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Economic Currents

Keep up to date with the latest UHERO news.

Are lodging costs starting to tame the tourist boom?

Posted May 8, 2013 | Categories: Hawaii's Economy, Blog

The latest visitor highlights from the Hawaii Tourism Authority (HTA) show that both visitor arrivals and spending continued to increase through the first quarter of 2013, albeit at a slower rate than last year. However visitors to the state appear to be booking shorter trips and spending less at local shops, perhaps in response to higher hotel room rates.

In the first quarter of 2013 more than 2 million visitors flew to the state, 6.5% more than in the first quarter of last year. US mainland arrivals grew by an impressive 6.4%, though some of the gains may be attributable to seasonal changes. With Easter and the Spring Break falling in March this year, some of the domestic arrivals growth may be the result of Mainland travelers visiting the state in March instead of April. International arrivals also increased with arrivals from the two largest international markets, Japan and Canada, growing by 5.3% and 3.1% respectively. The fastest growing source of arrivals continues to be non-traditional markets around the Pacific. With new direct flights to the state the number of visitors from Oceania grew significantly, Australian arrivals increased by 30% while the number of visitors from New Zealand almost doubled. Visitors from China also increased by more than 40%, but despite rapid growth in the past several years, Chinese visitors still make up a relatively small share of the overall visitor mix.


While the number of visitors flying to the state increased in the first quarter, the length of the average trip fell for visitors from all markets. Visitor days, an alternative measure of visitor volume that takes into account both the number of visitors and length of stay, edged up only 2.6% as a result. Length of stay fell only slightly for US mainland and Japanese visitors but the effect was much more pronounced among other visitors. The average Canadian visit was 6% shorter, offsetting the modest increase in arrivals; Canadian visitor days fell by 3%. Despite robust arrivals growth, an 11% fall in length of stay among other international arrivals netted out to a small loss in visitor days from these fast growing non-traditional markets.

Visitors spent more than $3.9 billion in the state during the first quarter of the year, 7.5% more than the same quarter last year. While total spending increased, the data suggest that visitors spent more on rooms but cut back on shopping. The average visitor spent 12% more on lodging and 9% less shopping each day. Japanese visitors, who tend to be the biggest shoppers, seem to have cut back the most; the average Japanese visitor spent 18% less shopping each day compared to last year. That works out to each Japanese visitor spending roughly $100 less in local shops over the course of their entire visit. In our recent labor market update we noted a surprising slowdown in retail hiring in the first quarter. This new data confirms that visitors are indeed spending less at local retailers compared to last year, which could be a factor in retail hiring decisions.

Overall the first quarter was a positive one for the local visitor industry, though there are a few signs for concern. The number of visitors to the state continues to grow but the cost of a Hawaii vacation may be starting to weigh on some travelers. With lodging supply essentially fixed in the near term, the robust arrivals growth allowed hotels to keep raising their room rates. Some visitors are reacting to the higher lodging cost by reducing their length of stay and by spending less on other items.

-- James Jones and Peter Fuleky

* this post was updated on May 10, 2013

Latest Jobs Report Suggests Most Industries Recovering

Although slightly slower than in the second half of last year, conditions in the local job market continued to improve in the first quarter of 2013 according to the latest figures from the Bureau of Labor Statistics (BLS). The total number of nonfarm jobs in the state grew by 1.6% in the first quarter of 2013 compared to the same period last year; resulting in roughly 6,000 more jobs on Oahu and almost 4,000 more jobs across the Neighbor Islands.

Jobs added between 12Q1 and 13Q1Job creation picked up in a wide range of sectors, indicating that the recovery has spread beyond just tourism. Construction led the pack with industry payrolls expanding by almost 9%, adding more than 2,500 jobs compared to the first quarter of 2012. The local construction sector still has a way to go on the road to recovery but the outlook is encouraging; see our latest forecast for the details.  The broad leisure and hospitality sector continued to add jobs as the local tourism industry keeps breaking records; the sector added 1,800 jobs. There was also significant hiring in administrative services (which includes temporary staffing firms) and health care; each of the two sectors added roughly 1,700 jobs. The expansive “other services” sector that includes a variety of industries from auto repair to dog grooming also grew, adding almost 1,400 jobs.

