1. UHERO RELEASED ITS ANNUAL HAWAII FORECAST TODAY WITH THE TITLE, “TOURISM HOT, BUT BROADER GROWTH STILL ELUSIVE.” THIS HAS BEEN THE STORY FOR QUITE A WHILE, RIGHT?
Yes, tourism continues to expand at an impressive rate, and in many ways has more than recovered from the 2008-2009 downturn. But with a few exceptions, the rest of the local economy is going nowhere. Job growth in the year to May was just 1%, and it was just 0.2% if you exclude the booming accommodation and food service sector. There was a little more progress in June, but still we are just not seeing a whole lot of action outside the visitor industry. For this year as a whole, we estimate that there will be more than 9% growth in visitor arrivals but just 1.3% growth in the economy-wide job count.
2. WHY IS THAT?
In part, this reflects the contractions that have occurred in the construction industry and to a lesser extent in the public sector. These are offsetting some of the growth coming from tourism. But it is also likely a reflection of the kind of caution that is affecting the US as a whole. People may be holding back on spending while they wait for confirmation that jobs and income are becoming more secure. Consumer and businesses are still nervous about spending, and their caution can have broad impacts. Of course election uncertainty also plays a role. In our full forecast report we look at how Presidential elections are affected by economic conditions.
3. SO IS THERE HOPE FOR 2013?
Yes. And of course also some big risks. We do expect some pickup in growth across a number of sectors of the local economy as the economic and political picture resolves itself and as tourism activity continues at a high level. Homebuilding conditions are the best they have been in years, with prices firming on Oahu, limited inventory here, and mortgage rates that continue to plumb record lows. Together with large public projects like the Oahu sewer work, and assuming that rail proceeds as planned, construction should begin to turn up next year. So moderate strengthening of growth appears in the offing.
4. BUT YOU MENTIONED RISKS…
Well the big ones are no secret: Europe’s mess and the looming “fiscal cliff” in the US. The never-ending European debt crisis is already dragging down growth in much of the world. So the question is how that will unfold and whether Hawaii’s ability to tap new emerging tourism markets will offset weaker conditions elsewhere. For the US as a whole, the question is whether the government can avoid the huge fiscal shock that is set to occur in early 2013 when Bush tax cuts and other stimulative programs expire and the spending cuts negotiated last summer kick in. Some compromise seems likely, but the ugly ongoing debate is probably already hurting consumer confidence and spending. So let’s keep our fingers crossed and hope that reason finally prevails in Washington.
– Carl Bonham