Things Looking Up, Manufacturers Feel : Trends: A survey of purchasing managers shows a confidence index that has risen from a historic low to near the growth level.

ORANGE —  After six months of steep decline, Orange County manufacturers’ confidence about the economy rebounded substantially in the second quarter, thanks largely to declining raw materials prices, according to a new survey of purchasing managers at local manufacturing firms.

A confidence index based on purchasing managers’ responses to five questions about current and future trends jumped nearly 25% in the second quarter, to 47.3 on a scale of 100, up from a historic low of 38 in the first three months of the year.

The quarterly survey, by Chapman College economist Raymond Sfeir, measures changes in production, the speed of deliveries by vendors, and changes in price, purchases and inventories of raw materials.

Sfeir began the Orange County survey in 1988, basing it on a national index developed by the National Assn. of Purchasing Managers. For the April-through-June period, the national index rose to 46.1 from 38.7 in the first quarter.

In his report, Sfeir said Orange County purchasing managers “have reported a sudden improvement in orders in the second half of June.” This “has brought a sense of optimism, but many are still cautious,” he added.

Purchasing managers are surveyed because they are uniquely situated to provide information for short-term forecasting. Their jobs require them to accurately judge market conditions, production demands and commodity prices to keep their factories adequately supplied with raw materials.

On both the local and national scales, index readings over 50 indicate degrees of growth in the manufacturing sector, while readings of less than 50 measure declining levels of production.

Thus the second-quarter index for Orange County, while representing substantial improvement from prior quarters, still shows a slight decline in manufacturing activity.

But on the bright side, “it shows that the decline has slowed considerably,” said Esmael Adibi, director of the Chapman Center for Economic Research and an economics professor at the private college.

The highest point for the Orange County index came in the second quarter of 1988, when it topped out at 67.4. The index dropped below 50 for the first time in the first quarter of 1990.

“The best signs in the survey are about inflation,” Adibi said.

Nearly 55% of the purchasing managers responding to the survey said the prices they pay for raw materials stayed the same in the second quarter, while only 32% said prices rose. In the first quarter, 45% had said prices remained flat and 38.5% said prices increased.

The survey also showed that manufacturers have stepped up purchases of raw materials in the past quarter, a good sign, Adibi said, because it means production will increase to use up that material.

In all, 33.8% of the respondents said their purchases of raw materials fell in the second quarter, down from 53.8% in the first quarter, while 32.4% said purchases increased, up from 24.4% in the first quarter.

Almost half the respondents--49.3%--said production increased in the second quarter, up from 17.9% in the first quarter.

Adibi, whose research center prepares an annual economic forecast for Orange County, said the purchasing-manager survey supports the college’s forecast of an economic recovery beginning in the third quarter this year.

“This purchasing survey shows that things bottomed out in the first quarter and have started coming back. If it follows our forecast, then the index for the third quarter should go back up above 50,” signifying a new growth trend in the hard-hit manufacturing sector, Adibi said.

In the past year, manufacturing companies in the county have trimmed 7,700 jobs from their payrolls, according to state Employment Development Department figures for May, the last month for which data are available.

Most of the job losses have come from the electronic and precision instruments, transportation equipment, and lumber, wood and furniture products segments of the manufacturing industry.

As of the end of May, according to the state tally, there were 245,200 manufacturing jobs in the county, down 3% from 252,900 in May, 1990.

Cautious Optimism A survey of purchasing managers at 60 Orange County manufacturing firms found the slowdown continuing in the second quarter but at a much milder level. the index improved from 36.0 to 47.3 after three consecutive declines.

A value above 50 indicates the expectation of growth, below 50 contraction, in the manufacturing sector: Source: Chapman college Center for Economic Research