Manufacturers’ Confidence Dips in O.C. Survey

ORANGE â€”  Orange County’s manufacturing companies backpedaled furiously in the first quarter, slashing production and paring inventories in an attempt to cope with a flagging national economy, a new survey shows.

As a result, an index of local manufacturers’ confidence in the economy skidded to it lowest point in three years.

The index is based on a quarterly survey of purchasing managers that the Chapman College Center for Economic Research has conducted since 1988.

The new reading--36 on a scale of 100--was down from 41.6 in the fourth quarter of 1990. It indicates that local manufacturers not only experienced a sharp contraction in the first three months of the year but expect business to remain slow in the quarter ending June 30, survey director Raymond Sfeir said.

A measurement of 50 or more indicates growth, while readings below 50 show a decline in manufacturing. This is the first time that the Orange County index, which peaked at 67.4 in the second quarter of 1988, has dropped below 40.

Sfeir, an economist at the private college, said the results bear out the school’s economic forecast for the county in 1991. That forecast, released in December, called for a mild recession of the overall economy to last at least through the first half of the year.

The Chapman poll is modeled on the National Assn. of Purchasing Managers monthly survey. Nationally, the confidence index level fell to 38.7 from 41.7 in the fourth quarter.

The sharper decline in Orange County was expected, Sfeir said, because local economies are not as diversified as the national manufacturing base and tend to show greater quarter-to-quarter fluctuation.

In Sfeir’s survey of 60 purchasing managers, 43.6% said first-quarter production dropped from the fourth quarter while only 17.9% said production increased. The numbers were almost reversed from the first quarter of 1990, when 14% said production had fallen and 43% reported increased manufacturing activity.

While a production decline means current business is off, a drop in inventories of raw material indicates that manufacturers don’t hold out much hope for quick improvements.

And 51.3% of the purchasing managers surveyed by Sfeir said inventories declined from the previous quarter. Only 7% reported declining inventories a year earlier.

Sfeir said he believes that manufacturing activity will pick up in the second quarter, but only modestly.

Several survey respondents told him they expected a rebound now that the Gulf War has ended, and manufacturers who supply the medical industry did well through the first quarter largely because the war increased the demand for medical equipment and material.

But Sfeir said he expects manufacturing to remain sluggish, with the local confidence index stuck somewhere below 50 at least through the second quarter.

O.C. Purchasing Managers Index Local manufacturers slashed production and cut back inventories in the first quarterof 1991 as their confidence in the economy plummeted to a new low. Readings under 50 indicate a decline in the manufacturing sector. Source: Chapman College Center for Economic Research