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Products: Hawaii's Economy

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Hawaii Economic Forecast Update:
A Hard Fall for Hawai‘i Tourism

The U.S. downturn and record-high oil prices have taken a big bite out of the Hawai‘i tourism industry. Visitor arrivals will tumble 9% this year, the biggest annual decline since 2001. Because of deteriorating conditions for the U.S., Japanese and global economies, we now believe that a visitor industry recovery will not begin until 2010. While economic statistics for the aggregate economy this year are coming in a bit better than expected, this will not last. With the steep tourism downturn, ongoing slowing in construction, and a developing state fiscal crunch, the Hawai‘i economy is in for a weak 2009.

Forecast Summary

Hawaii Construction Forecast:
Construction Downturn Milder than Mainland

Hawai‘i’s construction sector is now on the downward side of the cycle, but slowing continues to be considerably more moderate than in many U.S. mainland markets. The current business cycle slowdown, increased land and construction costs (mostly due to a surge in commodity prices), together with tighter credit conditions present challenges for new construction in the islands. Local non-residential construction and military housing renovation projects are helping to moderate the cyclical downturn.

ForecasT Summary

Hawaii Economic Forecast Update:
Oil Surge Fuels Inflation, Threatens Deeper Downturn

Prospects for the Hawai‘i economy have worsened significantly since our March Annual Hawai‘i Forecast. The failures of ATA and Aloha airlines, the loss of a second NCL cruise ship, and the dramatic surge in oil prices will damage a local economy that was already feeling the effects of the national downturn. We now expect small net declines in both real income and jobs this year, and higher 5% inflation. A significant recovery of the local economy will not begin until 2010, making this a relatively shallow but lengthy Hawai‘i economic contraction. A deeper slowdown could occur if oil prices remain at their current record levels or if the national housing slump worsens more than expected.

forecast Summary

Financial Integration in the Pacific Basin Region: RIP by PANIC Attack?

We exploit advances in panel data econometrics to test whether real interest parity holds in the Pacific Basin region. We test for a unit root in the difference between either the US, Japanese or Euro area real interest rate and the real interest rates from a panel of eleven Pacific Basin economies. Unlike extant studies which test for RIP using panel data, we use Bai and Ng’s (2004) PANIC test which allows for a very general model of cross-section dependence, including the possibility of cross-unit cointegration. Ignoring the possibility of cross-unit cointegration can lead to severe size distortions and to an over-rejection of the null hypothesis of a unit root. We overturn earlier findings based on first generation panel tests, and demonstrate that cross-unit cointegration lead to incorrect conclusions. We find that RIP holds in the Pacific region. Real interest rates converge to the US rate. We find no support for the hypothesis that Pacific Basin real interest rates converge to either the Japanese or Euro area rates.

Published: “Financial Integration in the Pacific Basin Region: RIP by PANIC Attack?” with Somchai Amornthum, Journal of International Money and Finance, Vol. 30, October 2011, 1019-1033.

working paper

County Economic Forecast:
Zero Growth Expected Statewide

To varying degrees, each of the four counties has shared in the state’s broad pattern of slowing over the past several years, a process that becamemore pronounced in 2007. This synchronized slowing is nomistake, reflecting broad statewide—and even global—slowing trends in construction, visitor spending and overall economic activity. There are similarly common adverse developments that will influence the county economies over the next several years. These include the failures of Aloha Airlines and ATA, the loss of two NCL cruise ships, a weak external environment for tourism, and the turning of the statewide construction cycle. This year, job and real income growth will fall in a fairly tight range around 0% in each of the four county economies. Our expectation is that it will be several years before the islands return to a moderate pace of economic expansion.

forecast Summary

Annual Hawaii Economic Forecast:
Economy Grinds to a Halt

The Hawai‘i economy that powered its way through much of this decade slowed to a standstill in 2007. The drag from a weakening visitor industry and an unwinding construction cycle spread to the broader economy. A U.S. recession is now underway. The mainland slump, national credit market problems, and soft local fundamentals mean there will be little growth in Hawai‘i for the next two years. Some sectors will see net job losses. Moderate growth is not expected to resume until 2010.

forecast summary

Hawaii Construction Forecast Update:
Slow Decline But No Contracting Crunch

While the external environment has become decidedly more risky since last fall, this forecast makes only a small downward revision to the forecast path. The declines that have occurred since 2006–2007 in residential and nonresidential permits signaled the turn of the Hawai‘i building cycle, and real construction spending will decline slightly this year.  Construction employment and income will slow to very small positive gains this year, before turning negative in 2009. Some downward drift in home prices will occur, but Hawai‘i will avoid the largescale contraction that is occurring in many mainland cities that must work off home price bubbles. The overall construction cycle will continue to be stabilized by relative strength in nonresidential segments of the industry.

forecast Summary

Hawaii Economic Forecast Update:
Cooling Economy Faces U.S. Headwinds

The weakening U.S. economy and the persistence of high energy prices lead us to mark down a bit our Hawai‘i growth estimates for the end of this year and 2008. However, we do not yet see an end to the current long economic expansion. Moderate job growth will continue next year, and real income will recover to nearly 2% growth. The visitor industry, which saw modest declines in arrivals and sluggish spending this year, will be essentially flat in 2008 before strengthening U.S. and Japanese economies begins to resuscitate travel in 2009. As we noted in our recent global outlook report, risks to the world economy have risen, and this leaves Hawai‘i more exposed should a broad mainland downturn occur.

forecast Summary

Global Economic Forecast:
Faltering American Economy Will Cause Global Slowing

The world economy began to slow in 2007, after peaking at nearly 4% growth in real gross world product in 2006. Slowing has been centered in the developed world, particularly in North America, where contraction in U.S. residential investment and fallout from the sub-prime mortgage collapse is taking a substantial toll. So far this weakness has not spread significantly to other countries. Prospects are for further global slowing in 2008. Now the question is how soft or hard the landing will be. While no sharp downswing is yet in evidence, the configuration of risks appears heavily weighted toward the negative.

forecast Summary

Hawaii Economic Forecast Update:
Mainland Woes Pose Risks for Visitor Sector

Moderate economic expansion is expected to continue in Hawai‘i for the remainder of the year, with further slowing into 2008 and 2009. The visitor industry will continue to be challenged by a weak American mainland economy. Despite recent financial market turmoil, Hawai‘i’s construction industry continues to settle toward a soft landing. Fallout from mainland housing and mortgage markets poses a risk, primarily to the visitor industry.

forecast Summary

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

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