University of Hawaii Predicts Economic Strength

Diminishing job losses, increased tax revenues, vigorous gains in the tourism industry, and a rebound in construction are the main factors which have led the University of Hawaii Economic Research Organization (UHERO) to predict a stronger future economy for the state. Still, most economic improvements through the recovery are being seen in Oahu.

While unemployment is still above pre-recession levels and economists predict higher unemployment levels until at least 2013, Neighbor Island unemployment should drop to around 6 per cent by the end of the year. Before the recession of 2008, the unemployment levels throughout the state hovered around 4.6 per cent. Unfortunately, job growth in wholesale, retail, finance, insurance, real estate, and agriculture will continue to be slow (less than 1 per cent), making it difficult to achieve employment levels from before the recession. Nevertheless, economists have noted gains in Oahu rail transit and have therefore included it in their forecast.

Other signs of good news come from increased tax collections of 8.6 per cent in the first 4 months of 2011. However, experts are cautious about tax revenues as a large gap of around $772 million over 2 years has been offset by stimulus money and the large cost of ending leaves for state workers. Indeed, estimates to reemploy these workers go as high as $158.8 million and combined with the tapering of federal stimulus money there will be an increased tax burden on the state.

Still, Hawaii has also benefited from an impressive rebound in the visitor industry. Again, pre-recession levels have not yet been reached, but this highly important segment of the economy continues to lead the recovery in Hawaii. Domestic flights are up 40 per cent since the recession hit (when total sales dropped from 2 million to 1.56 million) and visitor spending rose by more than 10 per cent by the end of 2010. Interestingly, the UHERO report suggests that this rapid recovery in the visitor industry is unlikely to continue with a 3.4 per cent increase in arrivals predicted for 2011 dropping to just 1.9 per cent in 2012. In addition, the UHERO report predicts a strong construction rebound, specifically in Oahu as a result of a multi-million dollar rail project.

As far as inflation is concerned, UHERO forecasts moderate changes averaging around 2.5 per cent in the most recent survey in Oahu. Consumer nondurables, food costs, and rising energy prices are reflected in UHERO inflation estimates of 1.4 to 2.6 per cent through 2014. On the bright side, personal income figures are rising faster than inflation making 2011 the first year since 2007 that actual personal income will increase.

So while the UHERO report points to a number of areas where economic growth will be steady, the report is also tempered by some less than ideal news. Most of the growth is focused in Oahu making it the best location in Hawaii for investment. In addition, three factors threaten future economic growth. First, delays in rail transit development may have a greater impact on economic forecasts because of the importance of this project for growth and employment. Rising energy costs and possibly rising interest rates should impact investment. And finally, rising inflation on the national level is causing some concern in Hawaii. Ultimately, while the Hawaiian economy is showing definite signs of recovery, growth is moderate compared to historic standards and jobs figures combined with other fiscal challenges continue to hamper recovery.