced in recent months, some economists are beginning to ask whether something more fundamental is occurring. Is Orange County’s economy in the middle of a natural structural shift in which it is starting to look more like the mature urban economy of Los Angeles?

Like L.A. in previous recessions, Orange County now is seeing high-paying manufacturing jobs relocating to neighboring regions such as the Inland Empire and to other states, a process exacerbated by the county’s high home prices.

“Go talk to the people in the Inland Empire to find out where the newest high-growth suburban economy is,” said Dennis Aigner, a former UC Irvine business school dean who now heads the Bren School of Environmental Science and Management at UC Santa Barbara.

For example, the number of payroll jobs grew in September by 2.7% in the Inland Empire from a year earlier, and in San Diego job growth rose 1.8%. During the same period, Orange County lost 2,900 jobs, a 0.2% decline.

“Typically, Orange County excels and would compete with San Diego and the Inland Empire for the strongest job growth in the region,” said Howard Roth, chief economist at the California Department of Finance. Now, “Orange County is behaving more like Los Angeles, and that is striking.”

No one is saying Orange County’s economy is a disaster. The county unemployment rate stood at 4% in September, up from 3.4% a year earlier but still well below the state jobless rate of 6.3%.

Still, all Rosario Limonchi knows is that she lost her position as a designer for a Costa Mesa sportswear company and has yet to land a new job. “It is very hard to find a job right now in Orange County,” said the Corona del Mar resident.

For Milt Thomas, who founded Wire Cut 24 years ago, seeing his company shrink to a third of its former size and letting go so many workers has been devastating.

Two of Wire Cut’s three primary industries, semiconductors and commercial aerospace, are in deep slumps. Eighteen months ago Thomas delivered the last order to the computer chip company that once was his biggest customer, and he doesn’t expect orders to pick up for at least a year.

“The economy is a big discussion right now wherever I go,” Thomas said.

It may well take a while to determine whether Orange County is in the middle of a true historic economic shift because some of the data that would help complete the picture, such as personal income trends and taxable sales, won’t be available from the government until next year at the earliest. And even then, some analysts say it could be years before enough evidence accumulates to know whether Orange County’s economy really has undergone a seminal transformation.

Nonetheless, numerous indicators point to trouble.

Near the top of the list is the 3% dip in average weekly earnings of workers in manufacturing industries -- everyone from seamstresses to satellite builders. Their paychecks, on average, have fallen to $569.62 from $585.48 during the first nine months of this year, compared with the same period in 2001, according to data compiled by the state’s Employment Development Department.

The only other county in Southern California -- from Ventura to San Diego -- to experience a decline in average weekly earnings was Los Angeles, where manufacturing workers brought home on average $552.68, a 1% dip from the year before. Other Southland regions and the state as a whole posted small increases during the same period.

Meanwhile, new claims for unemployment benefits in Orange County rose 47% for the first eight months of 2002, compared with the same period a year earlier, higher than in any other Southern California region by 12 percentage points. And after declining for much of the year, bankruptcy filings -- personal and corporate -- rose 3% in August in the county.

Construction of office and retail space also has taken a dive, according to the Construction Industry Research Board. The value of nonresidential building permits in Orange County plunged 22% during the first eight months of the year. Only Los Angeles had a steeper decline, 25%.

The only cluster of positive economic signs in Orange County concerns residential real estate. For instance, the value of permits for new residential construction rose 7% in August. Although that was below the double-digit gain in the Inland Empire, it still was healthy compared with the other regions in Southern California.

Orange County’s median home price rose to $368,000 in September, a gain of 20.7% from a year earlier and near the all-time high. “People are taking advantage of low mortgage rates to get into homes,” said John Karevoll, a DataQuick analyst.

Not everyone has written off Orange County.

Economist Steven Levy of the Center for the Continuing Study of the California Economy, a Palo Alto think tank, said Orange County “is being hit worse than one expected,” but eventually will resume its place on the fast track.

“What I am seeing is a technology-oriented, high-growth suburban economy that has gone bad with the slump,” Levy said. “Orange County is not behaving like Los Angeles. It is behaving like the Silicon Valley of Southern California.

“I am guessing recovery will be slower, because the tech overcapacity was severe and will cause folks to be cautious about building up production too quickly before the market confirms growth,” he said.

For those in the Orange County trenches, though, a robust economy is fast becoming a distant memory.

“I think the county has evolved,” said factory owner Thomas. “And because we are neighbors with Los Angeles, the lines have blurred.”