A slowdown in high-tech industries is impacting California’s manufacturing growth rate, according to the latest survey of purchasing managers conducted by Chapman University and released April 7.
“It was not a surprise about high-tech because many companies are laying off workers, so we expected they would not be growing as fast,” director of the survey Raymond Sfeir—professor, vice provost of operations and finance at Chapman University—told The Epoch Times.
The survey measures expected changes in commodity prices, employment, inventories of purchased materials, production, new orders, and supplier deliveries to create a Composite Index, with a score above 50 representing expansion. Scores statewide revealed a drop from 57.4 to 56.6 from the first to second quarter in 2023.
Data collected in the study rated the Composite Index for high-tech manufacturing at 55.4 for the second quarter in 2023, dropping from a 60.6 score in the first quarter.
“The data validates our suspicion, though they will continue to grow,” Sfeir said.
Survey participants expect employment to expand in food and beverage, nonmetallic mineral, fabricated metal, aerospace parts, and furniture products industries. Decreases are anticipated in computer and electronics products.
Purchasing managers point to commodity prices and economic uncertainty as an underlying concerns.
“Price volatility is an issue, with price increases accelerating everywhere, except shipping which has returned to pre pandemic pricing,” one respondent wrote in the study. “Pacific containers have dropped from $20,300 to $3,200.”
Gov. Gavin Newsom’s California Geologic Energy Management Division plan, aimed at phasing out oil extraction in the state, is threatening the oil and coal industries, according to a purchasing manager in the state.
“This will have profound implications in this industry...Sales and personnel in this field have already plummeted,” the spokesperson wrote in the study. “We anticipate the prospect of 50 [percent] layoffs and the potential for closing the business.”
Sentiment is more positive in other industries based on responses, but all four indices are down compared with the same time last year, according to the study.
Commodity prices scored the highest, totaling 71.1, and while the tally increased from last quarter’s 68.4, the number is notably lower than the 96.3 recorded the same time last year.
The production index dropped from the prior quarter, from 63.5 to 63.3, both slightly lower than the 65.6 score for the second quarter in 2022.
Employment forecasts totaled 53 compared to 52.2 last quarter, and the index rated a 60.9 in the same quarter last year.
New orders are also expected to increase, moving from 55.1 to 56.7, but the number is below the 60.9 from last year.
High numbers from last year are a reflection of the rapid recovery from the pandemic, Sfeir told The Epoch Times. The Composite Index dropped to 47.1 in the second quarter of 2020, indicating contraction, but the score jumped to 61.5 in the third quarter.
“Employment went up by several million, and production went up,” Sfeir said. “It dropped quickly and recovered quickly.”
Experts suggest a host of factors are impacting the manufacturing sector, and managers “see supply chain issues easing, and raw material prices moderating or declining,” a respondent reported.
Weather is said to be impacting operations, and “concerns are voiced about higher energy costs and the California administration’s policy to prevent drilling for new wells,” Sfeir said in the study. “Difficulty in finding qualified workers is still a major concern in many industries.”
While companies in the technology industry have suffered from declining stock prices—with the tech-heavy Nasdaq retreating 37 percent from its high on Nov. 14, 2021, to Oct. 13, 2022, and layoffs reported across the state—purchasing managers’ expectations suggest Silicon Valley was harder hit than Southern California.
Orange County’s Composite Index increased from 54.6 in the first quarter to 56.5 in the second, with high-tech manufacturing increasing from 63 to 64, besting the state’s score in the same period by nearly nine points.
