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Manufacturers' O.C. Cutbacks Signal Dismal Expectations : Recession: Index pegged to purchasing managers showed worst reading locally since end of 1991 in contrast with more optimistic national picture.

April 21, 1993|JOHN O'DELL | TIMES STAFF WRITER

ORANGE — In a sharp about-face from their generally upbeat attitude at the end of 1992, manufacturers in Orange County spent the first quarter this year paring down operations in anticipation of more tough times, a new survey shows.

In its worst reading since the end of 1991, the Orange County Purchasing Managers' index of manufacturing activity plunged to 44.4 for the first quarter, well below the no-growth level of 50.

By comparison, the National Assn. of Purchasing Management's first-quarter index is a healthy 55.7, reflecting steady growth and economic recovery among manufacturers in much of the nation.

The local index, prepared by economist Raymond Sfeir at the Chapman University Center for Economic Research, underscores economists' predictions that Southern California still faces a long road to recovery.

"Frankly, I was very surprised," Sfeir said of the latest results. "At the end of the fourth quarter, most of the comments from the purchasing managers were really optimistic as they talked about what they expected for this year. But now everything has turned around."

The survey, which included responses from purchasing managers at 81 large and small manufacturing companies in Orange County, found "that the slowdown in the first quarter was almost everywhere, even in medical and dental equipment and instrument manufacturing, which in the past had kept growing despite everything," Sfeir said.

The survey also found that prices for raw materials rose for most manufacturers during the latest three months, a sign that finished goods will cost wholesalers and consumers more in the future.

Though Sfeir doesn't publish individual purchasing managers' comments because the survey is confidential, he said that collectively "the managers say they don't expect things to improve any time soon."

Some local companies are holding back because they are considering moving out of state, Sfeir said, and several are weighing whether to consolidate operations and close some facilities.

"Only a couple of the respondents said things were going good," Sfeir said.

Sfeir and other economists find purchasing managers to be a particularly accurate source of information about manufacturing industry trends because they are responsible for gauging demand for a company's product, then ordering and stockpiling the raw materials needed to make those goods.

The Chapman survey rates five components of manufacturing activity. In three of the most critical, the news was especially grim.

Production of finished goods fell substantially, the survey found, as did stockpiles of raw materials and the total amount of raw materials purchased during the period. Among the high-technology companies in the survey group, Sfeir said, more than twice as many reported declining production as said their production had increased.

Purchasing managers for aerospace companies were the most pessimistic, he said, reflecting the double blows dealt to that industry by declining defense spending and the recession.

Only the chemical and machinery manufacturing industries--two of the smallest in the county--reported holding their own during the first quarter.

O.C. Economy Still Weak The Purchasing Managers Composite Index is an indicator of performance by Orange County manufacturers. A value more than 50 shows growth and expansion; less than 50, decline.

1992 1st quarter 2nd quarter 3rd quarter 4th quarter Orange County 47.6 51.5 47.6 50.2 United States 52.3 53.4 51.8 53.6

1993 1st quarter Orange County 44.4 United States 55.7

Source: Center for Economic Research

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