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Survey Predicts Slowdown in County Manufacturing : Outlook: Local production levels dropped or remained stagnant at 67% of the responding companies during the fourth quarter of 1989, while 70% reported that materials purchases were either reduced or stayed the same.

February 02, 1990|JOHN O'DELL | TIMES STAFF WRITER

ORANGE — Manufacturing activity in Orange County is headed for a significant slowdown in the first quarter and possibly through the first half of the year, according to a survey of purchasing managers at local manufacturing firms that was released Thursday.

Aerospace and medical manufacturing firms are likely to be the hardest hit, the Chapman College survey found.

The survey, taken during the fourth quarter of 1989, found that local production levels dropped or remained stagnant at 67% of the responding companies, while 70% reported that materials purchases were either reduced or stayed the same.

An economic confidence index based on the five questions asked in the survey dropped to 50.9 for the fourth quarter--the lowest level since the survey began in 1988 and down from 56.2 in the third quarter of 1989. A reading below 50 indicates that the manufacturing sector of the economy generally is declining; above 50 suggests that it is expanding.

The pessimistic message in the local purchasing managers' study echoed the findings of the latest National Assn. of Purchasing Managers' survey, which showed January as the worst month the manufacturing sector has suffered since the economic expansion began in 1983.

The national survey's confidence index fell to 45.2 in January, from 46.7 in December.

"The manufacturing economy entered 1990 on a dismal note, the greatest rate of decline since the second month of this lengthy economic recovery," said Robert Bretz, chairman of the national association's survey committee.

Chapman College economist Raymond Sfeir, who developed and conducts the local survey in conjunction with the Chapman Center for Economic Research, said his findings not only show that manufacturing production in the county slowed as the year ended but that it will continue slowing for several months.

"We don't believe there will be an actual decline in overall manufacturing output" in the county, he said. "But the growth will slow down and perhaps even stop."

He said that defense-related aerospace manufacturing is likely to show the biggest decline and that computer industry respondents were divided, with about half anticipating continued growth.

Sfeir said the survey's finding that materials purchasing had slowed down in the fourth quarter means that manufacturers anticipate reduced output and do not want their inventories to grow.

As it is, 43% of the respondents said inventories of purchased materials grew during the fourth quarter, indicating that a slowdown began several months ago. A lower inventory, reported by just 24% of the respondents, would indicate that manufacturing activity had increased.

Sfeir said none of the aerospace or medical manufacturers in the survey reported lower inventories in the fourth quarter.

The survey also found that nearly 80% of the purchasing managers believe that commodity prices are falling and that vendor deliveries to their factories are speeding up.

That indicates that suppliers of raw materials are feeling a crunch from slowing manufacturing activity and that consumer prices for manufactured goods are likely to stabilize or even drop slightly in the future, Sfeir said.

In all, Sfeir polls purchasing managers at 60 county manufacturing companies. The respondents are polled in proportion to their industries' representation in the county's manufacturing community. Makers of electrical equipment, including electronic, aerospace and computer components, represent more than 25% of the respondents.

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