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Economic Currents

Keep up to date with the latest UHERO news.

UHERO 101.4: Record Visitors, Flat Spending

Posted June 27, 2013 | Categories: Hawaii's Economy, Blog

Last year is often described as a banner year for the Hawaii tourism industry. With record visitor arrivals close to 8 million, it is easy to come to the conclusion that tourism is stronger than ever in the state. Is the number of tourists in a destination the primary indicator to measure success of the industry? While the Aloha State certainly enjoys welcoming record numbers of visitors to the islands, does more visitors necessarily imply a stronger, more vibrant economy? More visitors may imply the need for more workers in the tourism industry, but also places pressures on infrastructure and leads to increased traffic and congestion. How else can success be measured?

An important indicator of visitor industry success is the level of real (adjusted for inflation) visitor spending each year. While UHERO calculates real visitor spending using the Honolulu Consumer Price Index (CPI) rather than a specific tourism price index that would include, for example, more hotel and car rental prices than the average resident's spending bundle, this is a common proxy for the changing cost of tourism goods and services (Bonham et al 2013). Deflating prices by the Honolulu CPI helps us understand when people are actually spending more money, versus prices just increasing rapidly.

While visitor arrivals to Hawaii have grown steadily over time (especially quickly through the late 1980’s), the level of real visitor spending has actually fallen from its peak in 1989, and has been relatively flat ever since. While there were 20% more arrivals to Hawaii last year than in 1989, they are spending 12% less money in real terms (prices are also rising). So while the beaches (and freeways!) are packed, Hawaii’s visitors are spending less (in real terms) in restaurants, shops, and hotels, potentially leaving a smaller economic imprint now than in most of the last two decades.

--Kimberly Burnett

 

Source: Hawaii Tourism Authority and UHERO

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UHERO 101.3: Can the Median Household afford the Median Home on Oahu?

With recent months of record low interest rates and a strengthening economy, individuals and families in Hawaii are increasingly looking into becoming homeowners. How realistic is this possibility? Do families have enough for the down payment, and will the median household income qualify for a loan? How will a monthly mortgage payment compare to the rent you are currently paying? This week’s UHERO 101 takes a look at the median income family on Oahu and examines how far that income will take them into the Oahu housing market.

We start with very simple assumptions: a required down payment of 20% and an income in which 30% or less would go towards housing. In May of this year, the median single family home on Oahu was $630k and the median condo $315k. In our calculations below we assume a mortgage rate of 4.0%.

At current interest rates, if your dream is a single family home, you will need $126k to put down initially, and an income of right over $96k. Your monthly payment would be in the neighborhood of $2,400. If condos are more your style, your down payment would be in the $63k range, and you’d need an income around $48k. This leaves you with a monthly mortgage of $1,200.

How affordable is all of this to the median household on Oahu? As the chart below illustrates, even in today’s environment of relatively low interest rates, the median family income would not be able to afford the median-priced home. Only at rates well below 3% does the median home become affordable to the median household. To add insult to injury, the reality is that both interest rates and median home prices are likely to increase in the near future. Our graphic illustrates how much less affordable the median-priced home becomes in the face of increasing rates and home prices.

We hope this simple calculation helps shed light on the “affordability” of housing on Oahu. We may need to delay the housewarming party.

 

---Kimberly Burnett and James Jones

 


Most of Hawaii's commercial seafood is imported, but recreational catch tips the scales back

Hawaii sits in the middle of the largest ocean on earth. So the majority of the seafood consumed on these islands must then come from local waters, right? The answer might surprise you.

The average 2000 to 2009 annual commercial consumption in Hawaii was 38.9 million pounds per year, which is roughly 28.5 pounds per capita. It goes without saying that the residents and visitors of Hawaii eat a lot of seafood, approximately 12.6 more pounds per capita than the U.S. as a whole. Only 37% of that 38.9 million pounds of commercial seafood comes from local waters. However, it is important to keep in mind that Hawaii's population also eats a wide variety of seafood, and like any other state, demands certain species that must be imported. 

There are no marine recreational fishing license requirements in Hawaii and therefore no exact recreational catch data, but DLNR and NOAA jointly conduct a survey on recreational fishers. If we add their recreational estimate to commercial sources, then that significantly changes the distribution of where our seafood comes from. Of all the seafood consumed in Hawaii, the percentage of local seafood is pushed up to 51%.

 

With the addition of recreational catch total consumption for Hawaii goes up to 50.4 million pounds, which translates to roughly 36.9 pounds per capita. This means recreational and subsistence catch add an additional 8.4 pounds of seafood consumption annually per capita for the state of Hawaii. Recreational and subsistence fishing, hunting and gathering are important components of local consumption, and should be considered as part of the solution for optimal food security.

This information is essential to assess the market competitiveness of local versus imported seafood. It is important for the formulation of public policies that are intended to promote further development of Hawaii fisheries and the aquaculture industry. You can read more about this research in the Joint Institute of Marine Atmospheric Research report, the CTAHR Extension article (Economic Issues, EI-22), and the article in Marine Fisheries Review. Future research directions include an improved estimate of continental U.S. imports and transshipments, the level of non-commercial seafood supply flow into the retail sector and import flows directly to commercial retail and food service establishments. This research was made possible with funding support from NOAA’s Hawai‘i Seafood Program (Award No. NA09NMF4520171) conducted in the College of Tropical Agriculture and Human Resources (CTAHR) at the University of Hawaiʻi at Mānoa.

- Cheryl Geslani and Kimberly Burnett


UHERO 101.2: Purchasing Power of Paradise

Posted June 13, 2013 | Categories: Hawaii's Economy, Blog

One dollar in Hawaii does not go as far as one dollar in South Dakota. Regional Price Parities (RPPs) measure differences in the price levels of goods and services across states and metropolitan areas for a given year. RPPs are expressed as a percentage of the overall national price level for each year. In 2011 Hawaii had the highest RPP in the country, 16% higher than the national average. South Dakota was 13% lower than the national average.

 

 RPP's allow economists to compare incomes across regions, since the same salary will have different purchasing powers in different places. The U.S. Bureau of Economic Analysis recently released new real (inflation-adjusted) estimates of personal income for states and metropolitan areas which account for these differences. Although Hawaii's income grew faster than the national average in 2011 (3% vs. 2.7%), Hawaii's real per-capita incomes were one of the lowest in the nation, $32.5k compared to national average of $36.5k. Hawaii ranked 45th out of the 50 states and D.C. This difference is even more pronounced on the neighbor islands, where real per-capita personal income was $29.4k (with Oahu at $33.5k).

 

-Kimberly Burnett

Note: these are new, experimental RPP. Please see this link


UHERO 101.1: Unemployment Rate

How can economics help me understand the world around me? Check in every Friday for UHERO 101: explaining news that matters with basic economic concepts. UHERO cuts through the jargon and tells you what this means to you.

Star Advertiser: Isle jobless rate drops slightly to 5.1%

Hawaii's unemployment rate is often praised as being below the national average. While this is mathematically correct, there are two important caveats to keep in mind.

1. Hawaii's Prepaid Health Care Act provides benefits to employees working more than 20 hours a week. Employers may have incentive to hire 2 part-time workers to do the job of 1 full-timer to avoid this extra expense.
2. The unemployment rate captures people with zero jobs, rather than people with half a job (and from point #1, there are many of these in Hawaii).

The moral of the story is that while there may not be many people with no jobs in Hawaii, there are likely lots of people with less jobs than they need. Therefore, caution should be taken when interpreting Hawaii's low unemployment rate as a measure of economic well-being.

-Kimberly Burnett


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