Real Gross Domestic Product (GDP) in the Honolulu metropolitan area grew by a moderate 1.7% in 2010 according to the U.S. Bureau of Economic Analysis GDP by Metro Area, Advance 2010 released this week. While Honolulu’s moderate growth places it within the third quintile of all U.S. metropolitan areas, growth of 1.7% is a significant improvement over the 1.3% contraction of 2009.
The recovery was led primarily by Financial Activities and Trade which contributed 0.5 and 0.4 percentage points of growth respectively. The Leisure and Hospitality sector also made a comeback, contributing 0.3 percentage points of growth in 2010 compared to a subtraction of 0.4 percentage points in 2009. Construction remained soft, subtracting 0.1 percentage points of growth. While the construction sector continued to shrink, it did so markedly less than in 2009 when it subtracted 0.7 percent from overal GDP growth. Nondurable-goods manufacturing proved to be the only other sector with a significant contraction in 2010, subtracting 0.1 percentage points of growth.
While the GDP data paints a somewhat positive picture, there is a noticeable disconnect between the data on payroll jobs and GDP. While Real GDP grew by 1.7% in 2010, Honolulu actually shed close to 2,900 nonfarm jobs in 2010–a decrease of 0.7%. The Financial Activities and Trade sectors, two key contributors to real GDP growth, actually cut jobs by 3.4% and 1.3% respectively. Moreover Construction, which experienced only a small contraction, shed more than 1,200 jobs–a decrease of 5.7%.
It should be noted that these numbers are advance estimates compiled with limited data; the data may be revised up or down in future releases. Moreover, real GDP by metropolitan area statistics deflate nominal GDP measures using national prices for the goods and services produced as opposed to local prices. The Honolulu CPI inflation rate was 0.5% faster than the National CPI inflation rate in 2010. So it is likely that using the national prices to deflate Honolulu GDP overestimates the real value of goods and services produced in Honolulu and skews growth rate calculations. Deflating nominal GDP values with Honolulu CPI yields a growth rate of only 0.5% in 2010. While the Honolulu CPI and the national metropolitan area deflator are not perfectly comparable measures, a key take away is that the national metro area deflator does not necessarily reflect regional price changes and may distort growth calculations when local inflation rates are different from national inflation rates.
–Jimmy Jones, Research Intern