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POSTED: Friday, June 12, 2009

Flu and furloughs will further weaken Hawaii's struggling economy and cause income and jobs in 2009 to take their biggest plunge in 40 years and push recovery into 2011 or 2012, according to the latest quarterly update released today by the University of Hawaii Economic Research Organization.

Partially as a result of swine flu, which was upgraded to pandemic status yesterday, and the state fiscal crisis, UHERO expects the overall job count in 2009 to fall 2.9 percent, about half a percentage point greater decline than was anticipated in their annual forecast, which was released in March.

UHERO also revised its forecast for real income to minus 2.7 percent from the earlier minus 2.5 percent.

“;We haven't seen a single year with that large a drop in real income or nonfarm jobs, going all the way back to 1969,”; said Carl Bonham, UHERO's executive director. “;There are no years between 1969 and 2008 for which we had a drop in real income or nonfarm jobs of more than 2 percent for the state.”;

The next-largest drop in real income that occurred between 1969 and today was when it fell 1.75 percent in 1981, Bonham said. Likewise, the next-largest drop for nonfarm jobs was a 1.4 percent decline in 1982, he said.

“;This is probably not going to come as a surprise to many people,”; Bonham said. “;I think most people know how bad it is — this is just a confirmation of that.”;

While loss of jobs and income will be worse than UHERO previously forecast in March as a result of the emerging H1N1 influenza A epidemic and the state fiscal crisis, it's not going to be radically different, Bonham said.

“;It hasn't pushed the recovery out much further, but it's slowed it just a little bit,”; he said.

While UHERO economists said that they still expect Hawaii's economy to stabilize by the end of the year, they do not anticipate robust recovery. It could be 2012 before Hawaii's jobs and income return to a normal growth rate of at least 2 percent, Bonham said.

UHERO expects nonfarm jobs and income, which last grew in 2007, to turn positive in 2011 — however, both at levels below 2 percent. In the near term, worsening labor market conditions, the drop in international tourism especially from Japan, and the state budget crisis could cause another round of job losses and spending declines, UHERO economists said.

UHERO previously forecast income would fall 0.2 percent and jobs would fall 0.3 percent in 2009; however, they have widened the decline to 0.6 percent for both indicators.

Construction and tourism will experience the biggest job losses as pullbacks in spending related to a downturn in international tourism and loss of confidence among state employees ensue. However, first-quarter job losses mounted in every sector except government, education and health care.

Gov. Linda Lingle's decision to balance state shortfalls by imposing three-day-per-month furloughs on state employees will cause labor income to fall by a larger margin than UHERO previously forecast and could lead to some additional private-sector job and income losses as state workers cut back on spending. By 2010, statewide labor income will be 1.6 percentage points lower than UHERO's March forecast

“;The unemployment situation has deteriorated more rapidly than we had hoped, and the unemployment rate for the state as a whole will average 7.4 percent this year and 8.1 percent in 2010,”; UHERO economists said, adding that unemployment will recede gradually once recovery begins.

Japanese travel, which already has taken a hit due to the H1N1 influenza A epidemic, will decline another 6.8 percent this year as the spread of swine flu widens and cautious visitors forgo travel. Earlier this week, the state Health Department confirmed that Hawaii's swine flu tally had risen to 198 cases since the outbreak began on May 5.

“;Since May we have had many cancellations due to swine flu,”; said Akio Hoshino, senior vice president at Jalpak in Hawaii. “;Our booking forecast shows at least a 10 percent loss.”;

Yesterday morning, Japanese passenger data for June was off about 30 percent, Bonham said.

 

IN THE DOLDRUMS
The latest forecast for the state from UH economists:

                                                                                                                                                                                                                                                                           

	2009	2010	2011
Job growth	-2.9%	-0.6%	+0.8%
Real personal income	-2.7%	-0.6%	+1.8%
Unemployment rate	7.4%	8.1%	7.5%
Inflation	+0.5%	+0.3%	+1.2%
Visitor arrivals	-6.8%	+3.1%	+2.8%

Source: University of Hawaii Economic Research Organization