OC business executives’ outlook for the future of the local and natural economy remains optimistic, but slightly less positive than at the start of the year.
California State University, Fullerton’s quarterly OCBX index dipped from 78 in the first three months of the year to 76.5 for the current quarter.
It was the first decline after five quarters of increases for the OCBX—which is a measure of the overall view of the economy—according to Anil Puri, the director of the Woods Center for Economic Analysis and Forecasting at the university.
The OCBX, short for Orange County Business Expectations, still shows a local economy that’s expected to remain strong. A reading of above 50 indicates a belief in future growth.
At the start of 2023, when most national economists were predicting a recession, which never came, amid rising interest rates and lingering high inflation, the index stood at 60.5.
The latest downtick, while small, is worth keeping an eye on, according to Puri.
“Even though it is a small change, if it persists, it will indicate softening of the economy later this year,” Puri told the Business Journal on April 8.
He emphasized that the “economy is strong today.”
Growth Signs
While the results for the second quarter may be less optimistic in the past, there are plenty of signs of robust growth in OC.
For instance, the OCVibe development group is moving forward with its $4 billion mixed-use development near the Honda Center in Anaheim, marking one of the largest projects of its type in the region; see the April 8 print edition of the Business Journal for more information on that development.
On the stock front, Newport Beach-based giant Chipotle Mexican Grill Inc. (NYSE: CMG) has risen to an all-time high valuation of $80 billion, making it OC’s most valuable public company. Its shares are up nearly 70% the past year.
Among signs of worry: OC unemployment rate stood at 4.2% as of February. That’s up from 3.4% a year ago, and is the highest seen in the county in two years. California’s unemployment rate was 5.6% in February.
Some key segments of the OC’s tech industry are also feeling pressure, albeit not as much as Silicon Valley, which has seen a number of major layoffs.
OC’s key semiconductor sector has seen some downsizing of late, with firms with local operations like Tower Semiconductor announcing plans to furlough nearly 700 workers, and Marvell Technology Inc. cutting 50 local positions.
Aliso Viejo-based Indie Semiconductor Inc. (Nasdaq: INDI), which specializes in automotive uses, said in February that while the company is “not immune from the current automotive end market weakness,” it is well positioned to demonstrate earnings power when the market recovers. It has not announced any local job cuts.
In the area’s large gaming software market, two key players, Blizzard Entertainment and Sega of America, have announced local job cuts as well. Blizzard’s cut of 478 Irvine workers—which was due to be finalized at the end of March, according to state employment filings—is one of the biggest mass layoffs seen in the area in years.
The Fullerton center’s OCBX outlook, which was sent to 500 area business executives, indicated that the 18% of firms responding intend to increase their labor force, compared to 22% in the previous quarter, while inflation continues to be a “major concern.”
Over 90% of businesspeople expect labor costs to go higher or stay the same.
Inflation Worries
The nation’s inflation rate was 3.5% in March, according to figures released on Wednesday, as rising costs remain a constant concern.
“Inflation expectations have moved in the direction of higher inflation by the end of 2024, around 3% to 3.5% percent.” Puri told the Business Journal.
The OCBX was compiled before Wednesday’s U.S. government report.
The growth in the stock market has led some to caution shares may have grown too far and too fast though the survey results tend in the other direction.
“Respondents generally don’t think that the stock market is in a bubble. They think it is justified by the earnings.” Puri said. “They think that the U.S. has been so resilient because of substantial government spending and fundamental economic factors.”
They also tend to believe in the prospect of artificial intelligence and other tech innovations that have been spreading across all sectors of business, he said.
