Jim Cooper's Orange County; 1985 Economic Outlook

Employment and the economy are booming in Orange County at the start of 1985 local unemployment stands today at three point eight percent about half the seven point four percent national unemployment rate for the seven and a half percent unemployment average for California in the fourth quarter of 1982. A recovery from the recession began in Orange County and today the local economic growth rate is about 10 percent compared to a national growth rate of 2 percent. But there are some clear danger signs ahead for 1995 too. I'm Jim Cooper and I'll talk about them with my guests as they examine Orange County Economic Outlook. Park County has consistently outperformed the national and state averages in this economy.

It's been the last to show signs of recession and the first to show recovery because of its vital and diverse economy if Orange County were a sovereign state. Its economy would rank in the 30th place among all the nations of the world. The Japanese economy forecasts predicts that in 1985 80000 new jobs will be created in Orange County. In addition to the ordinary expansion of medical and informational industries in Orange County there's a growing international dimension to many business activities. But on the negative side many experts see a downturn in the fourth quarter and have serious concerns for housing and business. If interest rates go higher each of our guests has a fresh perspective on a subject. And now let's meet them. Dr James Doty is a professor of Economics and Business Administration the Chapman College students. For the past seven years construct the Chapman econometric study and it's become widely referred to for its study in depth of the economic outlook. Dr Mark by the Sarre was born in Manhattan New York son of a Presbyterian minister he was graduated from the State

University of New York at Stony Brook and obtained a doctoral degree from UC Berkeley and urban sociology. He worked two years on a post doctoral fellowship on survey research before joining U.S. Social Ecology department in 1901 and he just completed his third Orange County survey on local demographics and community issues. Steamboat allowed I was executive director of the World Trade Center Association the Warrens County part of a network of twenty nine operating World Trade Centers. You're the owner of international marketing management which operates the local World Trade Center Association offices. He worked previously for 15 years in marketing for numerous large corporations. Robert Dunham is president of Newport economic group. He's been involved in the economic analysis and market research for 20 years from when he was manager of Economic Research for the Irvine company. He earlier served as senior economist for the Dell web corporation headquartered in Phoenix Arizona and he's done many major economic studies for many major private development project. Gentlemen I'd like to have each of you given a few sentences what kind of

a year the U.S. had from 1985. Let's start with you Dr. Daley. Well as you said Jim there's no question that the Nineteen Eighty-Four economic recovery in the growth rate was phenomenal. But we see some tailing off for next year in terms of employment growth. In fact from the third quarter of this year of 10 percent that you referred to were thinking or talking about the drop down to an 8 percent growth rate by the end of next year and the principal reason for that high real interest rates are still having an adverse effect on the county and also these high real interest rates which lead to a high value of the dollar have had a negative impact on our export related industries. But to Dunham you work with developers you work with landed people who turn to land in the housing and shopping centers and into industrial parks. What's your outlook. Well we think 1985 is going to be basically a good year for the building industry not record breaking. It won't be another 1994 because we do think there's

going to be a continuation of high interest rates. I think it's temporary reduction is a bit of a low and as much as we haven't resolved the issue of the federal deficit I think interest rates will remain high. But you have to bear in mind that. A real interest rates have been high from us for years and so the question is whether we can function with another year of that I think I think we can. I think the level of activity in summer and residential sector will be down but contrary to that trend we think in the commercial industrial it's going to be a slight increase over this year. There's a tremendous build up demand for housing we're going to see with Dr for the sorry state in a few minutes but of course that that whole demand for housing can translate into purchases of housing and that those interest rates make it a little bit every fraction of a point of an increase in the interest rate means so many thousand families that are unable to afford the payments can't qualify for the loan. That's sort of things one of the one of the exciting things in the Orange County economy that are not evident in other places is our

international connection I call it the international the international dimension and the fact we even have a World Trade Center Association is remarkable for this guy can you tell us about that international flavor series Jim the international scene has been around race kind of for some time but it was only within the last. Seven or eight years when a group of men got together 970 find to form this World Trade Center Association and in that time there's now over 300 companies who now belong to the world 300 companies in Orange County who now belong to the World Trade Center Association remarkable. And they vary from the manufacturing into the service. Some of the big companies like floor of course do a lot of the provide services engineering services. Indeed all over the country many many were high tech companies from micro deaded to micro deed to Alpha Microsystems all doing very well. I might add in the international scene one of the I mean for Orange County Well the deficit still still very strong.

