DENNIS W. MACHESKI, Research Director, Western Region, Real Estate Consulting Group Price Waterhouse

Dennis Macheski’s job is keeping an eye on the economy of the western states, which he does from Price Waterhouse’s 11th-floor offices in a Costa Mesa mid-rise. There’s a good view of the county from up here--if you don’t look too closely. Then you see office buildings with many of their floors unrented, foreclosures, bankruptcies, and on and on. It’s been Orange County’s most difficult recession and in some ways, Macheski says in this interview with staff writer Michael Flagg, things will never be quite the same again.

When last we talked two years ago, Orange County and the rest of the Southwest were doing far better than the rest of the nation. Clearly that’s no longer the case. But how bad is it?

It’s clearly bad. The rest of the nation appears to be recovering and having some net growth. For Orange County, the good news is that it is flat; no loss. But if you look at Southern California as a whole, it’s still losing. Growth in personal income is negative. And most important, the psychology of businesses is not optimistic. Orange County isn’t getting much better, but it’s not getting any worse.

So we are now worse off than the rest of the nation?

If you look at employment growth, definitely we’re worse off. But if you look at population, we’re still growing at two or three times the national average. So people are still coming here, even though employment is weak. That’s why unemployment in Southern California is higher than the national average, although Orange County’s unemployment rate is not higher than the nation. That influx of people can’t continue forever, obviously. At some point employment’s either going to have to pick up or people will start moving to where they can find work.

You’ve mentioned before that the county’s population is becoming increasingly bipolar: Well-paid managers and professionals at one end and poor immigrants at the other. Did the recession make that worse?

It’ll get worse in the long term. The fact is, though, this recession has hit the upper and lower ends equally hard. Take a look at who has been hit: It’s all over the map, where previous recessions it tended to be lower-income people. Most of the job losses in this recession have been in construction and high-tech manufacturing, and that included a lot of highly paid, highly skilled people. If you look at who tends to move into Orange County it tends to be those two extremes: The highly paid and the poor. Those who move out tend to have middle income, middle levels of education.

So the $64 question here is: Are these hits on construction and high-tech making for long-term, structural changes or is this just part of another economic cycle?

It’s a mixed bag. Clearly the losses on the part of high-tech that are defense-related are permanent. The losses in most of the other sectors--construction, standard manufacturing--are cyclical. We’ve still got about 2 1/2 times our share of employment in high-tech manufacturing, and it’s a blessing and a bane. Half of that is defense-related, and it’s in a permanent downturn. The other half is not, and probably will be our salvation. I’m talking about sophisticated medical products, medium-technology manufacturing, computers. That’s going to helppull us out.

What’s going to happen to the professionals who were laid off?

If they stay put in Orange County and transition to other industries, the county will be better off. If we get a brain drain of people going to other places, we’ll be worse off. I think most will stay. Many are creating their own small consulting firms; most will not do well. But a few will succeed fantastically, and they’ll hire a lot of the other folks. That’s one of the county’s big strengths. If you look at 1970, only 16% of residents had a college degree. Today it’s 28%. That’s a big change: It’s 40% more people than have college degrees nationally. But there’s a lot more Angst among these people during this recession. They thought they were immune, and here they are being laid off.

All this puts the lie to the longstanding idea that Orange County was more resistant to recession than the nation as a whole because it had a robust, diverse economy, doesn’t it?

That has clearly been revised. There was a perception that we were recession-proof, and it’s just not true, obviously. Now people are thinking we might be a lot more like Houston or Dallas. This is, in fact, the worst recession for Orange County. It’s not for Southern California, though--that was 1971-1972. The region lost 11% of its jobs then; this time it was 8.5%. Same number of jobs lost, but a smaller base then. I was here then, and the predictions were that there had been a permanent loss of the quality of life in Southern California and all the growth was going to be elsewhere. And we recovered fantastically well from that one. My expectation is the region will recover moderately well from this one.

How about quality of life: The ferocious traffic, the ridiculous housing prices. How’s that going to affect the county’s economy?

To my way of thinking, our biggest problem is our educational system. We used to have a fantastic one. It’s clearly deteriorating, and it could pull us down if we don’t fix it.

Are there any bright spots?

It appears as though we’ve already recovered from the riots this spring in terms of visitor counts and hotel occupancies. There was a dip in June, but there was actually a small increase in September over September, 1991, in Orange County. So tourism should be all right. On a scale of one to 10, it’ll be a five, which is better than in the past. In other areas: While there’ll continue to be weakness in commercial construction, there’ll be a mild recovery in the construction of single-family homes. In standard, non-high-technology manufacturing, there’ll probably be moderate growth, since demand for our products nationwide is probably increasing as the rest of the nation comes out of this recession.

On the county’s important commercial real estate market. . .

“Even with nothing under construction now, we won’t use up all our office space until 1996. And some people think it might take as long as 10 years.”

On manufacturing jobs. . .

“Twenty years ago, manufacturing was 28% of our employment. Now it’s 20%. That’s consistent with what’s happened nationwide. In fact, we actually have more manufacturing than the nation as a whole.”

On the professions. . .

“As manufacturing moves offshore, we’re going to have to compete in things like law, accounting, business services. Each of those grew as much as 200% in the last 20 years here. And in the last three years, it’s reversed.”

On 1993’s economy. . .

“Pretty unexciting. It’ll be pretty flat in Orange County, especially in the defense industries.”