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Wednesday, Feb 28, 2024

Lead Story—Rising energy and housing costs dim executives’ optimism

Where are we now?

That seems to describe the feeling of local business leaders responding to the 11th Annual San Diego Business Journal/Deloitte & Touche Economic Outlook Survey.

From their responses, the 207 executives polled by the survey seem uncertain of what to expect from the economy in the New Year. While most remain optimistic, the slowing economy and the high cost of energy and housing, together with increased traffic congestion, is tempering their optimism with caution.

For the 11th consecutive year, the accounting firm of Deloitte & Touche LLP and the Business Journal surveyed executives in 10 top industries: aerospace and defense, biotechnology, e-commerce, electronics and manufacturing, finance, health care, real estate and construction, retail and wholesale, service, and tourism and hospitality.

The surveys were mailed to local companies in late October and the responses gathered and tabulated at the end of November. Besides answering questions, respondents were also invited to provide anonymous written comments.

Fewer respondents this year than in recent years believe 2001 will bring much economic growth. Yet, while there is a definite slope toward pessimism, the majority of executives say the economy at all levels , national, state and local , will pretty much maintain the status quo.

Only 17 percent of those polled expected the national economy would improve in 2001, down from 31 percent who expected improvement last year. Those who expected the national economy to dip totaled 19 percent, more than double the percentage from last year.

However, the majority of respondents , 63 percent , expected the national economy to remain stable without much movement one way or the other.

Respondents had a similar view about the statewide economy.

Again, 63 percent of the executives polled expected California’s economy to remain the same. Only 25 percent expected to see any improvement, down from 43 percent last year, while 12 percent , twice as much as last year , expected a decline.

The outlook for San Diego’s local economy appears a bit cheerier. While 54 percent expected the economy to remain stable , nearly the same percentage as last year , 32 percent expected to see an improvement. That was down from 44 percent last year who expected to see improvement in the economy.

Fourteen percent of the respondents expected to see the local economy worsen, up from only 5 percent last year. One respondent, a biotech executive, minced few words in explaining his outlook: “Power costs out of sight. Gasoline prices out of sight. Cost of living out of sight. What do you think?”

Industry Outlook

Overall, business leaders’ view of their own industries pretty much mirrored their reflections on the economy.

The majority, 54 percent, expected the economic condition of their industry nationwide to remain about the same as last year. This was statistically within the same ballpark as last year’s responses.

Thirty-one percent of the executives polled expected to see improvement in the nationwide economic condition of their industry in 2001. This was down slightly from 39 percent the year before.

Fifteen percent believed there would be a decline in their industry’s condition in the coming year, up slightly from 11 percent last year.

These responses statistically mirrored the executives’ view of how their industries would fare locally in 2001.

Nevertheless, 81 percent of the respondents expected their company sales to increase in the coming year , with 27 percent expecting sales to grow by more than 10 percent. An almost identical percentage expected those sales to result in increased profits, again with 29 percent predicting an increase in income of more than 10 percent.

Few respondents , only 6 percent , expected there would be any layoffs at their companies in the coming year. Most , 59 percent , expected to see growth in their firms’ work forces, with 18 percent expecting to see a growth rate of 5 percent or more. The remainder expected no change.

Nearly all of the respondents , 96 percent ,expected to see salaries grow as well. That’s not surprising in light of the fact 85 percent of the executives said they were having difficulty recruiting qualified employees, with more than a third saying they were experiencing “extreme” difficulty.

“The labor shortage limits our growth,” griped one executive from the service industries.

Surprisingly, despite controversies and scandals surrounding the expansion of Qualcomm Stadium, the Chargers football team ticket guarantee and the East Village redevelopment and ballpark project, business leaders have expressed renewed approval of local politicians.

Sixty-eight percent of those polled said they were satisfied with San Diego’s political leadership. That was up from only 49 percent last year when the political leadership approval rating dipped to its lowest level since 1993.

The increased approval rating, however, may be a honeymoon period for San Diego’s new mayor and City Council.

“A new mayor should bring new energy and direction in 2001 and 2002,” wrote one respondent. “The new City Council can have a dramatic affect on our economy if they are able and so inclined,” penned another.

Yet the respondents’ belief in San Diego’s ability to retain business remained basically the same as it was in last year’s survey, with 52 percent saying they thought the region had improved its ability to do so.

Only 2 percent of those executives surveyed said they were considering moving their companies out of San Diego, the same percentage as last year. That 2 percent represents the lowest dissatisfaction rate with San Diego in nearly 10 years. Eight years ago, 10 percent of all businesses surveyed were planning to leave San Diego.

Thirty percent of the companies are planning expansions of their facilities. Of those, 82 percent intend on expanding within San Diego County.

Nevertheless, in their personal comments, respondents overwhelming listed the high cost of electricity, gasoline and housing, and increasing traffic congestion as issues that could stunt local business growth and even force some companies to move elsewhere.

“The high cost of energy and housing may prevent businesses from locating here, and may force some businesses to leave,” warned an executive from the financial industry.

“Depends on electric and gas prices,” said a technology executive. “If (they) remain high, there will be a lot of small firms going out of business.”

“A lot of this depends on whether the energy issue is resolved,” said a service industry executive. “If not, San Diego County will have serious problems.”

“Traffic is terrible,” added another financial exec.

At the state level, 83 percent of the respondents said they felt California was still a good place to do business. That was down slightly from the previous two years, when the state’s approval rating was 85 percent, but still one of the highest approval ratings since 1994 when business satisfaction with the state was at an all-time low of 41 percent.

Despite the lawsuits and scandals surrounding the Padres Downtown ballpark, the project is still strongly supported by the local business community. Seventy-four percent of those executives surveyed said they supported the project when its was first proposed. Of those, 70 percent said they still support it.


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