State expects income growth to ease

Inflation has risen higher this year than expected

Increases in personal income, jobs, tourism and gross state product are seen going into the new year in the state Department of Business, Economic Development and Tourism's latest quarterly economic forecasts.

But growth in personal income is being tempered by higher rates of inflation, and will slow down in 2007, the state reported yesterday.

Honolulu's consumer price index, which measures inflation, increased 5.8 percent in the first half of the year, the highest increase since 1991 and higher than the U.S. average.

STATE'S ECONOMIC FORECAST FOR 2007 Wage and salary job growth: 1.5 percent Real personal income growth: 2.3 percent Inflation: 3.8 percent Visitor count: 2.8 percent Visitor spending: 6.3 percent

Because of inflation, real personal income and real gross state product growth are expected to increase 2.1 percent and 2.7 percent respectively this year, somewhat lower than predicted in May and down from growth in the previous two years.

Total wage and salary job growth in the state is also expected to slow down -- from an expected 2.5 percent this year to 1.5 percent in 2007.

While construction should remain strong into next year, residential projects can be expected to level off due to higher interest rates.

The residential real estate market, likewise, decelerated in the second quarter of this year, with single-family home and condominium resales dropping 12.3 percent and 14.8 percent, respectively.

Hawaii's projected inflation rate for 2006 has been revised up to 4.8 percent from 3.8 percent in the May forecast, reflecting recent rises in oil prices and their impact on goods sold in the state.

For 2007, the rate of inflation is expected to be 3.8 percent, half a percentage point higher than forecasted in May.

"Because of our vibrant economy, we are able to sustain solid job and income growth in Hawaii, despite some slowdown in residential housing activity and lower-than-expected growth in tourism," said Theodore E. Liu, DBEDT director.

But Liu emphasized the need to develop affordable housing for workers, promote emerging industries to diversify the economy, and improve Hawaii's competitiveness in the global tourism market.

Second-quarter tourism numbers helped compensate for a first-quarter slump, with 2.7 percent more visitors arriving by air compared to the first quarter.

The state extended its optimism about the visitor industry into next year as well.

"Visitor days, visitor arrivals, and visitor expenditures are predicted to grow 2.9 percent, 2.8 percent, and 6.3 percent, respectively, in 2007, followed by slightly lower growth in later years," the report said.

Hawaii's employers will continue to struggle to find employees, given that the state's seasonally adjusted jobless rate plunged to an all-time low of 2.1 percent in October. Year-to-date, according to DBEDT's report, unemployment averaged 2.7 percent compared to 2.8 percent for the same period last year.

Job growth is projected to gradually moderate to 1.5 percent in 2007, and to 1.2 percent in later years. In 2007, DBEDT also projects a lower growth rate in nominal income, at 6 percent compared to 7 percent this year.