You don't buy the international debt yes. But every well over a trillion now. Indeed but it but for every billion dollars we reduce that deficit that's about 30000 you know by reducing it a billion in annual 23000 job you're talking about the Internet I mean nationally right indeed are the people you deal with bullish or bearish about 1985 the international I think waiters this room if you're on the international scene I think it's going to those companies who are going to do well internationally they're going to have a product that's unique that compete can compete on an international scene. We have strong competition from the Pacific Basin countries as well as the European area. But I think of those those companies especially in high tech biotechnology are going to very well then is already good signs of how well they're doing this past year. You know I think we should be fortunate on this program to have two people Dr. Dougherty just on his seventh econ economics econometrics study and you get on your third demographic study. What do you see ahead.

But we've seen a continuing trend since 1982 of increasing incomes in Orange County and. Increasing educational levels. Growth in white collar occupations especially retail and clerical occupations and. I see the housing market in the south county based upon the demand we see in our survey I see doubt the housing market in the south counting be being very healthy. And I see people with increasing increasing salaries and wages to pay for housing and other goods. If someone saw you on the street and said Mark is it going to be a rosy year a rough year ahead what would be your answer. I'd say it might be a rough year ahead nationally but I think it's going to be a better year locally than it is going to be in ASH have you found evidence to sustain the thesis that I made earlier that Orange County normally outperformed the nation by far in its economic is both the demographics and its. The economics are there's no question

about it I mean when we look at the the growth in income between 83 and 84 serve and I think Jim quite a healthy growth in income and I his study it's just no comparison would you agree with that. If I reduce our median family income is one of the highest one of the higher in the nation for any standard Metropolitan Statistical Area and it's continuing to grow. Is that why we're insulated and sort of cushion from the economic vagaries that occur and then to a certain extent I think Jim but everything's relative so when things don't grow as rapidly in Orange County we feel it. Yeah but in terms of median family income where we're looking at next year hitting forty thousand dollars you know you had a very marvelous facility of taking this very expansive study that you did and boiling it down to seven sentences. That can be understood by the public and that's what we're all trying to do the most to get it so that a nonprofessional can come to grips with what you're saying. So let's take a look at the the seven sentences that you have the give your outlook for Orange County. This is the Orange County forecast summary

number one economy peaked in the third quarter of 1984. Number two the economic downturn will be more pronounced than that following previous recovery. And let's go to number three strong employment growth is expected in construction non-durable manufacturing trade and services for big increases in consumer spending and taxable sales. Five slower but still positive growth in forecasts forecast for the total building valuation. 6. Housing prices will hardly keep pace with inflation and 7 housing will become more affordable. I think such since we've seen that those magic seven sentences. I'd like to pick up on that on the end one where you said that housing is marketable because that translates into good economic news for Mr Joe Blow and we're going to take a look and see how many Joe Blow there are they want housing in America came up in a demographic study. They're the cross-fertilisation of these two studies. So let's start with that housing What is your outlook on that.

Well for the last few years now housing in Orange County has in fact become more affordable. Personal income growth has outpaced that of housing prices. Remember the days when we used to go home at night to take out a calculator so we could hear out how much our homes appreciated that day. Yeah well that's not happening anymore. I guess that's bad news to homeowners but it is good news to first time home buyers. A recent study by one of our graduate students at Chapman College showed that although housing in the nation is still more affordable than Orange County that gap has been cut in half. And if you believe what we're saying in our forecast about housing prices interest rates and median family income housing will become increasingly affordable in 1985 as well. Does that translate into other developments like the kind of you're involved in Mr. Dunham. We are. Activity of course gets you know involved and residential and the other areas too but the big factor which has you know induced a number of firms to look at other areas has been the price of housing.

