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Economic Currents

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Q & A: Data Deluge!

Posted June 1, 2012 | Categories: Q&A
1.This was a very busy week for economic news. Lets start with the Hawaii news?

Yesterday the Hawaii Tourism Authority released the April visitor numbers, and the string of strong visitor spending continues. April 2012 visitor spending of $1.17 billion was a record for the month of April, and after adjusting for seasonal variation we have now seen 24th straight months of spending increases. While visitor spending is being bolstered by the comparison with low levels last spring after the Tsunami, other Asian visitors increased their spending by almost 90% vs last year.

2. So are these very strong spending numbers a surprise or are they inline with expectations?

Right now visitor spending is coming in a little stronger than expected, with year-to-April growth of almost 17% compared with UHERO's forecast of 14% for the first quarter of 2012 and 15% for the first half of the year. The real question is whether spending can continue to grow at anywhere near these rates. UHERO's forecast for full year spending growth is just below 13% followed by near 7% in 2013.

3. So with the visitor industry recover going gangbusters, what prompted the Council on Revenues to lower its forecast on Tuesday?

The Council actually left its forecast for this fiscal year ending in June unchanged, but lowered its forecast for FY2013 by a little more than 100 million. The reason for the lower revenue projection was not because of any pessimism about the economy, rather it was completely due to revised estimates of the effect of tax laws. Specifically, the Tax Department came up with a revised estimate of how much revenue would be generated by Act 105 which suspended some GET exemptions such as the exemptions for subcontractors. The Tax Department originally estimated that ACT 105 would generate roughly 200 million in FY 2013, but experience in FY 2012 suggests that the revenue increase will be closer to $70 million. The other issue that led to a reduction in the forecast is a more pervasive problem. The use of tax credits to incentivize activities, in this case the renewable energy tax credit, introduces significant uncertainty about actual revenue collections. Preliminary data suggest that the number of tax credits claimed in 2010 may have doubled over 2009, and we know that the number of permits for solar installations has grown rapidly from 2009 to 2011. The council decided to adopt a larger number for the renewable energy tax credits for FY 2013 and will likely revisit this issue in future meetings. This is just one of the many problems with using tax credits to incentivize activity. The costs are very difficult to estimate or contain. In contrast to an expenditure where you know exactly how much is being set aside for a specific purpose, the only limit on the dollars paid out in renewable energy credits is the number of roofs, and the number of installations HECO will permit. A similar problem arose with the "High Technology tax credits" provided under ACT 221. The council adjusted its forecasts repeatedly during the 2000s as ACT 221 credits grew. See http://www.uhero.hawaii.edu/products/view/172 for more information.

4. And today we got some pretty bleak news for the US economy, the Bureau of Labor Statistics released the May Employment Situation.

Right, another weak jobs report. The economy added only 69,000 non-farm payrolls in May after a gain of only 77,000 in April. Both March and April jobs estimates were revised down. The consensus forecast was for 150,000 jobs, so this was much weaker than expected. And, along with the downward revisions to March and April estimates, this report will change the story a bit from — unseasonably warm weather in January and February led to hiring that normally would have happened in the spring, to slowing in job creation as the slow motion train wreck in Europe and the higher winter gas prices acted to slow the economy.

-- Carl Bonham



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