Orange County Growth Forecast Is Looking Up : Chapman’s Doti Shies Away From His Bleak Prediction for 1989

Chapman College economist James Doti backed off Thursday from his December warning that Orange County’s economy could turn recessionary in 1989 and said he now believes that the county will experience continued economic growth through this year and next.

In his regular midyear update of the private college’s annual economic forecast, Doti said the brighter local outlook was caused by unexpected improvements in the national scene and was not a result of the defeat Tuesday of Measure A, the slow-growth initiative.

In fact, Doti said, the measure was not factored into his midyear forecast revisions even though he believed that the initiative was going to be approved.

Still, even if he had adjusted the figures to reflect passage of the measure, the forecast would have continued to show a growing local economy.

For example, Doti’s revisions now place employment growth in the county at 3% for the year--rather than the 2.8% increase he forecast in December. A separate, long-range prediction says that new job creation in the county should continue at a steady 3% annual clip through 1997, which is twice the anticipated national average. Even if Measure A had been approved, job creation in the county for the next decade would have averaged a growth rate of about 2% a year--still higher than the 1.5% national average.

In other changes to his December forecast--which called for the county to enjoy a good economy this year--Doti also projected a stronger increase in consumer spending than initially predicted. When the 1988 forecast was unveiled in December, it called for a 6.4% hike in taxable retail sales in the county to about $19.4 billion. But that has been upgraded to a 9.3% spending hike, or about $25.8 billion for the year.

Offsetting the consumer spending, however, will be a 5% drop in the value of new construction, mainly because of the glut of commercial buildings. Doti said that he expects new building for the year to be valued at a total of $3.1 billion, down from nearly $3.3 billion last year. That remains “very high, however, and is rapid growth by any measure,” Doti added. “There will be a whole lot of development taking place.”

Chapman’s economists, in a study for the county earlier this year, had predicted that if Measure A were to be approved and similar growth controls were to be adopted by half of the county’s cities, building valuation would have dropped to $2.5 billion to $3 billion a year for the next decade. Now, Doti said, he expects it to remain in the $3-billion to $3.5-billion range.

Doti, Chapman’s acting president and dean of its business school, said the midyear update is more upbeat than the initial projections in December largely because of his belief that the Federal Reserve Board will “play white knight” if anything happens to depress the the national economy.

“There is already a precedent,” he said, speaking of the Fed’s decision to pump up the money supply in the wake of the Oct. 19 stock market crash.

Other factors on the national scene that should translate into increased prosperity for the county, Doti said, include a low rate of increase for oil prices; the expansionary federal and state fiscal policies, and the stock market’s comeback since the October debacle.

But nice as the local picture might be, it is prettiest for those who already live here and are building equity in their homes and for those with specialized job skills and those who see continued rapid development as a positive thing.

Doti predicted that, even with the defeat of Measure A, the demand for housing in the county will continue to outstrip supply, leading to double-digit inflation in resale housing prices that already are the highest in the nation.

In December, the Chapman forecast called for an annual appreciation rate of 10.2% for resale homes in the county. On Thursday, that was upgraded to 11%. According to the California Assn. of Realtors, the median resale price in the county was $198,031, up from $167,663 12 months earlier.

That is great news for people who are building equity, but the combination of rapid price appreciation and increasing interest rates--Doti predicts that home mortgage rates will be hovering around 11% in December--will cut even more people out of the county’s home-buying market.

Chapman’s “affordability” index, which relates median family income to the minimum income necessary to qualify for the mid-priced home in the county, shows that median income by the end of the year will be only 79.5% of what is needed to qualify for the median-priced home. In other words, a family with the median family income, expected to be about $47,500 by the end of the year, needs to be earning 25.8% more--or $59,750--to be able to get a loan on the median-priced house.

At the end of 1987, the Chapman index showed that the median income was 95.7% of the minimum needed to qualify, or only 4.5% too low.

On the job scene, while predicting a steady 3% annual growth rate in new employment over the next decade, Doti echoes other economists and employment specialists in projecting a rapid shift away from manufacturing and construction employment into retail, trade, service industry, and financial and real estate-related jobs.

The long-range forecast, developed just this year, suggests that almost 390,000 new jobs will be created in the county by the end of 1997--for a total by then of 1.49 million jobs. But only about 12,000 of those positions will be in manufacturing and construction .

“The higher wages needed to attract workers who can afford the county’s high-priced housing, make it difficult for manufacturing to remain competitive here,” Doti said. “Orange County is left with employment in research and development, corporate headquarters jobs, tourist and business services, and finance, insurance and real-estate industry employment.”

PROJECTED COUNTY EMPLOYMENT GROWTH The Chapman College Economic & Business Review projects that 389,358 non-agricultural jobs will be created in 1987-97 in Orange County, increasing total employment from 1,102,524 to 1,491,882. The breakdown by occupation:Construction 6,826 Manufacturing 5,118 Trade 8,087 Transportation & Utilities 130,936 Finance, Insurance & Real Estate 67,615 Services 155,810 Government 14,975 Source: Chapman College Economic & Business Review