October 8, 2007

Exec Sentiment Hits 4-Year Low

ECONOMY: Falling housing market, credit woes, slower economy weigh in

By Dan Beighley
Orange County Business Journal Staff

The outlook for business growth in Orange County for the fourth quarter hit a four-year low, according to California State University, Fullerton’s quarterly business expectations survey.

Sentiment among the county’s chief executives, business owners and managers fell to 41.5 for the fourth quarter. It marks the third straight quarterly drop in the index, and the first time since the 2003 start of the Iraq war that sentiment has dipped below the 50 mark.

A reading of lower than 50 indicates executives don’t expect growth in the quarter.

Survey respondents “are more uncertain and fearful,” said Anil Puri, dean of the College of Business and Economics at Cal State Fullerton.

Falling home prices, credit woes and a slower national and local economy all contributed to the decline, he said.

Sentiment first began slipping for the second quarter after concerns about the subprime mortgage market’s meltdown started registering on the minds of executives. The index dropped to 70.6 for the second quarter from 83.1 for the first quarter.

At the start of the third quarter the index fell again to 61.9.

Executives are thinking about the possibility of a recession, according to the survey.

More than half put the chances of a recession next year at 50% or higher. About 40% of participants said there was less than a 50% chance of a recession.

The poll shows executives are uncertain about the direction of the economy, according to Puri.

A major economic decline—like the county saw in 1991 when the aerospace industry collapsed and took housing prices with it—isn’t likely, he said.

The fourth-quarter survey found a majority of respondents plan to hold on to inventory and aren’t laying off people, Puri said. That shows a willingness to ride things out, he said.

But executives are expressing signs of caution. About 60% said they have no plans to add employees in the quarter. That percentage is up from the previous survey, when half said they didn’t plan to make any changes to their workforces.