UH economists see slower growth
Tight labor markets are expected to moderate the state's rapid growth
Blame it on the higher costs of gas and electricity, not to mention housing, and a tight labor market.
The University of Hawaii Economic Research Organization says a slowdown is imminent for Hawaii, which should experience moderate job growth and income this year, followed by further deceleration.
In its county economic forecast, UHERO paints a picture of a cooling labor market, slower growth in real personal income, and inflation rates above 3 percent through 2007.
"It's a combination of factors," said Carl Bonham, UHERO's executive director, citing the higher costs of electricity, fuel and housing.
Tight labor markets, in particular, will put the brakes on further economic growth.
"We're talking about slowing down, but there are still pretty good growth rates," Bonham said. "We're slowing down from the rapid rates of 2004 and 2005."
With the exception of Kauai, most Hawaii counties can still expect a 2.5 percent job growth this year. Kauai can expect a 2 percent job growth this year.
But in 2007, Oahu's job growth is expected to slow down to about 1 percent.
Construction will continue to lead job growth this year and next on neighbor islands, according to UHERO.
But there will be a significant decline in agriculture on all islands, particularly on Oahu, where Del Monte continues to phase out its operations.
UHERO says the biggest risk to growth in all counties is a possible slowdown of the U.S. economy and Hawaii tourism.
It could be caused by a natural disaster, man-made disaster, another spike in oil prices or fear of inflation.
"Tourism is a fairly fragile industry," he said. "Visitors can decide not to take vacations based on their local economic conditions."
Though the housing market remains strong on all islands, with median prices more than doubling in the last five years, UHERO says rates of price appreciation are slowing down.
"We're anticipating a slowing in demand for homes, whether it's new condo towers or single-family homes because of the affordability issue," said Bonham. "Prices are so much higher than people with an average income can afford to pay."
The cooling of the home market is a trend nationally, according to Paul Brewbaker, Bank of Hawaii's chief economist.
But he believes that the slowdown here is more a function of home prices than of interest rates.
Sales have been falling for 18 months, according to Brewbaker's own analysis of seasonally-adjusted residential statistics, while prices have been stable for nine months.
Brewbaker, who once forecasted the median home price on Oahu would reach $700,000 by the end of the year, has readjusted his view.
"It looks like Maui got there, but Oahu is going to fall short," he said.
Hotel rooms on Oahu, meanwhile, have been at close to full capacity. There has been little material change to the hotel plant inventory, according to Brewbaker, over the last 15 years. He said without additional infrastructure, there would be limited capacity for economic growth on the islands.