UHERO: Zero growth for Hawaii this year

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The University of Hawaii Economic Research Organization predicts zero growth for the state this year, with no significant recovery in sight until 2010.

Visitor arrivals across all four counties are expected to drop anywhere between four percent to 11 percent, due to the shutdown of two airlines and loss of two cruise ships.

Job and real income growth this year are expected to fall in a fairly tight range around zero percent in each of the four county economies, according to UHERO, with slightly negative aggregate job growth.

"It really is a story about the broad overall Hawaii economy essentially coming to a halt," said UHERO economist Byron Gangnes.

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The state of Hawaii is headed for zero growth this year, according to the latest forecast by the University of Hawaii Economic Research Organization.

Slowdown UH economists are forecasting little or no growth for the state economy into 2010 2008 2009 2010 Visitor arrivals -3.9 1.8 2.1 Visitor days -3.4 1.1 1.6 Payroll jobs -0.2 0.0 1.2 Real income 0.2 0.6 2.1 Source: University of Hawaii Economic Research Organization

Citing the shutdowns of Aloha Airlines and ATA Airlines in recent months, UHERO now expects a roughly 4 percent drop in statewide visitor arrivals this year, steeper than its earlier prediction of 2 percent.

The drop was attributed, as well, to the loss of two Hawaii-ported NCL Corp. ships and the struggling U.S. economy.

Aggregate job growth is now expected to be slightly negative this year, according to UHERO, with no recovery in sight until 2010.

"This synchronized slowing is no mistake, reflecting broad statewide -- and even global -- slowing trends in construction, visitor spending and overall economic activity," says the UHERO forecast.

UHERO economist Byron Gangnes said the team was struck by how widespread the slowdown was across the state as well as across broad sectors of the economy.

UHERO's forecast is in line with an earlier report by the Bank of Hawaii, which predicted a 3.9 percent drop in visitor arrivals for 2008 due to the abrupt departures of Aloha Airlines and ATA.

Bank of Hawaii's chief economist Paul Brewbaker said the second-quarter loss in domestic traffic bears a striking similarity to the aftermath of the Sept. 11, 2001 terrorist attacks.

Gangnes, however, said that the terrorist attacks resulted in a strong "demand shock" to tourism followed by a quick rebound.

"I don't think this is as severe a shock overall to the visitor industry as we saw after 9/11," said Gangnes. "In this case, we have a problem with both supply and demand because of a weak economy and because we don't have the airlift capacity."

While some of the airline seats will be replaced by this summer, Gangnes said there will still be the impacts of higher oil prices on the backdrop of a weak U.S. economy.

On Oahu, job growth continued to decelerate last year, averaging just 0.6 percent growth, the lowest rate since 2002. This year is now expected to show a 0.1 percent drop, followed by no change in 2009 and 1.1 percent job growth in 2010. Real income growth is predicted at just 0.3 percent this year and 0.4 percent next year, rising to 1.6 percent in 2010.

Tourism will be the weakest industry on Oahu, according to UHERO, with arrivals from both the U.S. and Japanese markets expected to decline by more than 6 percent.

Visitor days on Oahu are expected to decline by 2.6 percent this year. Weakness in the visitor industry is expected to persist on Oahu for the next several years, and even in 2010, the number of visitor days is expected to remain below the 2005 peak.

On Maui, UHERO predicts a 6.5 percent drop in arrivals this year, with U.S. arrivals off nearly 9 percent, and visitor days dropping 4 percent.

Maui county is expected to experience a small net loss of 0.5 percent in jobs this year, while real personal income is expected to drop by 0.3 percent despite federal tax rebates.

On Kauai, arrivals are expected to decline by nearly 11 percent this year and to remain flat next year. Job growth is expected to slow to 0.7 percent this year while real aggregate income will remain flat this year and next.

For the Big Island, UHERO predicts a greater than 9 percent drop in overall arrivals, and a substantial 5.6 percent decline in visitor days.

The number of Big Isle jobs is expected to drop 0.7 percent this year, and remain at this level through next year before resuming moderate growth in 2010.

Non-residential construction projects will provide some economic relief, along with military housing renovations, according to Gangnes, but he's not feeling optimistic.

"It's hard to see a lot of good news in this forecast," said Gangnes. "Part of it if is, of course, that we have zero or slightly negative growth this year. We don't see a strong snapback of growth over the next couple of years. We expect it to be relatively flat before recovery in 2010."