A handful of sectors cut jobs, with the largest cuts occurring in the federal government. Federal government jobs in the state fell by 2.1%, a loss of more than 700 jobs. The data suggest most of the job losses were concentrated in ship building and other divisions within the Department of Defense (DOD). This was likely, at least in part, the result of a civilian hiring freeze and the layoff of temporary workers put into place in the run up to the “sequestration” budget cuts. While lawmakers in Washington continue to wrangle over the federal budget, it remains highly uncertain whether these jobs will return or if more layoffs will be coming. Defense officials have signaled that furloughs could be in store for DOD civilians later this year, though it’s unclear how many Hawaii workers would be affected. 

After a strong year in 2012, retail hiring started off 2013 surprisingly slow with no new jobs created. Moreover, retail employees were working fewer hours: the average work week fell 4.3% from 32.1 to 30.8 hours per week. While it’s too early to sound the alarm, limited hiring and scaled back hours could indicate some potential weakness in the local retail sector. Perhaps consumers have started to cut back on spending in response to the expiration of the payroll tax holiday. Alternatively, visitors faced with higher room rates, or an unfavorable exchange rate in the case of Japanese visitors, may be opting to spend less at local retailers. Check back to UHERO as we monitor this and other developments in the local economy as they unfold this year!


--James Jones and Peter Fuleky

Investigating the Potential for Seawater Air Conditioning in Waikiki

Researchers at the University of Hawai‘i at Mānoa recently concluded a study into the potential for seawater air conditioning (SWAC) in Waikīkī. The study was led by the University of Hawai‘i Sea Grant College Program (UH Sea Grant) in partnership with the the Economic Research Organization at the University of Hawai‘i (UHERO) to investigate various aspects of seawater air conditioning and its applicability to Waikīkī. In examining the appropriateness of SWAC technology, researchers compared SWAC with ‘business as usual’ and various renewable energy and other energy efficiency options. Each option was analyzed in terms of: 1) generation capacity; 2) applicability to existing policy standards; 3) economic factors; 4) environmental and social factors; and, 5) energy and supply security.


According to the findings of the report, while SWAC may be more costly than other efficiency/conservation options, its ability to provide an uninterrupted supply of cool air gives it a solid advantage over the use of more intermittent renewable energy technologies (such as wind and solar power) for air conditioning purposes. For Waikīkī, where demand for air conditioning is constant, SWAC has the potential to decrease the cost of air conditioning and reduce the amount of harmful emissions that are released as a by-product of generating electricity from fossil fuels.

Traditional air conditioning systems require large amounts of energy to cool air to the desired temperature. In contrast, SWAC technology harnesses the cooling properties of cold seawater to achieve the same purpose, reducing the amount of electricity required. SWAC is particularly relevant to Hawai‘i, where the close proximity of deep, cold, ocean water to areas of high population make it an ideal location to implement the technology. In addition, the first seawater air conditioning unit was invented by a UH Sea Grant researcher in the early 1980’s.

When surveyed, 62 percent of O‘ahu residents indicated support for SWAC development in Waikīkī, compared to 8 percent opposed and 30 percent neither supporting nor opposing. Individuals more familiar with SWAC technology were more likely to support its development than those who were not aware of the technology (69 percent in favor compared to 54 percent). Slightly less than half of O‘ahu residents, 46 percent, also supported the use of public funds to help develop SWAC in Waikīkī, versus 26 percent opposed and the remaining 28 percent neither supporting nor opposing.

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The University of Hawai’i Sea Grant College Program is part of the University of Hawai‘i at Mānoa’s prestigious School of Ocean and Earth Science and Technology. It supports an innovative program of research, education and extension services directed to the improved understanding and stewardship of coastal and marine resources of the state, region and nation. Science serving Hawai’i and the Pacific for over 40 years.

UHERO is a unit within the College of Social Sciences (CSS) at the University of Hawai‘i at Mānoa. Established in 1997, UHERO is dedicated to informing public- and private-sector decision making through rigorous, independent economic research on the people, environment and economies of Hawai‘i and the Asia-Pacific region.

