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ECONOMIC FORECAST: FLAT BUT NOT BLEAK : Declines Seen in County in '88, but Business Leaders Hopeful

OUTLOOK '88: First in a series of articles exploring what's in store for Orange County businesses and the local economy in 1988.

December 27, 1987|JOHN O'DELL | Times Staff Writer

If the economic pundits are right, Orange County can look forward to a 1988 that will largely be a repeat of 1987.

Unemployment will remain low, but there will be relatively few new jobs. Wages will barely keep pace with inflation, and business growth will be slow in most areas, with real declines in the construction and defense industries.

A flat economy, in other words.

But many in the county business community are operating on the theory that flat doesn't mean bleak. In 1987, businesses here churned out an estimated $50 billion in goods and services, and the Chapman College Center for Economic Research's prediction for 1988 is $53.2 billion.

Even in the face of warnings that a recession could be in the offing for late next year or early 1989, the county doesn't seem to be developing a siege mentality.

Instead, most businesses in the county--which boasts the 30th-largest economy in the world--are looking for at least a respectable year in 1988.

The watchword for the coming year is discipline. Companies that do well will probably do so because they keep tight control of their growth and spending.

Most area businesses in the next year will "concentrate more on day-to-day business, with less willingness to do exotic research and design," said Ralph Sabin, partner-in-charge of the emerging business group at the Ernst & Whinney accounting and consulting firm's county office.

"They will be looking for product applications that can get to market sooner, and there will be less willingness to devote a lot of capital to facilities and furniture," he said.

Sabin and other business consultants and economists who study the county's place in the regional and national economies generally see for next year a small but real growth in retailing; business-related services such as banking, marketing and financial planning, and in non-defense manufacturing, particularly in the electronic and medical technology fields.

But the building industry is expected to be hit hard, especially in the first half of the year, as home, office and industrial construction levels all drop below 1987 levels.

And in the hotel and health services industries, retrenchment and consolidation appear to be in the offing. An anticipated drop in tourism and business travel is expected to combine with the county's existing over-supply of hotel rooms to make 1988 a tough year in the lodging business, while ongoing reductions in government and private insurance payments for medical services will continue taking a toll in that industry.

Still, the overall mood for the county's business in 1988 is cautious optimism, and one reason appears to be the county's diverse business base. With an estimated 80,000 licensed businesses--most of them with fewer than 10 employees--there is no one dominant force in the local economy. Thus, if defense industries are hurt by a cut in weapons spending, the shock effect of layoffs and lost income is not enough to stagger the county's entire economic system.

That diversity traditionally has made the county recession-proof. While there is a growing feeling that the area won't always be able to escape the impacts of a severe economic downturn, attitudes about 1988 appear upbeat.

"Orange County has healthy employment levels and a diversified economy, so it isn't tied to any one thing that happens," said Margaret Magnus, editor and associate publisher of Personnel Journal, a national publication based in Irvine. "It is not at the mercy of OPEC or the stock market, so the outlook is more optimistic for business" than in other areas of the country, she said.

Still, there are reasons for tempering local business optimism, a pair of wild cards in the deck being dealt for 1988: the stock market and general consumer confidence.

Both are unpredictable, closely linked and able to make short shrift of anyone's economic predictions.

The market's direction is anyone's guess, but general confidence in the county seems to be fairly high as the year ends.

Retailers appear not to have suffered as intensely as first predicted from a fourth-quarter buying slowdown in reaction to the market collapse. And local stock and investment brokers said most area investors, while not buying madly, at least are not liquidating their portfolios as they wait for the Wall Street roller coaster to smooth out.

The major change in business operations in the county in 1988, executives and consultants said, is that the year will be marked by an underlying conservatism. High-fliers will come back down to earth, and decisions on many business expansions, borrowings and new product research and development programs will be focused on the immediate costs and potential for return, rather than on the long-range results.

"We made a commitment that we can make great strides in protecting our market share by introducing lower-priced products (in 1988)," said Steve Keefer, president of Monitoring Automation Systems, an Irvine software firm serving the security industry.

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