With all major indicators heading south and the Asian financial crisis continuing to drag down exports, Orange County's economy will slow significantly next year, Chapman University said Thursday.
But a recession is not imminent, and more robust growth in the county should resume by late 1999, Chapman said.
"If you look at each one of the major engines of economic growth, they're all turning negative," Chapman President James L. Doti said. "The impact of Asia is obviously a major factor in that."
He expects the Federal Reserve Board to cut interest rates again early next year, and that should spur a rebound in the new millennium. "2000, we believe, will be a very rosy picture," said Esmael Adibi, director of Chapman's Anderson Center for Economic Research, who co-wrote the forecast with Doti.
The biggest factor contributing to a weaker local economy will be a sharp decline in growth in the nation as a whole, from 3.6% this year to 1.9% in 1999, the economists said.
After nearly seven years of economic expansion, the global turmoil is taking a toll on trade. So far, consumers and investors have carried the day, as their spending has helped offset declining demand for U.S. exports. Next year, however, the declining export market will put downward pressure on consumer spending and business investment, they believe.
In Orange County, the slowdown will translate to lackluster job growth of 1.9% next year, or 25,000 new jobs, down from 1998's projected 3.8%, or 45,000, rise in employment, and the smallest annual increase since 1994.
Housing appreciation also will cool next year, Chapman economists said. They predict values will rise 4.6% on average, compared with this year's 11% jump.
The effect of the Asian crisis on the local economy is already evident, Chapman said. From 1993 to 1997, Orange County's exports surged 54% to $8.8 billion, the 12th-biggest increase in the nation. Now, however, the county's export growth rate has plunged to 182nd out of 253 metropolitan areas. Since 1996, county exports have fallen by 22.1% to Japan, 48.6% to South Korea and 25.5% to Singapore.
Helping to offset some of the damage were exports to Mexico, which ballooned 57.1% during the same period.
The building trade, which has added 20,000 jobs in the past five years, will continue to be one of the major forces driving the local economy next year. An expected 8.1% increase in the number of construction jobs will be the biggest gain of any major sector.
But even that industry will see slower growth, Chapman said. Construction spending, after peaking at a 25% growth rate this year, will rise just 11.1% in 1999.
Export-sensitive high-tech employment is predicted to actually decline next year, falling by 1%, or about 600 jobs. And that forecast does not even include any possible fallout from Boeing's announced cutbacks on local subcontractors of the giant aircraft maker.
Chapman presented its forecast before an audience of about 900 at its Orange campus. The annual report, which began 20 years ago, has a good track record of predicting the local economy. But it has had some misses. One year ago it predicted job growth of just 2.8% for this year. That's a full percentage point below the current projection, although Doti expects the employment data for 1998 to be revised downward--closer to his orginal estimate--when the state revisits the data early next year.
The biggest mistake in last year's forecast was Chapman's guess that housing would appreciate by 4%; instead values spurted 11% on average this year. Doti attributed the spike in prices to a short supply of new housing.
Chapman's report follows another major forecast of the Orange County economy presented by Cal State Fullerton in October.
That forecast also predicted slower growth next year, but was somewhat more optimistic, putting the increase in payroll employment at 2.3%, or 29,600 new jobs, in 1999.
Despite Chapman's somewhat somber forecast, Orange County's job growth is still far higher than the nation's estimated 2.5% increase this year. In 1999, the number of jobs nationwide is expected to rise just 0.8%, half the growth rate forecast for the county.
Though Chapman expects stronger growth to resume by late 1999 or early 2000, it issued a warning: The price of that growth will likely be renewed inflation.
The Federal Reserve Board's lowering of interest rates means more money will be pumped into the economy, and the increased liquidity will lead to a pickup in inflation, the economists said. That, in turn, will prompt the Fed to tighten the spigots, leading to slower growth again by 2002.
The good news is that, as the Asian nations resolve their problems, exports should again expand rapidly. In Orange County, an expected surge in exports will help push employment growth back up to 2.7% in 2000 and 3.0% in 2001. That will lead to strong demand for housing, fueling a continuing rise in home prices.
Many local businesspeople said they remain upbeat about the county's prospects.