The College of Social Sciences (CSS) at the University of Hawai‘i at Mānoa is engaged in a broad range of research endeavors that address fundamental questions about human behavior and the workings of local, national and international political, social, economic and cultural institutions. Its vibrant student-centered academic climate supports outstanding scholarship through internships, and active and service learning approaches to teaching that prepare students for the life-long pursuit of knowledge.




Benchmark Revision of Non-Farm Payrolls

The annual benchmark revision of employment statistics from the US Bureau of Labor Statistics (BLS) indicated that 4,000 more jobs were created in Hawaii over the past two years than previously thought. The benchmarking process is an annual revision that incorporates unemployment insurance tax records to supplement preliminary payroll estimates, which are based on employer surveys. The latest official figures show that the number of non-farm payrolls in Hawaii grew by 1.2% in 2011 and 1.9% in 2012; roughly 18,400 new jobs were created since 2010. While the state still has a way to go to recover all of the 38,000 jobs lost during The Great Recession, the positive revision indicates that the local economy has made more progress on the road to recovery than previously thought.

Geographically the positive revisions were concentrated entirely in Honolulu County. The benchmarked figures show that the number of non-farm payrolls in Honolulu County grew by 1.3% in 2011 and 1.8% last year; creating 13,600 new jobs and clawing back almost two-thirds of the jobs lost since 2007. In contrast, in the state’s three Neighbor Island counties the benchmarking process cut payroll estimates. After losing almost 17,000 jobs during the Great Recession and limited job growth of less than 1% in 2011, preliminary figures indicated that job creation was beginning to pick up in earnest on the Neighbor Islands last year. But the benchmarked figures cut estimates for job growth last year from 3.1% to 2.3%. While the revised figures still show positive job growth across the Neighbor Islands, given the severity of the economic downturn any indication of a slower recovery is certainly disappointing.

Some of the state’s key industries underwent significant revisions. Preliminary figures indicated that the local construction sector continued to shed jobs through 2011 and grew by less than 1% last year, but the revised figures show that construction jobs actually stabilized in 2011 and grew by 2.4% last year. For an in-depth analysis on construction conditions in the state and the outlook going forward see UHERO’s latest report Hawaii Construction Forecast: Construction Upswing Picks Up Speed. Public sector job counts also saw a surprising upward revision. Locally and across the nation public sector layoffs have put a damper on the recovery but the latest figures indicate that state and local government agencies in Hawaii added more than 1,100 jobs last year, up from 200 new jobs indicated in preliminary estimates. While almost all sectors had job counts revised up, a notable exception is the leisure and hospitality sector where preliminary job counts were actually slashed during the benchmarking process. Preliminary figures indicated that the sector added almost 8,500 jobs since 2010, but revised figures indicate the number of new jobs is closer to 6,800. Despite the negative revision, the leisure and hospitality industry added more jobs over the past two years than any other sector and accounted for more than one-third of all of the new jobs created in the state.

-- James Jones and Peter Fuleky

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An Update on Inflation Expectations

Posted March 22, 2013 | Categories: Hawaii's Economy, Blog

Despite the consumer price index only growing by a moderate 2% over the 12 months ending in February, some investors are worried about the possibility of higher inflation in the coming years. They can take advantage of Treasury Inflation Protected Securities, or TIPS, a bond type whose payments increase as the consumer price index rises, thereby compensating TIPS holders for inflation. The demand for bonds with such a feature has been strong recently: at this week's auction, $13 billion worth of 10-year TIPS sold at a negative yield of -0.602%. This was the eighth TIPS auction in a row where the government was able to borrow at negative rates.

Negative yields imply that if the current interest rates and inflationary environment persist until the maturity of the bond, buyers will be paid back less than they originally lent to the government. However, the day before the auction the Federal Reserve reaffirmed its ongoing easy monetary policy, which some expect will eventually lead to higher inflation. The difference between yields on 10-year TIPS and comparable regular Treasuries reflects investors' expectation for average annual inflation over the next decade. This spread has been widening over the past year and stood at 2.54% after the auction. Yet, this implied inflation rate is still relatively low considering some of the claims about high inflation risks.

-- Peter Fuleky

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