Will oil prices hurt
Hawaii tourism?

Growth in tourism and residential construction prompted University of Hawaii economists to upgrade their personal income forecasts for the year, but they said inflation and uncertain energy prices in the wake of Hurricane Katrina could affect Hawaii's economy.

The economists upgraded 2005 state income growth, based on new data, to 3.6 percent, and predicted marginal slowing to 2.7 percent growth in 2006. Their forecast in June was for 3 percent growth.

The quarterly forecast released yesterday by the university's Economic Research Organization said the state's economy still is growing but at a slower rate than last year.

"At the same time, we may now be seeing early signs of the gradual slowing that we expect to occur over the next several years," economists Carl Bonham and Byron Gangnes wrote. "Inflation in Hawaii has probably not yet peaked, and the continuing surge in energy prices raises the risk of a more pronounced slowdown for the local economy."

Gangnes said economists will be watching during the next couple of weeks and months what effect Hurricane Katrina -- which stopped 90 percent of the oil production in the Gulf of Mexico -- will have on the U.S. and global economies.

"If the mainland economy slows dramatically, we're going to get hit, and if the global economy slows dramatically, we're going to get hit," Gangnes said.

A big concern is what effect oil prices may have on tourism, Hawaii's No. 1 industry. People may decide they are spending so much on gasoline they can't take vacations, or fuel costs for leisure travel may rise, Gangnes said.

"People's confidence in general could be shaken," he said. "We've been concerned about that even before Katrina."

Still, Hawaii's economy is strong and the tourism industry "remains buoyant," the economists said.

"We see some evidence that growth may be slowing somewhat from the frenetic pace of last year," Gangnes said. The slowdown is expected to continue for several years.

Among sectors with stronger growth were construction, where jobs are expected to increase 9 percent. "That's just a standout," Gangnes said. "No doubt about it."

Most economic indicators were forecast to grow this year and next.

Economic Research Organization

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