County Economic Growth to Slow, Analyst Predicts

Joseph Wahed, Wells Fargo Bank’s chief economist, has been watching the Orange County economy for 25 years, and he has never been so conservative about the area’s economic prospects.

In his latest report released Thursday, Wahed projected that employment and income growth will not match the frantic pace of the 1970s and 1980s. Still, Orange County will maintain its position as one of the nation’s most vibrant economic areas.

“The outlook isn’t bad,” Wahed said.

Gross regional product--the total value of goods and services produced in the county--will grow by 3.7% next year, and should average 3.6% annually through 1995, Wahed said. The county will remain the wealthiest area in Southern California, with per-capita income reaching $25,900 by 1995.

Job growth will drop to 2.6% next year, down from the 4.5% average gain since 1982, but should stabilize at 2.8% through the middle of the next decade, according to Wells Fargo.

The new study is in line with forecasts from First Interstate Bank and Chapman College, which also predict only moderate economic expansion in Orange County over the next several years. First Interstate, however, predicts a sharper drop in employment growth for next year.

Wahed attributes much of the county’s slowdown to lower growth in the national economy as a whole, which he said is tapped out after eight years of steady expansion.

Lower defense spending will hit local aerospace manufacturers hard, and high costs will increasingly push some types of manufacturing out of the county and into cheaper areas such as San Bernardino and Riverside counties.

Real estate is another weak spot, with home resales and new home construction down significantly and office vacancy rates climbing.

Housing prices have plateaued, and 1989 is likely to be the slowest year for housing construction since 1983, Wahed said.

Still, Wahed does not agree with some doomsayers who are predicting a crash in inflated housing markets throughout California. “People shouldn’t be surprised if it slows and shouldn’t confuse a slowdown with a collapse,” Wahed said.

And high housing prices will remain a difficulty for businesses that cannot find lower-wage workers.

Indeed, the falloff in the county’s economic performance is relative and should not mask the fact that it remains one of the most economically vibrant regions of the country, Wahed emphasized. While some manufacturers may be hurt by the drop in defense spending and weakness in some high-technology businesses, exports of electronics and precision machinery should help to take up the slack.

And as the local economy matures, service industries will play an ever-more-important role in maintaining employment and income growth, Wahed noted. Service industry growth will be fueled by an exploding tourism industry and high demand for financial and other business services.

Wahed also believes that Orange County and the national economy as a whole will also benefit from a continued fall in interest rates.

ORANGE COUNTY KEY ECONOMIC INDICATORS

Percent Percent Change 1990 1995 Change Category 1988 1989* 89-90 Forecast Forecast 89-95 Population (millions) 2.26 2.30 1.8% 2.34 2.55 1.7% Unemployment Rate 3.0 3.1 -- 3.4 3.5 -- Employed (millions) 1.31 1.35 2.6% 1.38 1.59 2.8% Taxable Retail Sales (billions) $25.4 $27.4 8.0% $29.6 $43.5 8.0% Housing Permits (thousands) 23 16 6.3% 17 20 3.9% Median Home Price (thousands) $211 $245 12.2% $275 $368 7.0%

Source: Wells Fargo Bank

GROSS REGIONAL PRODUCT In billions ‘77: $30 ‘87: $53 ‘88: $52 ‘89: $54 ‘90: $56 (Forecast) ‘95: $67 (Forecast)

Source: Wells Fargo Bank

PER CAPITA INCOME In thousands ‘77: $16.1 ‘87: $21.6 ‘88: $23.0 ‘89: $23.4 ‘90: $23.7 (Forecast) ‘95: $25.9 (Forecast)

Source: Wells Fargo Bank