O.C. Manufacturing Bounces Back

Rebounding from a sluggish second quarter, manufacturing in Orange County has roared back and eclipsed the national average, with production, new orders and inventories of purchased materials all increasing, according to a Chapman University report.

But in a potentially ominous development, commodity prices jumped for the second consecutive quarter, indicating that inflationary pressures might be building. That could bring higher consumer prices in the future.

The university’s quarterly manufacturing index, which tracks the industry’s expansion and shrinkage, grew by 11% in the last three months after dropping 13.4% in the second quarter.

“The local economy as a whole is doing well, except in high-tech,” Chapman economist Raymond Sfeir said.

Manufacturing accounts for about 18% of the county’s employment, although its importance in the local economy has diminished in recent years.

Several sectors performed well, according to the survey of purchasing managers at manufacturing firms in the county. Nondurable goods, which include clothing, paper and canned and frozen foods, outpaced all other industry groups for the second consecutive quarter. The surgical, medical and dental industries reported increases in both new orders and production.

Orange County’s technology industry, the driver of the region’s robust economy in the past, stalled for the second consecutive quarter as firms struggled with overcapacity, price wars and shrinking profits. Overall employment dipped slightly, and new orders remained unchanged, although production grew slightly.

Chapman economists recently predicted in an update of their annual economic forecast that high-tech employment would rise this year by only 1.2%, compared with a blistering 7.8% increase in 1998.

Several Orange County technology behemoths have been hammered lately. Hard-drive manufacturer Western Digital Corp. of Irvine has posted loses for the eighth consecutive quarter and last month had to recall 870,000 units. Ingram Micro Inc., the world’s largest computer distributor, is searching for a new president and chief executive. PairGain Technologies Inc., the Tustin maker of high-speed data networking products, recently reported its first quarterly loss in four years, as revenue declined 33%.

The index tracks production, new orders, employment and the cost of raw materials. An index reading above 50 indicates the manufacturing segment is growing, while a reading below 50 shows a contraction.

The index for the third quarter jumped to 56.4, compared to 50.7 in the second quarter and 55 in the third quarter last year. Nationally, the manufacturing index inched up to 55.1 in the last three months from 55 in the second quarter.

The index for production rose to 61.3 from 54.2 in the second quarter, and the new orders index jumped to 58.2, from 51.1, with food, computer equipment and industrial and commercial machinery posting the biggest gains.

“I don’t think the future prospects for Orange County have been any brighter than they are right now,” said Wallace Walrod, a vice president at the Orange County Business Council. “Every sign we see points to Orange County’s continued growth.”

However, the commodity prices index moved up to 60.1 from 54.1, , with food, paper, printing and publishing showing the biggest price increases.

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Manufacturing Gains

Orange County’s manufacturing economy picked up steam in the third quarter, outpacing the national trend. An index reading above 50 indicates the manufacturing segment is growing, while a reading below 50 signals a contraction. The quarterly trend in Orange County:

1997: 58.5

1999: 56.4

Source: Chapman University Purchasing Managers Survey