And we do come up against the barrier constantly and all during the recovery so far we've seen big increases in the sales of lower cost housing but when you get in Orange County we started 150000 and when you get over 200000 which sounds like a big number in much of the world but here especially in the south county sector it's rather average that the housing sales remain very slow. And if you look at the levels of activity in the multiple listings of our higher income areas of Newport lagoon and places like that the activity is just a fraction of of what it was a few years ago. So even though I'm sure incomes are rising when you consider that what he's saying is incomes are riding low fatter in proportion to the playgroup but we still need a lot $200000 house typically requires at least a $75000 income yes on the average. Interestingly it's often closer to 100000. And so there we we do come up against a limit to the number of $200000 houses we can build but the lower end of the market

and in other areas and especially in Riverside San Bernardino places like that Sonny meat is always pointed to is growing on the corona. The greatest growth area because they can sell a house for $75000 and most of the buyers are 80 percent of buyers are employed in Orange County. But the construction industry has responded but one thing that we've noticed that I think is interesting in terms of our 85 forecast we are forecasting a 23 percent increase in multiple permits versus a 3 percent decrease in single family permits so we're seeing a big increase in permits. But there's a lot of downsizing going on even loosing new single home prices for the last three years there's been an actual drop not only in real terms in nominal terms prices have been going down 3 to 4 percent a year. Again not a real drop but smaller homes smaller lots so the construction industry is responding to the affordability problem. Do you find the same thing that Bob and I was just talking about a resistance for the international companies that are putting employees in the one county having difficulty buying housing we're talking about housing. And is that the problem of among the international business community.

It is in some of some respects if it's with a higher executive the top executives they can afford it where there was a whole nother ball. Talking with but if it's if it's on the manufacturing side and they need assemblers they're going to have to go outside. There has been a problem I think this is being corrected. Do you see we talk about not only housing but job do you see this international dimension in Orange County is growing dim. you're talking about creating a lot of new jobs. I think so. The city of Santa Ana for one is developing a foreign trade cell and I think that will provide an opportunity for. Foreign companies as well as international companies here to have a manufacturing sector right in the city of Santa in a zone that will be duty free. The creation of the new protocol committee for orange. Yes Harry Reid is working very hard to get that brother in the union and we have if we have to establish an Orange County which used to grow lima beans and oranges now we have a protocol committee so when the ambassadors are now over the diplomatic corps come down we have it already.

We can observe all the diplomatic I said the protocol used to be held just only by dissing them but now that anyone in Washington D.C. is right not to use the new changes the dimensions from history. I think we all have to admit that everything is not perfect in Orange County and there are some problems in Orange County so let's take a look at those two something that you found in your demographic survey which is just a few days old. Let's take a look at these serious problems less water supply. Now that as I understand it we'll talk about this as I understand it you interviewed a thousand and three people families and these are the results of what they said are the major problems facing Orange County. 54 percent said the water supply is the number one next. Fifty two percent said air pollution is the major problem facing Orange County. Forty three percent know said it's hazardous waste. Twenty seven percent are concerned about earthquakes and what that might bring in the future. And 22 percent said air transportation I have to say that I certainly would if I were answering that question I would certainly put in their transportation.

