Slower O.C. Recovery Is Forecast

Orange County’s recovery will be slower and weaker than previously thought, according to Chapman University analysts, who downgraded their already low expectations for the county’s economy in a forecast released Wednesday.

With its important manufacturing and technology sectors mired in a slump, Orange County will eke out only 1% employment growth, or 13,000 net new jobs, this year, said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange. That’s down from the anemic 1.6% growth rate Adibi had projected in December, and well off the 3% annual rates of employment growth seen in the late 1990s.

Once one of the strongest job growth engines in the California economy, Orange County has lost much of its pep in the last couple of years. The county’s tourism and aerospace sectors were hit hard by the Sept. 11 terrorist attacks, while its high-tech companies have suffered from the same global forces pummeling the Bay Area. In addition, Orange County’s manufacturing base, like that of the nation, has been in a free fall, losing more than 38,000 jobs since late 2000.

Whether Orange County’s economy picks up steam or slips back into recession could well depend on the fate of the manufacturing sector, according to the Chapman report. On that score, it said, there is reason for optimism. Although the county’s factories continue to shed jobs, it appears that the worst is over. A weakening U.S. dollar should help manufacturers’ export prospects. Chapman’s Orange County purchasing managers survey for the last two quarters shows that the factory sector is poised for at least a weak expansion.

Stingy job growth will translate into tepid increases in income and spending, according to Chapman economists, who forecast that taxable sales in Orange County will increase 3.2% this year and 4.3% in 2004, while personal income will rise 3.9% in 2003 and 4.3% next year.

The county’s residential real estate market remains a bright spot. Chapman analysts, who had been predicting a cooling in the red-hot housing market this year, have upped their projections radically from the 2% average annual price appreciation they had forecast in December. They’re now predicting a 14.5% average increase for 2003, but they remain convinced that the market will cool after three years of double-digit increases.

Adibi said much of the frenzy is being driven by record-low interest rates, which he predicts will rise by 1.5 percentage points by the end of 2004. He says that will put the brakes on demand, slowing the pace of appreciation of single-family houses in Orange County to 4.2% next year.

“Mortgage rates can’t stay at this level,” Adibi said. “As they rise, it will become increasingly difficult for the average income to buy the average house.”