Hawaii’s economic
fire will cool

University of Hawaii economists have revised their forecast for the state's economy upward for 2005, but the growth pace is still expected to slow down gradually when it reaches capacity.

The quarterly report from Carl Bonham and Byron Gangnes of the UH Economic Research Organization said the state's visitor arrivals, employment and income growth are expected to be higher than earlier predicted.

Visitor arrivals will likely top 7 million for the first time ever this year, according to the report.

But with hotel occupancy in the state nearing the highest levels since 1986, the economists project a significant drop in next year's growth in visitor arrivals to 3.6 percent for Japanese arrivals and 0.9 percent for U.S. visitors.

That compares to a 10.3 percent increase for Japanese visitors and 6.5 percent for U.S. tourists a year ago.

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Residential resale values remain high as median prices continue to post more than 20 percent gains each month from a year earlier. However, "sales volume and residential construction activity will begin to cool in the face of declining affordability and expected higher interest rates," the report said.

Payroll jobs are predicted to grow 2.2 percent this year, slowing next year to 1.6 percent, the report said. The economists say the state's low unemployment rate of 2.8 percent should hold in the next two years before it begins edging up.

The state's economic expansion can't last forever, Bonham said.

There are limits to how many tourists can fill Hawaii's hotel rooms, how few people can be left unemployed and how fast housing prices can go up. It is difficult to have job growth when the unemployment rate is so low, he said.

"Further down the road, you can't expect these kind of growth rates to continue," Bonham said.

The economy's growth won't plummet into negative numbers, but rather won't grow as quickly, he said.

Lack of growth can be a concern when considering the job prospects of the next generation of residents, said Paul Brewbaker, chief economist for the Bank of Hawaii.

There is also a concern over inflation, the "soft underbelly" of the state's economic expansion, he said. Housing and energy prices can cut deeply into Hawaii incomes.

The UH economists set the inflation rate for 2005 at 4 percent, slightly higher than last year's rate of 3.3 percent.

The Honolulu Board of Realtors announced yesterday that the median resale price of a single family home hit a record $610,000 in May, 33 percent higher than the average median price for 2004, which was $460,000.

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