Hawaii Celebrates the End of an (Awful) Era
UHERO says 1999 was the end of seven years of anemic growth.
The 1990s economic malaise is finally over. Hawaii has been dragged into the new millennium by an incredibly strong U.S. economy, a rebounding Asia, and domestic economic strength not seen in many years. With virtually all indicators signaling a moderate business cycle expansion, Hawaii’s economy is expected to grow by 2.6 percent in real (inflation adjusted) terms this year.
Last year marked the end of Hawaii’s seven-year growth recession, a period of positive but anemic economic growth. The economy clearly entered a more robust growth phase, with the visitor industry, labor markets and construction all pointing upward. Economic growth should strengthen further over the coming year.
The overall U.S. economy and California are expected to continue growing rapidly in 2000, supporting westbound arrivals growth of more than 5 percent. While the situation in Japan is more fluid, gradual economic recovery is expected, so that eastbound visitor arrivals should begin to show improvement. Following a 5.9 percent eastbound decline in 1999, we expect 1 percent growth this year. With expected strong westbound growth, even a limited eastbound recovery will produce overall state visitor growth near 4 percent in 2000.
Along with this moderately strong visitor industry outlook, improvements in the domestic Hawaii economy will continue. Hawaii’s construction industry has been a drag on the state economy since the end of the construction boom in 1990. With real permits growth higher than any time in the last decade, the construction sector will begin to contribute positively to Hawaii’s economy in 2000. We expect the contracting tax base to increase by 5 percent in real terms.
The construction industry shed nearly 12,000 jobs since 1991. If a strong construction upswing is underway, we will need to get some of these workers back. We may already be seeing contracting labor shortages on some islands, as first quarter 2000 construction job growth exceeded 9 percent.
Overall, Hawaii payroll jobs will grow by 1.1 percent in 2000, while employment growth will be somewhat stronger at nearly 1.5 percent.
The inflationary process is already underway. The Honolulu consumer price index will grow by 1.8 percent in 2000 as improved demand conditions, rising shelter costs, and wage pressures begin to push local prices toward the U.S. average.
As of March, the statewide unemployment rate stood at 4.4 percent, more than one percentage point lower than the rate a year ago. Unlike the late 1980s, the mainland U.S. economy is booming, so that in-migration is unlikely to prevent the unemployment rate from dropping further. The tightening labor market this year will put upward pressure on wages and lay the basis for increased wage and salary income growth.
Strength in the external environment and in local conditions is supporting improved economic conditions in Hawaii. Our broadest measures of overall activity, real personal income and gross state product, should each grow about 2.5 percent this year. The economy is well positioned for continued gains over the next several years.
The risks to this upbeat scenario lie primarily outside the state. The Federal Reserve’s six rate increases seem to have begun to bite, particularly in the housing and construction sectors. Consumer spending and durable goods orders have also slowed recently. Overall prospects for the U.S. economy depend on the Fed’s success in engineering a gradual slowing. If torrid growth resumes, the Fed will tighten further, perhaps taking the wind out of Hawaii’s budding real estate recovery. If the U.S. economy slows too quickly, Hawaii’s tourism and real estate sectors would be harmed. Fortunately for us, at the moment things seem to be moving right down the middle of these two paths.
For visitor industry uncertainty there is always Japan. Recent news has been heartening, but for Japan’s see-saw economy the jury is still out. When Japan’s economy does turn the corner, we expect a substantial recovery in Japanese tourism growth.