How Bad Is It?
Nine local leaders provide a roadmap for difficult economic times ahead
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Hawaii is once again on the precipice of an economic downturn. From small business to big business, people are worried. Conservative fiscal measures are being instituted and in some cases, layoffs are being made, doors are being closed. We’ve, of course, been through it before. But each economic downturn has different economic factors at play and each one has a different duration. So we touched base with local leaders from a variety of industries and sectors to get a picture of how bad the road ahead is and what we can do as individual businesses and as a business community to cope in the short term and thrive in the long term.
Q: How bad is Hawaii’s current economic situation? How does it compare to the downturn felt after the 2001 terrorist attacks?
A. Donald G. Horner, president and chief executive officer, First Hawaiian Bank
The 2001 downturn was caused by a specific incident that resulted in global uncertainty, which had a short-term negative impact on our vital tourism sector. Our current situation is more of a cyclical slowdown after 11 years of economic expansion. The drivers are more complex and broader based. Volatility in the real estate and stock markets serve to weaken consumer confidence and spending from visitors and locals alike. This impacts a variety of industries, such as residential and resort construction and tourism, and large retailers, such as auto dealers. Loss of airline seats, cruise ships, increased fuel, flight and food costs and election-year rhetoric only add to consumer concerns. My guess is 18 months of sluggishness and things getting worse before they get better. However, I do not anticipate a significant or deep downturn for Hawaii and remain bullish over the longer term.
A. Maurice Kaya, energy consultant, former state chief technology officer and energy administrator
The Hawaii economy is clearly in rocky shape right now, much of it because of our overdependence on imported fuels. While we look at traditional indicators of economic performance, such as visitor arrivals, tax collections, building permits, and wage and income growth, we also need to look at the direct effects of energy prices on the health of the economy, simply because so much of what we use and produce in Hawaii depends on the price of basic energy. The fraction of dollars of gross state product spent on energy is disproportionately large compared to other locations.
In 2001, we were initially stunned over the terrorist attack and felt the immediate result of slowdown in travel. We saw much of that recover in a few years, but the energy crisis we now face will be much longer term in nature.
A. Constance H. Lau, president and chief executive officer, Hawaiian Electric Industries Inc.
The downturn after the 2001 terrorist attacks was immediate and relatively short-lived and was followed by a long period of economic expansion driven in part by increased military spending in response to 9/11. The current slowdown is very different as it has been caused by the subprime debacle and turmoil in the credit and financial markets. Thus, while Hawaii has remained relatively stable, this slowdown is happening against the backdrop of a national slowdown, and there is no structural change like after 9/11, where significant increases in federal government expenditures provided a new growth engine for Hawaii to offset the sharp downturn in tourism after 9/11; so our recovery this time may take several years.
A. William Kaneko, president and chief executive officer, Hawaii Institute for Public Affairs
The jury is still out on Hawaii’s economic outlook. However, recent signs and events are not encouraging: The 1 percent drop in forecasted revenues for the state, the impact and closure of Aloha Airlines and ATA Airlines, the downturn in U.S. mainland economic trends, and the cost of fuel are all signs of difficult economic times for Hawaii. As an island state that is highly reliant on air transportation and tourism, we need to be prepared for the impacts that appear on the horizon.
A. David McClain, president, University of Hawaii
In 2001, Hawaii was just recovering from six years of recession and the 9/11 attacks increased the risk in the economic environment. Ironically, Mainland tourists increased their travel to Hawaii in the wake of 9/11, since it was perceived to be safer than going overseas … so the actual effect of the attacks was less than expected.
In 2008, Hawaii is coming off four to five years of exceptionally good economic performance; our unemployment rate has been one of the lowest in the nation for most of that time. But the oil price surge and accompanying global climate concerns are likely to be longer lasting, and to dampen Hawaii’s economic fortunes for some time.
A. Douglas Chang, chair, Hawaii Tourism Authority Board of Directors
I don’t believe we have really yet seen the extent to which this economic downturn is going to impact Hawaii. We have known for a while that 2008 and into 2009 were going to slow down compared to the boom years of 2006 and 2007. What we probably didn’t fully factor in was the external influences of our domestic financial markets, the value of the dollar against foreign currencies and fuel pricing and the impacts it would have on our economy. We should assume that this will get worse before it’s over.
The period right after 9/11 was definitely worse than our current situation. There was no one traveling for the first few months following the attacks. The uncertain part is how quickly this will turn around compared to 2001.
A. Kelvin H. Taketa, president and chief executive officer, Hawaii Community Foundation
Many nonprofits on the Mainland and here in Hawaii are already feeling the effects of the economic downturn. If we recall what happened to nonprofits in Hawaii after 9/11, a study conducted by the Hawaii Community Foundation in 2002 concluded that the overarching message is hopeful. In good and bad times, Hawaii’s people are generous (9 out of 10 households give) and try to give as much as they can because they recognize the significance that the nonprofit industry brings to the community
.But to the extent that Hawaii is dependent on the U.S. mainland and Japanese economies, and personal resources have declined, namely stock market and real estate values, it’s highly likely that the industry may again see a decrease in revenue from two main sources: contributions and government grants and contracts.
A. Sen. Colleen Hanabusa, president, Hawaii State Senate
While Hawaii has continued to see economic growth and is doing better than other areas nationally, it is not a rosy picture. It is difficult to compare our current situation to what our state experienced in the wake of the 9/11 attacks. There, our nation’s concerns were not only economic, but included public safety and national security. After the initial shock and concerns, our tourism industry rebounded and has remained as a strong foundation for continued growth.
Today’s economic pressures are different, have broader effects and show more potential to ripple through our economy as a whole. Rising fuel prices impact not only tourism and travel, but also our day-to-day budgets, including food, consumer goods and gasoline. Challenges in the financial sector could affect the availability of consumer credit and funding for business development and expansion. These could be broad, long-term effects that will take more long-term planning to address.
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