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Products: Hawaii's Economy

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Annual Hawaii Construction Forecast:
Despite Credit Concerns, Soft Landing Expected

Despite concerns related to recent financial market turmoil, Hawai‘i’s construction industry still appears to be poised for a soft landing. Growth in real contracting receipts will slow in 2007 and turn negative in 2008–09, with hotel renovation and industrial and commercial construction providing a stabilizing influence in the face of a steadily weakening residential sector. The construction job count is expected to peak in 2008 and decline only slightly in 2009. While real construction spending will turn downward, the nominal tax base will continue to rise as construction costs push up nominal values. While there are currently no signs of a significant and prolonged downturn in Hawai‘i’s construction sector, any further worsening in the availability or cost of credit will adversely impact this forecast. 

forecast summary


Kaua‘i Economic Outlook Summary:
Kaua‘i Slowing to Moderate Growth Path

Kaua‘i’s economy has been on a path of gradual deceleration for the past two years, following a period of strong growth. Over the next two years, the construction cycle will close in on the peak for the current cycle and visitor industry gains will taper off. Conditions both locally and in the U.S. economy will support a continuation of growth, but at a more measured pace than that of recent years.

forecast Summary


County Economic Forecast:
County Economies Steadily Slowing

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:
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


Optimal Public Control of Exotic Species: Preventing the Brown Tree Snake from Invading Hawai‘i

This paper develops a theoretical model for the efficient establishment of economic policy pertaining to invasive species, integrating prevention and control of invasive species into a single model of optimal control policy, and applies this model to the case of the Brown tree snake as a potential invader of Hawaii.

working paper


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


Tourism’s Forward and Backward Linkages

This article proposes linkage analysis as a complement to the traditional tourism-impact analysis to examine tourism’s economic imprints on a destination’s economy. The starting point of tourism-impact analysis is final demand; impact analysis measures the direct and indirect impacts of tourist spending on the local economy. The starting point of linkage analysis is the tourism sector; the analysis examines the strengths of the inter-sectoral forward (FL) and backward (BL) relationships between the tourism sector and the nontourism industries. The FL measures the relative importance of the tourism sector as supplier to nontourism industries in the economy, whereas the BL measures its relative importance as demander. Directly applying conventional linkage analysis to tourism is not straightforward because tourism is not a defined industry. Thus, we develop a methodology to calculate tourism’s forward and backward linkages using national, regional, or local input-output tables and demonstrate its utility by applying it to Hawaii.

Published:  Cai, J., Leung, P. and Mak, J., 2006. Tourism's forward and backward linkages.  Journal of Travel Research, 45 (1), 36-52.

working paper version


The Impact of 9/11 and Other Terrible Global Events on Tourism in the United States and Hawaii

This article reviews recent trends in travel and tourism in the United States and Hawaii to ascertain how the terrorist attacks of 9/11 and subsequent terrible global events affected tourism flows. United States tourism has not recovered fully from 9/11 and other international shocks; indeed, recovery may be a long way off. By contrast, Hawaii tourism is enjoying robust growth in the aftermath of 9/11 as growth in tourist arrivals from the mainland has offset declines in international visitors. We suggest that Hawaii’s current tourism boom is explained in part by the diversion of United States travel from foreign travel. The article demonstrates the usefulness of vector error correction models to generate dynamic visitor forecasts, which we use to determine whether tourism in Hawaii has recovered fully from 9/11 and other terrible international events. The article considers policy options for facilitating the recovery of international tourism to the United States.

Published: Bonham, C., Edmonds, C. and Mak, J., 2006. The impact of 9/11 and other terrible global events on tourism in the United States and Hawaii.  Journal of Travel Research, 45 (1), 99-110.

working paper version


Rationality and Heterogeneity of Survey Forecasts of the Yen-Dollar Exchange Rate: A Reexamination

This paper examines the rationality and diversity of industry-level forecasts of the yen-dollar exchange rate collected by the Japan Center for International Finance. In several ways we update and extend the seminal work by Ito (1990). We compare three specifications for testing rationality: the ”conventional” bivariate regression, the univariate regression of a forecast error on a constant and other information set variables, and an error correction model (ECM). We find that the bivariate specification, while producing consistent estimates, suffers from two defects: first, the conventional restrictions are sufficient but not necessary for unbiasedness; second, the test has low power. However, before we can apply the univariate specification, we must conduct pretests for the stationarity of the forecast error. We find a unit root in the six-month horizon forecast error for all groups, thereby rejecting unbiasedness and weak efficiency at the pretest stage. For the other two horizons, we find much evidence in favor of unbiasedness but not weak efficiency. Our ECM rejects unbiasedness for all forecasters at all horizons. We conjecture that these results, too, occur because the restrictions test sufficiency, not necessity. In our systems estimation and micro- homogeneity testing, we use an innovative GMM technique (Bonham and Cohen (2001)) that allows for forecaster cross-correlation due to the existence of common shocks and/or herd effects. Tests of micro-homogeneity uniformly reject the hypothesis that forecasters across the four industries exhibit similar rationality characteristics.

Published: Richard Cohen, Carl Bonham and Shigeyuki Abe. "Rationality and Heterogeneity of Survey Forecasts of the Yen-Dollar Exchange Rate: A Reexamination." Handbook of Financial Econometrics and Statistics. Ed. Cheng-Few Lee and John C. Lee. New York: Springer, 2015. Print and eReference.

working paper


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


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