A forum for Hawaii's
business community to discuss
current events and issues
A forum for Hawaii's
business community to discuss
current events and issues
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A new year, After last year's extreme uncertainty in the wake of the 9/11 terrorist attacks, piecing together this year's economic outlook for Hawaii seems almost like a picnic.
a new recovery
The Hawaii economy has made
impressive strides toward putting
9/11 behind us. But there's more to go.By Leroy Laney
We knew last year that the state economy had entered a recession that was a direct consequence of 9/11, and Hawaii was effected much more than most other U.S. states immediately after the event.
Yet our state recession turned out to be not quite as deep or as pervasive as we feared this time last year.
The Hawaii economy has made impressive progress in overcoming the recession that did occur, and most of the uncertainties that now make the life of an economic forecaster difficult are external in origin.
We were in our third year of an expansion in 2001 prior to 9/11. Even though the local economy had cooled off a little from the year 2000, it was actually in better shape than the nation last year before the terrorist attacks. The national economy had actually entered recession well before that.
2002 economy mixed
Hawaii is in a recovery mode now. The recession was not as bad as we originally thought, mainly because it was so uneven.It was contained mostly to the tourism sector, and did not spread to other parts of the economy.
Part of the reason for that had to do with very low interest rates, which had several effects. Home sales, auto sales, and practically anything touched by interest rates were very strong. And widespread refinancing of mortgages put more money in consumer pockets.
Another aspect of the unevenness had a geographic dimension. Economic weakness was confined mostly to Oahu, because Waikiki tourism is dominated by the Japanese market. And as we all know, that market has been much slower to recover.
The Neighbor Islands were not affected nearly as much, because of greater reliance on the Mainland.
All of this will not be enough to keep total Hawaii jobs from contracting in 2002. Job growth in 2001 was mildly positive because of growth that had occurred prior to 9/11, but so far this year Hawaii jobs have contracted by about 1 percent. Unevenness is also reflected in the job numbers.
This year, unsurprisingly, declines were concentrated in hotels, transportation and retail trade.
Several other sectors showed healthy gains.
Even though it was the tourism sector that was hit hardest by the events of 9/11, it was within that sector that the real story is told. It is the Japanese market where the weakness still resides.
That reflects the still very weak Japanese economy, low consumer confidence, and not much help from the exchange rate. But it also is attributable to a general wariness on the part of Japanese travelers.
Those Japanese who are traveling abroad now are gravitating toward closer Asian destinations.
We should bear in mind that the Japanese market had been declining for several years before 9/11, and it is clear now that Hawaii will for the foreseeable future have to rely less on that market than we thought just a few years ago.
But thank Alan Greenspan for low interest rates. As interest rates started to fall, construction activity started to pick up, and that activity has gotten stronger as interest rates have fallen further.
Strength over the last year is this sector has done much to counterbalance tourism weakness in the economy. The same goes for real estate sales and prices.
One of the broadest macroeconomic measures of any state economy is personal income growth.
That number includes not just wages and salaries, which are the biggest component, but also things like investment income, retirement income, and transfer payments such as unemployment claims.
Annual gross state product is derived largely from this figure.
This year, despite the blows from 9/11 and job losses, inflation-adjusted personal income growth has held up remarkably well. The second quarter number was a healthy 2.8 percent higher than the same period last year.
Unsurprisingly, transfer payments like unemployment compensation have shown the highest rate of increase, but even wages and salaries have grown. We could finish the year with real personal income growth of 2.5 percent. The number certainly will not be negative, as it would be if the Hawaii economy were in full-fledged recession.
2003 outlook positive
So what does Hawaii's economic future look like for the coming year? This year the problems involved in foretelling the future pale beside last year.But there is still greater than usual uncertainty. Most of this uncertainty now comes from outside the state.
Japan's economy remains quite weak, and the U.S. recovery has faltered over the summer in the wake of accounting scandals, the threat of war with Iraq, and a declining stock market. Many have feared that the negative wealth effects of declining equity prices could curtail consumer spending enough to throw the U.S. economy back into recession.
If you hit the economy enough times, it begins to stagger.
There is a growing division among forecasters. A small but growing minority sees a more prolonged period of slow U.S. growth, perhaps not so bad as Japan but similar in the sense that it comes unexpectedly.
And this does not even consider the possibilities of renewed terrorism, such as recently occurred in Bali.
So this year's forecast for 2003, to an extent like last year's when we were truly uncertain, contains some element of averaging extremes.
>> Job growth should certainly be better next year. As the visitor industry regains its footing and Japanese market hopefully comes back more, and as business confidence and earnings improve generally, hiring should increase and job growth should return to the positive column.Transfer payments might slow some but wage and salary growth could pick up. Again, much of this depends on how the national economy behaves.And remember job growth was inconsistent even this year; gains actually were seen in several sectors.
>> Hawaii inflation should remain muted next year. There are few upward pressures on prices at the national level now, except that oil prices have risen somewhat. The Federal Reserve does not seem to be worried about inflation as an influence on its monetary policy. Local inflation could be slightly higher if home prices and therefore rents start to climb, and that in turn affects the shelter component of the Consumer Price Index.
>> We are seeing dramatic increases in visitor arrival growth in the closing months of 2002, just because this year's numbers are being compared to very low figures last year in the wake of 9/11.
That will make overall 2002 gains not look so bad. Next year, as the U.S. economy gains strength, a stronger increase is achievable. This presumes that the U.S. economy will not reverse direction and enter a "double-dip" recession scenario.
>> Hawaii personal income growth for next year should be even stronger than this year if recovery solidifies.
Real gross state product growth always follows personal income growth closely.
So if things go reasonably well for the national economy in 2003, Hawaii should have a pretty good year also.
Leroy Laney is professor of economics at Hawaii Pacific University. He can be reached at lo9_laney@hotmail.com.
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