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O.C. Economy Is Going Nowhere Fast, Study Says : Annual CSUF Forecast Sees Growth in 1995 but at a Glacially Slow Pace

October 28, 1994|JOHN O'DELL | TIMES STAFF WRITER

FULLERTON — The recession that plagued the nation in 1990 and 1991 lingered in Orange County for another 2 1/2 years and is still reluctant to leave, according to economists at Cal State Fullerton.

In its annual "Orange County Economic Outlook" report, released today, the university's Institute for Economic & Environmental Studies foresees improvement through the first nine months of 1995, but at a glacially slow pace.

"We are lagging behind the national economy instead of leading it," said Anil Puri, chairman of the CSUF economics department.

There are a number of potential bright spots, including a growing business services industry and the county's increasingly important role in international trade.

Puri said that 1994 is the first year since the recession began in mid-1990 in which Orange County employers will, collectively, add more jobs than they trim. The projected 0.76% gain, he said, would add 8,500 jobs to local payrolls.

Puri forecast a slightly stronger job increase for next year--0.85%, or 9,500 new jobs. Construction, business services, the entertainment and amusement industries and government are expected to be the major sectors hiring.

But there are also a few trouble spots, the economist said Thursday, in advance of a breakfast meeting today at which 300 local business executives are expected to gather to hear the predictions.

Chapman University, which has been issuing yearly Orange County outlook reports since 1982, will release its 13th annual forecast in December. UC Irvine will follow early next year with a consumer confidence poll, and several big banks, including Wells Fargo, Bank of America and First Interstate, will issue reports on the Orange County economy as part of the statewide forecasts they will release in coming months.

Businesses use the forecasts to help with budget and market planning.

Cal State Fullerton's forecast is a fairly downbeat one, Puri acknowledged Thursday. "The recession lasted longer than we expected," he said, "and that length, almost 2 1/2 times the national recession, is unprecedented. So we are not as positive as we were last year."

Though he is not predicting a return to recession, Puri said, the continuing decline in defense spending, a shrinking manufacturing base and uncertainty about interest rates and inflation mean that "things will continue to be difficult in the next few quarters. There are no major engines of growth purring along smoothly."

Of the engines that are running, Puri holds out the most hope for international trade, citing improving economic conditions worldwide.

A study soon to be released by CSUF's economic institute will show that 45% of Orange County's foreign trade is with Pacific Rim nations, Puri said. With the exception of Japan, where a growth rate of only 2.5% is expected next year, the average expansion among Pacific Rim nations will range from 8% to 11% in 1995, Puri said.

Foreign trade, he said, "provides a significant stimulus to the Orange County and regional economies. Nearly one in 10 jobs in Orange County is directly or indirectly dependent on international trade."

In 1993, Orange County businesses exported almost $7 billion worth of goods, with computers, electronic equipment and machinery at the top of the list. The new study predicts annual growth of about 6% through the end of the century and suggests that the average will be closer to 7.5% if the United States ratifies the 1994 Uruguay Round Agreement--a world trade pact that would slash tariffs, cut agricultural subsidies and open previously protected foreign markets.

Somewhat offsetting Orange County's growth in foreign trade next year, however, will be the continued decline of the defense industry.

Federal defense budget trimming began in earnest in 1987, Puri said, and in the ensuing six years Orange County military contractors slashed 31,000 jobs from their payrolls, 11,000 of them in high-technology fields.

He is predicting that an additional 19,000 defense-related jobs will be lost to the county by 1998.

The recently announced decision by Hughes Electronics to close much of its Fullerton research campus, lay off about 1,000 of the workers and transfer almost 5,000 more to facilities outside Orange County "is just one aspect of the continuing job losses" related to defense cutbacks, Puri said.

One Sign of Recovery

Orange County's economic recovery will lag the national pace next year. But a positive sign is that growth in the county's gross product--the dollar value of all goods and services produced during the year--is expected to start outstripping increases in the national gross domestic product by the end of the year. Change from previous quarter in U.S. gross domestic product and Orange County gross product:

Fourth quarter 1994

United States: 2.86% (projected)

Orange County: 3.80% (projected)

Source: Institute for Economic & Environmental Studies, Cal State Fullerton

Promising Signs

Two positive signals for the local economy are in jobs and personal income. Hiring will accelerate at the end of this year for a net annual gain of 8,500 jobs. And the county's total personal income--a measure of liquid income including wages, dividends, interest and Social Security payments--is expected to rise by almost 5% after several lackluster years.

Total Non-Agricultural Employment (% change from same quarter previous year)

Fourth quarter 1994: .87% (projected)

Personal Income (in billions of dollars)

1995: $69 billion (projected)

Source: Institute for Economic & Environmental Studies, Cal State Fullerton

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