I would put in the long range flood control need. I would put in certain housing and I would that crime. But we wanted to examine this hear what it what it was that was on people's minds in terms of their long range concerns about living here unlike here. One thing that we we learned from from these responses is that. Some of the concerns about living in Orange County are of course the concerns about living and so that is being part of Southern California because these these problems of water and air are not Orange County problems these are these are regional problems. And I think what people are saying is that in the long run if if we're going to have a healthy economy and good quality of life we've got we have to solve some of these basic human needs of having clean air and adequate water supply hazardous waste of course is becoming more and more of a concern and in all urban areas and money a lot of money going to be spent and

given governmental oversight levels addressing the problems that not true they were out there but indicate for example addressing the problems of hazardous waste a lot of money has been committed to that. Yeah I think that people are are not yet concerned that we've we've turned the corner on these on these problems and in a lot of ways we have it. Run from one thing that was interesting to me was that the people who lived in Orange County long the longest were the most concerned about the water and air problems and of course the people from the north county more than the South County were concerned about the hazardous waste problem so that would make sense in terms of the siting. Now if we had asked the people who make public policy about what the major issues what the major issues are they met. They may have been totally different. But this is where people are received by the ranker out people in Orange County that they are perceiving those of the five top problems. Let's take a look at some other demographics because they began our discussion about about housing Let's take a look saw some

fact and that attitudes about homeownership. That's an interesting figure. That's fact and that attitudes of homeownership homeowners in Orange County 66 percent of the people in Orange County already own their own homes at a very high percentage. I don't know. That compared with the rest the nation is definitely higher. I would say it's at least 10 points higher than the rest of the nation. Among them the question now that the what do you think having a home is a good investment. Eighty seven percent did I understand you to say in your seminar the other day that that the highest consensus of any issue in Orange County 87 percent think it's a good idea to have a home. I think that you could walk into a room anywhere and you were in an Orange County and you would find people that would agree on anything as much as they want to be homeowners. I know that's what our that's in that survey 77 percent of the people who are renters also would like to be homeowners and not renters. We haven't we haven't seen any movement in that in the last three years that we've been served surveying. We see consistently that a number of renters want to be part of it.

The homeownership world at its almost considered a requirement to get a living here. Let's take a couple looks a look at a couple more bit of fonts here that will give you some indication one is education. This gives you some idea that some college 37 percent of the people have some college and 37 percent of the people are college graduates. Now if that's true 74 percent of all the people in our study have some college debt another extraordinary demographic is it not. Well first of all it is true. And. The interesting part of that is that we've seen since we began surveying in 1982 we've seen a 10 percent increase in people with college education that has to do with the kinds of jobs that are that are locating here and the kinds of people who are following those. Those are the new employment growth in Orange County. And I think we're going to see more and more a trend towards higher educational status. Higher education is an important demographic for acquisition and for income

right. And the more people are moving here for jobs which is more and more a trend we see people move here for jobs rather than housing. The more we're going to see her educational status increase I found another interesting figure as household income I'm sure you found this to Dr. Judy this had to do with the picture on household income let's just take in this chart. The last to 15 percent of all of the households in Orange County have 50 to 75000 and 10 percent of all households have 75000 or more income in other words one 25 percent or one out of every four households in Orange County has coming into that household more than $50000 a year I find that extraordinary. Jim the interesting thing about that is that this this household income includes singles as well as married couples with children and so forth when you start looking at the married couples with children who live in Orange County about one in three of those households has incomes over 50000 are over.

Remarkable that you find that this sustained and you're definitely that's one of the factors by the way Jenny you have a study. Sure that's led to the increase in housing affordability. When you look at housing prices alone Orange County Housing prices are almost double that in the nation but our income is as well. So it helps to make housing affordable. I like to ask about the non housing construction. We see a lot of high rise going on in Orange County a lot of hotels we've had six or seven new hotels in the last 18 months. Knew a lot of people are really Duffield park What about that. A lot of people are worried you know around the airport area we now have I think 10 buildings over 10 stories in high. There are 12 under construction and 30 more planned. But some of this has a bearing on what you've been talking about over the years there's been a really distinct shift in commercial industrial development we reached a peak of straight industrial development in late 1970s and we were doing eight to 10 million feet a year. That same number today is less than half of that it's more like five. And if you take out all of some of the large build

