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Products: Forecasts

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Hawaii Economic Forecast Update:
Another Year With No Visitor Growth

The visitor industry has gotten off to a poor start in 2007. The outlook for the rest of the year is tempered by weak conditions in the U.S. economy. Japanese arrivals will gradually stabilize, declining 3.6% for the year a whole, before strengthening to about 1% growth in 2008 and 2009. U.S. arrivals are expected to grow by less than 1% this year, strengthening a little to 1.4% by 2009.

forecast Summary


Construction Forecast:
Surge in Nonresidential Building Sustains Cycle

Hawai‘i’s construction cycle is near or past its peak, depending on which sector you look at. While the homebuilding peak occurred in 2005-06, the peak in nonresidential construction is likely in 2007 or 2008. The end of this cycle will be characterized by a slow decline in total real construction spending, but continued increase in the nominal tax base as construction costs rise between 4% and 5% each year. With home price appreciation over and affordability at recent lows, real residential construction will continue to recede gradually. At the same time, nonresidential elements of construction will be relatively stronger, and the overall outlook continues to be one of gradual slowing. Despite a slow decline from their expected peak in 2007, construction employment and earnings will remain above 2006 levels for the next several years.

forecast Summary


Annual Hawaii Economic Forecast:
Tourism Pause Means Further Slowing Ahead

There was a pause in Hawai‘i tourism growth last year, held back by capacity constraints and relatively soft visitor demand. It will be several years before additions to the accommodation inventory permit a resumption of moderate growth in arrivals and expenditure. Together with the residential construction slowdown, the weak near-term visitor outlook means that two pillars of Hawai‘i’s economic expansion have been sidelined, at least for now.

At the same time, there are no warning signs on the horizon of an outright end to Hawai‘i’s economic expansion. Job and income growth will slow further, but not cease, and the unemployment rate will gradually ease upward from recent record-low levels. As home price appreciation continues to feed through to shelter costs, we will have to contend with higher-than-normal inflation for the next several years.

forecast summary


Global Economic Forecast:
U.S. a Drag on Global Growth

Despite high oil prices, the global economy has had a very good year, and combined real gross world product is expected to end the year 3.8%higher than 2005. Next year will be considerably weaker, primarily because of slowing in the United States, where the end of the housing boom now represents a substantial drag on the economy. World output will expand by about 3.3% in 2007. The housing slowdown and the possibility of rapid adjustment of global trade imbalances are the primary downside risks.

forecast Summary


Hawaii Economic Forecast Update:
Nationwide Housing Slowdown Poses Risk for Hawai‘i Growth

Hawai‘i’s general cooling trend continues to deepen. Job growth next year is expected to be more than a percentage point weaker than in 2006. The visitor arrivals forecast for 2007 has been reduced somewhat, partly because of now-familiar Japanese market weakness. A new factor is the marked slowing that has occurred in the mainland U.S. economy, and the possibility of a deeper U.S. slowdown represents an emerging downside risk. With housing turning down, the construction sector will no longer be a contributor to growth in the Islands.

forecast Summary


Construction Forecast:
Housing-Driven Expansion Reaches Turning Point

 Hawai‘i’s construction cycle is at a turning point. Residential construction, which has largely driven the recent expansion, will soften as rising costs meet flattening demand. With home appreciation largely over and affordability much eroded, the real volume of residential construction activity will begin to recede gradually. Nonresidential elements of construction will be relatively stronger. The outlook is for gradual slowing; construction employment and earnings are expected to remain near recent peaks for the next several years.

forecast Summary


Hawaii Economic Forecast Update:
Inflation Shock Means Sharply Lower “Real” Growth

 Inflation in Hawai‘i has reared its ugly head. For the first half of the year, Honolulu consumer price inflation topped the nation, with average prices rising nearly 6% over the previous year. Rising prices are cutting into the purchasing power of local residents and will lead to a sharp drop in measured real income growth this year. While an orderly process of economic slowing continues to be evident, the inflation impulse introduces some new risks.

forecast Summary


County Economic Forecast:
Slowing Evident in County Economies

Economic conditions were buoyant in each of Hawai‘i’s four counties in 2005, but with some evidence that tight labor markets are beginning to act as a brake. The county economies will experience moderate growth in jobs and income this year, followed by further deceleration over the next year.

forecast Summary


Hawaii Economic Forecast Update:
Economy Strong, But Signs of Slowing Emerge

Prospects for the Hawai‘i economy continue to look very good for 2006. A relatively weak first quarter and limited airline capacity through the summer lead us to lower our visitor forecast slightly. At the same time, 2005 job growth has been revised upward and that strength has carried over into 2006. As expected, there are now signs that slowing has begun to occur, particularly in neighbor island economies. In the face of a very tight labor market, further slowing is expected to continue over the next year.

forecast Summary


Construction Forecast:
Growth to Slow as Housing Market Cools

UHERO’s construction forecast sees a gradual deceleration of growth over the next few years. Because of declining affordability, rising construction costs, and anticipated interest rate increases, the residential housing market will continue the cooling trend that has been apparent in recent months. Military and commercial construction will be stabilizing factors.

forecast Summary


Annual Hawaii Economic Forecast:
Long Expansion to Continue

Hawai‘i is coming off an exceptional year, one that will be tough to match. Tourism set new records and the construction industry added jobs at a fast clip. State tax revenues ballooned. Looking ahead, external conditions remain generally favorable, and growth in local jobs and personal income provides a sound foundation for continued spending. Considering limits posed by tight labor markets and high occupancy rates, growth is expected to continue at a more measured pace than we saw in 2004 and 2005.

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Global Economic Forecast:
World Economy Weathering Oil Price Shock

Global expansion continues, but at a slower pace than a year ago. High oil prices are an important part of the story, but so too is anemic consumer spending in Europe and Japan, as well as weak investment demand globally. As we expected, the global business cycle peaked in 2004, cooling somewhat this year. Moderate expansion is expected to continue for the next several years. Among risks to the outlook are widening global imbalances and the possibility of a global flu pandemic.

forecast Summary


Hawaii Economic Forecast Update:
Surging Economy Generates Impressive Income Growth

Any signs of cooling evident in second quarter data disappeared in the third quarter. Tourism rebounded and personal income was revised upward. The residential construction sector continues to perform at an exceptionally high level. While we expect the economy to slow a little in the fourth quarter, we now forecast real income growth of 4.3% for 2005. The strong growth is expected to generate some additional inflation over the next two years.

forecast Summary


Construction Forecast Update:
Tremendous Strength as Cycle Peak Approaches

This forecast update sees continued growth in the seven-year construction cycle. As affordability declines, costs rise, and the macroeconomic environment becomes less supportive, we expect construction activity to approach its cyclical peak over the next several years.

forecast Summary


Hawaii Economic Forecast Update:
Growth On Track, But Oil Risks Real

There was some slowing of visitor arrivals growth in the second quarter, but the industry remains buoyant. Residential construction and allied sectors are seeing exceptional job and income gains. Aggregate real (inflationadjusted) income growth continues to surprise, leading us to upgrade once again our income forecast for 2005. At the same time, we may now be seeing early signs of the gradual slowing that we expect to occur over the next several years. Inflation in Hawai‘i has probably not yet peaked, and the continuing surge in energy prices raises the risk of a more pronounced slowdown for the local economy.

forecast Summary


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