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Hawaii’s World

By A.A. Smyser

Thursday, December 7, 2000

Economy may
weaken next year

FROM the dean of the College of Business Administration at the University of Hawaii comes this message to Americans generally: "The Year 2000 is going to be the best year of your life in terms of the economy."

Sub-message: Enjoy -- because the future economy won't be as kind to our next president as the Year 2000 has been to Bill Clinton.

Second sub-message: Hawaii may be an exception. (More on that below the pyramids.)

Dean David McClain spoke a couple of weeks back at First Hawaiian Bank's 31st annual Business Outlook Forum. He occupies a bank-endowed chair at UH.

McClain used charts to show that inflation has been kept in check, despite very low unemployment, a frequent cause of inflation.

He credits worker productivity gains and sound adjustment of interest rates by the Federal Reserve.

He ventured that this equilibrium will slip a bit in the future -- meaning this year may be the best for a long time to come. For 2001 he foresees moderately higher national unemployment and a drop in the annual growth rate of the nation's gross domestic product from 5.2 percent to 2.5 percent. Government surpluses may erode.

However, he foresees lower inflation next year. He expects the federal funds rate to drop from 6.5 percent to 6 percent.

Possibilities that can threaten us, he said, will include oil and energy price pressures, another Asian crisis, inflation spilling over into wages and production costs, bank credit and corporate debt problems, worse-than-expected bursting of the Internet/telecom bubble, capital leaving our shores instead of flowing in and consumers losing their nerve.

He believes reduced surpluses and razor-thin majorities in Congress will put Social Security reforms in limbo and moderate both tax cuts and/or spending increases.

Asia's problems are sure to continue, he says, but represent in most cases economies no bigger than some of our states. For the first 10 months this year Asian stock prices fell sharply. Indonesia and South Korea dropped over 50 percent. The Philippine market was off over 40 percent.

Even sturdy Hong Kong and Malaysia were off more than 10 percent.

Despite his enumerated worries, McClain ventured, "I'd rather be in the U.S. boat than any other."


McClain left Hawaii projections to Leroy Laney, the bank's economic consultant who is professor of economics and finance at Hawaii Pacific University.

Our picture is rather brighter -- likely job growth of 1.9 percent this year, the best since 1992.

Real personal income may rise by 3.5 percent plus another 3 percent next year.

Despite a tax cut, state tax revenues may rise 7.9 percent this year in contrast to last year's 1 percent. Laney sees new small businesses as a main contributor.

Few people appreciate, he said, that the neighbor counties -- Hawaii, Maui and Kauai -- are where Hawaii's recovery started a few years ago and Honolulu at last is playing catch-up.

The evidence is there for all to see, he said, in robust job growth, falling unemployment rates, higher personal income and tax revenue growth, surging real estate sales, much stronger construction, higher hotel occupancies and lower bankruptcy filings.

Laney entitled his remarks: "Back on Track at Last." McClain chose: "The Economy's Record-Setting Odyssey Enters Uncharted Waters."

A.A. Smyser is the contributing editor
and former editor of the the Star-Bulletin
His column runs Tuesday and Thursday.

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