astute programs it's maybe down to three and a half. In contrast there's been a big increase in what we call our Indian high tech buildings which are really kind of a cross between office and industrial and the s.o. a big increase in office so it is true that the kind of people who are using the buildings we're building they're all being upgraded substantially no one's going to come here I don't think and build a large warehouse for groceries or something like they used to in the good old days all the buildings are. Really improved the air conditioning the windows trees landscaping and there's been a really dramatic kind of shift in that area. What do you tribute that to. Well I think it's sort of a push and pull combination on the one hand we have all the factors that most business management like desirable areas good universities good climate and we also have extremely high land prices. So we kind of push the other end as well as my hour attracting the people who can afford us where we're pushing other people

away there to Riverside and San Bernardino. And we'd rather not but we can't have it both ways we're kind of a victim of our own success in many ways you know. You you have a worst case scenario I have to ask you about that what do you see in a worst case scenario in your study and your model. We do have optimistic and pessimistic forecasts and then one of them well let me give you the negative but here in mind that we also have an optimistic forecast as well but if in the next several months and that's a possibility interest rates move up a point in the half two points then our recession scenario comes into play that would call for a recession in 1085 two quarters of actual drop in this is for the nation that would have a big impact. I know each county certainly but our baseline forecast is showing enough good growth but it would be called a growth recession that is for the nation growth will not be enough to sustain a decrease in unemployment or the budget deficit nor an increase in productivity overall.

One of the three scenarios the optimistic the negative and the let's let's call it the median prediction which of those right now. But your figure sustained as the most likely to occur. Our figures sustain the median forecast but we read the 7.8 but it's important to note in forecasting because of the fair possibilities it's always important as trends develop to give greater next week two weeks from now. Greater weight may be given the pessimistic or optimistic. One of the important factors in our forecast is that money supply changes have a very important impact on the economy. But economists have found that that the lag between the time money changes in the economy could be anywhere from six months to a year and a half. Well that kind of variation always leave some doubt in the forecast. But right now we're banking on our baseline forecasts a lot of people say we have a strong dollar it's depressing to international business. Is that true and what how is it affecting international business in Orange County. Well somewhat by the very strong dollar a strong dollar does affect the smaller

export or if you will the larger company can deal with it and you can deal with it if he has a good. As I said before a good product that is unique and he's willing to aggressively compete in a foreign marketplace here those of us in Orange County and in California we tend to deal with Pacific Basin countries. That's were I think a lot of our future lives. And I think they're going to see more of that as we move along. If someone asked you about the attractiveness of large capital being invested during 1985 would you say that is more likely or are a lot of big developers holding back and waiting to see what happens in 85 before they commit big money to a development. I think if you look at the character of the firms we have operating here and really the national money sources they have we have almost reached the point where the fluctuations are are sort of evened out I mean a lot of the major developers here have built. Up down in the middle of the cycle because their financing sources go to oh

giant savings and loans of pension funds and these institutions are perpetually in need of putting money into development so you can't sit back and wait for the till the timing is just right you have to you have to keep going. And they ride the cycles through and they ride to cycles and the worst risk is that you're going to have an empty building for a year but an insurance company who's looking for a place to put money for 50 years is not going to want to be away by that one either and I have a thing for the average man on the street again from your study. If they said to you what about the 85 86. Is this going to be a good place to call your home or in your county in those years. Coming up 85 86 I think economically it will continue to be one of the best places. You know what your best your best thoughts for the year for 85 86. Best start. Hopefully lower interest rates more housing affordability and strong economic growth in the county. And your best thought for an international with international business is going to have to take on international challenges and compete. You have to be very very hard.

Tough competition competition out there but a lot of jobs get a lot of jobs there. On that note it's not that it's not all peaches and cream but it's it's pretty much a rosy picture from my perspective and based on our conversation I think the net effect is not so bad in our county for 85 but our time is almost up now and I want to thank our guests for an interesting look at the economic year ahead for nineteen eighty five in Orange County. Please join me next week at the same time and I'll have my special guest Dr. Jacques Kallis and the Chancellor of the University of California in Irvine. I'm Jim Cooper. Thanks for being with us.