The region’s subprime mortgage woes are weighing heavy on the minds of Orange County chief executives, business owners and managers.
After rebounding for the first quarter, sentiment among the group slipped for the second quarter, according to California State University, Fullerton’s quarterly business expectations survey.
“It seemed like there’s a significant downward shift and deterioration in their perception of where the economy is headed,” said Anil Puri, dean of the College of Business and Economics at Cal State Fullerton. “It does not mean a recession. It simply means slowing in the rate of growth.”
The index is at 70.6 for the second quarter, down from the prior quarter’s 83.1. A reading of 50 or more indicates executives expect growth in the quarter.
The first quarter’s index marked a six-month high after two consecutive quarters of decline. In the fourth quarter, sentiment dropped to 69.6 from 81.7 amid the housing and economic slowdown.
The index was at a high in summer 2004 at 94.9. It hit its lowest point, 31.6, at the start of the Iraq war in spring 2003.
The slip in confidence this quarter mainly had to do with concerns about the subprime mortgage industry’s effect on the economy as a whole, Puri said.
He said he’s not convinced that the subprime meltdown, which has been led by Irvine-based New Century Financial Corp., is a sign of a broader slowdown.
“The problems that we see right now are confined to a small segment of the mortgage market,” Puri said.
A third of the executives said they believe the subprime fallout will have little or no impact on the economy. Thirty-five percent said the impact would be moderate.
“I don’t think (subprime) is that big a piece of the market,” said Peter Dolbee, partner at Irvine-based Haskell & White LLP, an accounting, auditing and tax consulting firm.
Still, another 35% of executives said they believe subprime problems will have a severe or high impact on the economy, hitting office landlords and taking away a group of buyers for homebuilders.
“The subprime business affects consumers,” said Paul Mittmann, vice president of Passco Cos., a privately held commercial real estate manager and developer in Irvine. “In an economy where 66% is based on consumption, one doesn’t have to do a whole lot of math to figure out that it’s going to affect it.”
Mittmann said he’s concerned about the rest of the county’s lenders taking a hit.
Nearly 53% of respondents ranked the health of the overall economy as their main concern, up from 42% in the first quarter.