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O.C. Expected to Weather Coming Economic Storm

Business: Cal State Fullerton report foresees a slowdown next year, but diverse industries should help cushion the blow.


Despite a sharp drop-off in the nation's economic growth next year, Orange County's vibrant economy will slow just a tad in 2001, cushioned by increasing exports to Asia and its diverse industries, Cal State Fullerton economists said Wednesday.

Employers in the county are expected to create a strong 42,000 new payroll jobs next year--just about as many as expected this year, according to Cal State Fullerton's annual forecast.

The report says that growth in personal income, retail sales and housing values will dip next year, but only slightly. And generally, they will still outpace Southern California and the nation.

"I don't believe Orange County, given its diverse economy, will experience the same kind of sharp decline as the nation," economist Anil Puri told about 450 businesspeople who attended the forecast presentation Wednesday.

Puri's rather bullish outlook was like music to Brian Wakeman's ears. The managing partner at RAWA Enterprises, a San Clemente company that manages and renovates apartments, said: "I thought we would have more of a downturn, but I feel our economic prospects are bright."

Fred Sneddon, a vice president at Sunwest Bank in Tustin, said he and other lenders have been talking about tightening credit for commercial developers, fearing too much office construction during a period of slower growth could lead to lower rents and vacancies.

But after hearing Puri's forecast, he said: "They quelled some of those fears. I feel better about the way things are going."

Concern about the local economy has increased as signs have emerged of a national economic slowdown, particularly in the face of higher interest rates, rising energy prices and the strong dollar relative to the European Union currency, the euro.

And indeed, the Cal State Fullerton forecasters are widely projecting that the U.S. economic output--or real gross domestic product--will fall to 3.1% growth next year from the sizzling 5.1% growth expected for this year.

Nonetheless, Puri said Orange County's export industries stand to benefit from Asia's continuing economic recovery and the forthcoming membership of China to the World Trade Organization.

The forecast calls for a robust 3% job growth rate for this year and each of the next two years. By comparison, jobs in the Riverside-San Bernardino area are expected to multiply 5.3% next year. Los Angeles County's economy, where momentum has picked up lately, will garner a greater share of jobs than Orange County next year. But its growth rate will hover at a more modest rate of about 2%, according to the forecast.

Among Orange County industries, the finance, insurance and real estate group is the only one that probably will pick up its pace of hiring next year. The report also shows that the county's sprawling services sector--which includes temporary-help firms and software publishers--should maintain its momentum and once again lead the way in total new jobs.

Puri cited high tech as a major component of the county's overall payroll increases, noting in particular the strength of communication equipment makers such as Broadcom and Conexant Systems.

Cal State Fullerton's latest forecast for Orange County is somewhat more optimistic than projections made during the summer by Chapman University in Orange and some national researchers.

Esmael Adibi, head of Chapman's Anderson Center for Economic Research, said Wednesday that Cal State's new projections appeared to be consistent with what he has been seeing.

Adibi said a key question, however, is whether Orange County could boost overseas sales enough to overcome a domestic slowdown. "If it doesn't," he said, "then obviously growth in 2001 would be substantially lower than what we've seen in 1999 and 2000."

The Cal State Fullerton forecast also had good news on individual wealth.

Orange County's per capita income, projected to rise 8% this year to $36,355, is likely to increase an additional 6% in each of the next two years. The rising incomes will help spur spending in Orange County. Consumer spending, as measured by taxable sales, is expected to jump a whopping 10.5% this year and nearly 8% next year.

Higher incomes, along with the relative lack of new home building, also will push up Orange County's housing values, which are projected to climb 7% next year. That would be down from 8% this year and double-digit percentage gains in 1998 and 1999.

Rising home values have been a major source of concern to economists who fear the economy will suffer as businesses struggle to attract and retain employees.

Still, economist Radha Bhattacharya and Puri said Orange County's housing crisis is nothing like Silicon Valley's, and they noted that higher home prices alone will not stifle the county's economic growth.

"I don't think it will be a severe hindrance at this point" to the Orange County economy, said Puri, who is also dean of the university's College of Business and Economics.

John Owen III, a managing partner at Voit Commercial Brokerage in Anaheim, wasn't so confident about that assessment. While agreeing heartily with Puri's overall economic outlook, Owen viewed the county's housing situation as a more immediate problem.

"That's the only storm cloud I see," he said.


Economy Slowing -- a Bit

Orange County's economy should grow at a slower pace next year according to Cal State Fullerton economists. But overall, the outlook remains fairly bright.

Source: Cal State Fullerton Economic Forecast

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