Isle business optimism falls to lowest in 8 years

Fewer than a quarter of businesses expect improvement in the economy this year

Confidence in the state economy has fallen to its lowest level since 1999, according to the latest Business Banking Council survey released today.

Fewer than a quarter of Hawaii companies are optimistic that the economy will improve this year, although only 18 percent expect it to get worse.

Most firms believe an economic downturn would likely be the result of escalating gas prices and other business costs, rising interest rates and taxes.

However, the survey showed that the construction industry remains strong, and continues to drive the sluggish economy.

FULL STORY »

Optimism among Hawaii businesses has fallen to its lowest level since 1999, with fewer than a than a quarter of firms confident the economy will improve this year, according to a new survey.

The latest Business Banking Council survey of more than 400 local companies showed that more than half expect no change in the economy, while 18 percent feel it will get worse this year.

"Businesses are becoming a little concerned, they're not seeing the increases they have been enjoying over last couple years," said Barbara Ankersmit, president of QMark Research & Polling, which conducted the survey between June 5 and 29.

Most companies believe an economic downturn would likely be the result of escalating business costs and gas prices, in addition to the cost of products, rising interest rates and taxes.

Nearly two-thirds of the businesses polled said staffing has remained unchanged over the last year, while less than half reported increases in gross revenue and profit before taxes.

However, the construction industry -- the focus of the latest survey -- showed higher optimism and performance than businesses overall, suggesting that sector continues to drive the sluggish economy.

"Since they're stronger than the rest of the businesses they are definitely one of industries that are pulling it up," Ankersmit said.

Two out of five construction-related firms saw total revenue grow by more than 5 percent over the last year, while 57 percent reported increases in profit before taxes compared to the previous year.

"It's a strong market, but it has gone down from the peak of 2006," said Karen Nakamura, executive vice president of the Building Industry Association of Hawaii.

Only 34 percent of construction companies reported an increase in their project backlog in the last year, compared to 48 percent in 2005.

Among the main challenges the industry faces is higher construction costs due to spikes in the cost of fuel and material shipping.

More than a third of construction firms reported cost hikes of between 10 percent and 14 percent over the past two years, while 30 percent saw costs increases of anywhere between 5 percent and 9 percent. Twenty-eight percent saw costs rise by 15 percent or more.

Other challenges include the aging workforce -- 30 percent of which are retiring within the next five years -- and the lack of skilled workers coming out of local high schools.

Only 3 percent of businesses polled said the high school graduates they employ are well prepared for the workforce.

"We need smarter people, we need people who can understand the math and comprehend what they're reading, so they're trained at a higher level," Nakamura said.

The survey, sponsored by American Savings Bank, polled 403 businesses, including a subset of 100 construction-related firms, with a margin of error of plus or minus 4.90 percentage points.