Bright Future Envisioned for O.C.

IRVINE —  Orange County’s top executives remain very bullish about the local economy and their own business prospects, and a record number expect to hire more workers this year, according to a new study released Thursday.

Despite unease over the Asian economic crisis and concerns about high costs and shortages of skilled workers, 83% of the local executives expect their businesses to expand in the next five years, UC Irvine’s executive survey found. Six in 10 expect to hire more workers this year, the highest level in the history of the survey.

“We’re seeing a powerful trend in expansion,” said UCI economics professor Dennis Aigner, who started the annual study 12 years ago. “The survey tells a very strong growth story, and the growth is driven by sales” from expanding markets, he said.

The study found that local executives, while worried about Asia’s financial woes and the impact on exports, largely believe the fallout will be modest. Two-thirds of the managers said the financial condition of their businesses improved last year. More than 80% expect to be in better shape this year, and 29% anticipate being in a much better position--the highest level ever.

The sales forecast was also the strongest in the history of the survey, as 89% of the executives said they expect their sales to increase this year.

The study was based on interviews conducted with 300 executives from Oct. 15 to Dec. 30. The continued turmoil in Asia might have led to a somewhat more pessimistic outlook since then, Aigner noted.

“The optimism might not be as strong as what was reported,” said Bob Huber, managing partner of Price Waterhouse in Costa Mesa, who responded to the survey.

Huber, who does business in Asia, said companies have begun to feel some pain in the past few months. “I’ve had clients doing acquisitions [in Asia] that are probably not going to see the same results they’d hoped for when they did the acquisitions last year,” he said.

However, exports to the troubled markets in Asia account for less than $3 billion of the county’s approximately $100-billion gross product, Aigner said. While some of the county’s economic growth is at risk, he said he still believes the impact will be tempered by the area’s diversity.

Another survey respondent, Robert Kleist, chief executive of Irvine computer-printer maker Printronix Inc., said his company’s plant in Singapore has suffered, although the damage is being partially offset by growth in other markets such as Europe and Latin America.

Kleist expects Printronix’s profits to increase this year, largely because of productivity gains. The company will probably expand its work force of about 950 by 5% this year, he said, in part because of a strong demand for engineers who can help make the manufacturing process more efficient.

The overall employment outlook for the county presents “a very, very dramatic picture,” said Aigner.

On average, company executives expect their payrolls to rise 5.6% this year, he said. That is twice the 2.8% employment growth for 1998 that Chapman University economists predicted in their annual economic report in December.

Aigner acknowledged that the UCI job growth projection is probably too high, in part because it is based on executives’ attitudes rather than mathematical forecasting methods. Also, he said, employment growth will likely be constrained by a shortage of skilled workers.

Even so, Aigner believes that county businesses will add more jobs this year than the 35,000 predicted by Chapman.

As further indication of executives’ upbeat mood about the economy, only 14% said they expect their businesses to shrink in the next five years--the smallest percentage since 1991.

Yet 28% of the executives said it’s likely that they will relocate out of the county in the next five years, even though a relatively high level--40%--said it is becoming a more attractive place to do business.

Executives cited high housing, labor and building costs as the biggest barriers to doing business here. They also believe the most serious problem facing the county is the limits of the local infrastructure, a change from last year when they cited crime as the major issue.

“Now it’s traffic, air transportation and education, which goes along with an expanding economy,” Aigner said. “Executives are worried that we don’t have in place the infrastructure that we need in order to grow.”

Jack Kyser, chief economist at the Economic Development Corp. of Los Angeles County, agreed that prospects for Orange County continue to be strong, but he raised some red flags. He pointed out, for example, that about 80,000 welfare recipients will enter the county’s job market in the next year or two under the welfare-to-work initiative.

For local businesses, finding workers with the right training will be crucial, particularly in high-tech fields where the required skills change every 18 months as technology progresses, he said.

“Orange County is really riding a crest,” Kyser said. But, he added, “work force readiness issues need to be a priority for all of Southern California.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Business Is Good

The bulls are running in the Orange County business community, as more executives say their companies will expand during the next five years:

Source: Center for Research on Information Technology and Organizations, UCI

Rosy Job Scenario

Percentage of county executives who expect to hire more workers:

1988 53%

1989 48

1990 51

1991 29

1992 34

1993 25

1994 33

1995 36

1996 43

1997 52

1998 60

Source: UC Irvine