Housing slump puts tourism at risk
A UHERO report says the mainland housing market may dampen vacation spending
Local economists say the prospect of further weakening in the California economy has increased the risk to Hawaii's main economic pillar: tourism.
A new report released yesterday by the University of Hawaii Economic Research Organization focused on the potential effects of the mainland housing slump and disruption in the financial markets on the state's tourism industry, which has seen fewer overall visitors and flat visitor spending this year due to an already weakening U.S. economy.
The health of the U.S. economy, which is tied closely to what goes on in the housing market, is likely a bigger risk to tourism than it is to the local construction industry, said UH economist Carl Bonham, co-author of the report.
"Things have gotten much worse in terms of the financial markets, and many housing markets in the U.S. mainland have deteriorated more," he said. "Consumer confidence has fallen ... the whole picture for the U.S. economy has gotten riskier and is one of a weaker economy."
Consumer confidence is a leading indicator of people's willingness to spend money on luxury items -- including vacations, he said.
The latest UHERO report has gone from a fairly flat forecast in June to a slight decline in visitor arrival numbers because of state revisions to 2006 visitor statistics and the continued softening in the U.S. market.
Growth rates for 2007 have been revised down, from negative 0.2 percent to negative 1.4 percent. However, UHERO also revised real income growth upward to 1.9 percent for 2007, from 1.4 percent in its June forecast.
Economists expect the fallout from the U.S. economy to take a toll on overall visitor arrivals, which are expected to drop about 1.4 percent this year, flatten next year, and grow by 1.4 percent in 2009.
They also estimate a 2.5 percent drop in Japanese arrivals this year, and a 0.9 percent decline next year, followed by 1 percent growth in 2009. Flat nominal visitor spending is expected this year as a result of weak arrivals, the report said.
"The percentage of visitors coming from the U.S. today is much higher than it has been in a very long time," he said.
The bright spot in the forecast is that the federal government has begun cutting interest rates by a significant amount, while the weak American dollar is potentially beneficial to the U.S. economy and Hawaii, he added.
"People from the U.S. mainland who might have considered traveling to Europe may think twice and look to Hawaii," he said, adding that the same is true for travelers from Canada, where the currency has strengthened compared to the U.S. dollar.
In addition, economists are forecasting continued job growth and increases in real income, which indicates there is still strength in the local economy even though it is slowing.
However, the state won't likely see the end of the risk from the national housing slump anytime before the end of 2008, Bonham said.
"The risk is really that it gets much worse," he said.