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1996-97: REVIEW AND OUTLOOK

California's job growth surged in 1996 and is headed higher next year, analysts say. The big question now: Is the state's economy really. . . : Ready to Fly?

Forecasters See O.C. Comeback Staying Strong

December 29, 1996|PATRICE APODACA

Orange County's economy, which bloomed in 1996 after lying fallow for the first half of the decade, is expected to continue on a healthy course in the coming year.

If 1996 was the year the county bounced back from a long recession and the municipal bankruptcy that shattered residents' confidence, next year will complete the rebirth, many analysts believe. They base their rosy predictions on stable interest rates, a booming export market, low unemployment and a strong technology sector.

"We've had a rough road getting there, but the signs are that we certainly have recovered and the future looks very bright," said Nate Franke, a partner at Deloitte & Touche accounting firm in Costa Mesa.

Some recent economic reports underscored that view.

In their recent annual forecast, Chapman University economists said that a surging export market and renewed construction activity would fuel the county's economic expansion in the coming year. They also predicted that local payrolls would grow an average 2.6% for the next five years.

Despite widespread optimism, there are some fragile links in the local economy.

* Consumer debt remains at historically high levels. That's troubling, economists say, because high debt loads could discourage retail spending and home buying--major contributors to a bustling economy. "Until people deal with this large debt overhang, I don't see there being a big impact on the retail sector," said Dennis Aigner, dean of UCI's Graduate School of Management.

* Any uptick in interest rates could crimp economic growth. Higher rates would raise borrowing costs on everything from mortgage loans to credit card debt. Consumers would think twice about buying new cars and computers, and businesses might not expand as quickly.

* Most of the jobs being created are in the service sector, but experts are divided over whether that's a bad sign.

Esmael Adibi, director of Chapman University's Center for Economic Research, believes that most of the service jobs being created are in highly paid fields such as engineering, management and health services.

Aigner is skeptical. He thinks many service jobs remain at the lower end of the pay scale. Without more better-paying jobs, housing prices aren't likely to rebound any time soon, he said.

While the Orange County unemployment rate stood at a low 3.5% in November, some observers note that the figure doesn't reflect those discouraged job seekers who have dropped out of the employment search. The minuscule rate also masks the fact that many new workers are temporary personnel, rather than permanent hires bestowed with full benefits, they say.

* The stock market could retrench. Orange County companies rode the surging equity markets in 1996, a banner year for initial public offerings. While most prognosticators don't expect a major correction, the possibility remains that the stock market could dive, sending a chill through the economy and hampering companies' ability to raise funds.

Nonetheless, many local business people are sanguine about their prospects for 1997. One is Charles Haggerty, chief executive of Western Digital Corp. in Irvine. The computer disk-drive concern is ending a benchmark year in which a restructuring brought increased market share and surging sales and profit. "We'll finish the year in as healthy a shape as we've ever been in," he said.

He expects the company to continue improving financially next year, helped in part by increasing foreign sales.

Indeed, international trade has emerged as one of the chief drivers of the county's economy, said Walter Hahn, an economist and consultant at E&Y Kenneth Leventhal in Newport Beach. Add to that a strong non-defense technology sector, and Hahn expects another 30,000 jobs will be added to county payrolls next year--on top of the nearly 30,000 new jobs this year.

But Aigner cautioned that the current expansion is different than past upswings, which were fueled largely by the aerospace industry. "We went through four to five years of the economy restructuring," he said. "Most companies have restructured, fired lots of people--most in middle-management positions, most of which have not been replaced."

And while many companies are now posting profit gains, they're doing so with fewer high-paid employees, he said.

For the Orange County economy, "it's not the same game."

Breaking down the economy by category:

Manufacturing

For those who survived the last eight years, when nearly 50,000 manufacturing workers lost their jobs in the county, business is looking up again.

Employers are slowly recovering from the battering they took from the worst recession in 50 years and federal defense and aerospace budget cuts. They added about 1,000 new jobs this year, according to preliminary figures from the state Employment Development Department.

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