State economy not expected to recover until 2010
A University of Hawaii research group sees visitor arrivals falling 9 percent this year
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Hawaii's economic outlook is pretty bleak for the next year, with visitor arrivals now expected to tumble 9 percent this year - nearly double an earlier forecast - and a recovery not expected until 2010, according to a report released today.
The University of Hawaii Economic Research Organization, in a report titled "A Hard Fall for Hawaii Tourism," predicts a continued downward trend in visitor growth, exacerbated by a slowdown in construction and developing state fiscal crunch, which all point toward a weak state economy for 2009.
Based on a poor summer performance, UHERO now predicts visitor arrivals will drop 9 percent, nearly two times more than the 4.6 percent that UHERO originally forecasted in June, and the biggest annual decline since 2001. Job losses are expected to continue this year and next, pushing the jobless rate to 4.4 percent in 2009.
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With weaker tourism and more job losses on the horizon, Hawaii is headed for a recession, with no relief in sight until 2010, according to the latest quarterly forecast from the University of Hawaii Economic Research Organization.
UHERO now expects visitor arrivals to tumble 9 percent this year, nearly twice the rate of decline of 4.6 percent that it originally predicted in June, and the biggest annual decline since 2001.
"Our forecast is certainly for a recession, yes," said UHERO Executive Director Carl Bonham. "Basically, we've been forecasting something that looks like a recession since early summer, and it's just getting worse."
A steep downturn in tourism, slowing construction and developing state fiscal crunch all point toward a weak Hawaii economy for 2009.
While there is no formal definition for a recession, Bonham said: "You couldn't possibly avoid a recession if you've lost jobs for two full years."
A decline in jobs is expected this year and next, pushing the unemployment rate to 4.4 percent from this year's forecast of 3.7 percent, while real income is expected to remain flat through 2009.
Summer tourism suffered a bigger hit than UHERO had expected earlier this year following the departure of Aloha Airlines and ATA Airlines.
Visitors arrivals in July were down 16 percent from a year earlier.
Hotel occupancy rates in June and July were at less than 68 percent when seasonally adjusted - the lowest in the state since January 2002.
By the time the economy recovers, perhaps in 2010, U.S. arrivals will have dropped 14 percent from their recent 2006 peak, and Japanese arrivals will have fallen more than 25 percent since 2005.
In addition to a U.S. recession, the slowdown is now spreading globally to Europe and Japan, where the economies are also contracting.
More net job losses are expected in several sectors. UHERO expects transportation and utilities to shed another 3,900 jobs next year, resulting in a nearly 12 percent decline in transportation and utilities over 2007.
UHERO also predicts a 1.3 percent decline in accommodations and food services this year, followed by a 1.5 percent decline next year, and more than 2 percent drop in the wholesale and retail trade next year.
The peak in construction activity in Hawaii is also over. The sector is expected to post just a 0.4 percent growth this year, while shedding about 5 percent of its job base over the next two years - mild, by national standards.
The recent meltdown on Wall Street, including the abrupt closure of Lehman Brothers Holdings Inc., bailout of American International Group Inc., and mass layoffs by software giant Hewlett-Packard Co., add another layer of uncertainty.
"I think what it adds most is the possibility that things will be even worse on the tourism side," said Bonham. "Our forecast is for a 9 percent drop, but it could easily be 10 percent or more because people are watching their stock market wealth disappear now on top of watching their homes go down in value."
None bode well for consumer confidence, which in turn will do little to boost Hawaii tourism.
"If you're sitting at home watching this on the news, your first inclination is not going to be to get on the plane and fly to Hawaii," said Bonham.
On the other hand, there is a slim possibility that new hotel-package deals may draw out more visitors this holiday season, creating a little bit of rebound.
While Hawaii's tourism market was able to rebound quickly after the Sept. 11 attacks in 2001, there won't be as rapid of a recovery for this cycle.
"It's a different environment," said Bonham. "Housing prices on the mainland need to stop falling, and the banks and security market need to sort things out."
Recovery in the housing market also isn't expected until 2010.
The silver lining, however, is the retreat of oil prices back to the $90 per barrel range as UHERO previously forecasted.
If oil prices continue to fall, Hawaii businesses and consumers may get much-needed relief from skyrocketing gas and electricity prices.
The inflation rate for Honolulu, which UHERO has at 4.8 percent this year, is expected to drop to 2.9 percent next year.
