Checking a decade of Hawaii's economic forecasts
We compared annual forecasts of Hawaii's economy with the actual results
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UHERO and DBEDT issue quarterly forecasts, while FHB releases one annual forecast for the Hawaii economy. Since the FHB forecast is released in the fourth quarter, we took it and the fourth quarter forecasts from the other two and compared them against the actual data for the forecasted year going back as many as 11 years.
The forecasters don’t all project the same indicators. So we’ve compared forecasts of the five most consistent economic indicators: job growth, unemployment, visitor arrivals, inflation and real personal income.
COR meets at least five times a year to issue predictions for state General Fund revenues and personal income. Since the March forecast is the last one legislators see before finalizing the annual state budget, we compared each March’s COR forecast for the coming fiscal year, which begins July 1, against actual General Fund revenues for that fiscal year.
Error rate: To measure errors, Hawaii Business calculated what we called the average error. We did not use a traditional measurement that is called mean error; using that measure, an error that was too high by two percentage points in one year was cancelled out by an error that was too low by two percentage points in the next year. That is misleading. Under our measurement, those two errors are each an error of two percentage points and therefore their average error is two percentage points.
Hawaii Economic Indicators Explained
Visitor Arrivals: A common measure of tourism demand. Represents the number of visitors who travel to Hawaii by air, since more than 98 percent of tourists arrive by plane. The number is determined by subtracting Hawaii residents from the official passenger counts reported by air carriers. The Hawaii Tourism Authority and the state Department of Business, Economic Development and Tourism administer surveys to passengers to identify residents versus tourists on flights.
Real Personal Income: RPI is a measure of income received by Hawaii residents from wages and salaries, dividends and interest, etc.. Growth in RPI is adjusted for inflation and expressed in a percentage.
Inflation: Represents the percentage change in Honolulu’s Consumer Price Index for All Urban Consumers (CPU-U). There is no statewide CPI. The CPI measures the average change in prices over time for a fixed market bag of goods and services that people buy for day-to-day living.
Job Growth: Measured by a survey of businesses and other employers conducted monthly by the U.S. Bureau of Labor Statistics, job growth indicates the number of nonagricultural payroll jobs and is represented by percentage change.
Unemployment: Calculated as a percentage by dividing the number of unemployed individuals currently seeking work by the total number of individuals making up Hawaii’s labor force. The labor force consists of all individuals 16 years or older who are currently employed or are looking for work. This indicator, called the U-3 by the U.S. Bureau of Labor Statistics, is the statistic relating to unemployment that is the most frequently referenced.
Gross Domestic Product: Considered, at least nationally, to be the broadest measure of the economy; however, on a state level, GDP has a long lag, is prone to revision and isn’t considered by Hawaii economists to be a reliable gauge. There are few GDP forecasts to analyze so we left them out of this report. The first state GDP forecast provided by DBEDT was for 2007; UHERO’s first was for 2011 and FHB’s was for 2013.
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