Barring a complete meltdown of the European Union—by no means a sure thing—Hawaii’s visitor industry will break all records for arrivals and nominal visitor spending this year. The Hawaii Tourism Authority just released May data showing few signs of slowing. US visitor arrivals were up 8 percent compared with May 2011, while May arrivals from Japan (seasonally adjusted) were up 8 percent compared with April. Visitor growth from Canada slowed markedly, but arrivals from the rest of the world grew by more than 16%. Through the first five months of 2012, visitor spending in current dollars has grown by 16.7 percent, a little more than 1 percent stronger than UHERO’s forecast for the first half of the year. And, given the continued strong growth in scheduled air seats for the summer, it is pretty clear that we will be raising our forecast when we release our Annual Hawaii Forecast next quarter.
While we may be raising our visitor forecast next quarter, the rest of the economy is still producing fairly unimpressive growth. The last jobs report was decidedly mixed (see A Weak Employment Report for May), and the latest data from the Bureau of Economic Analysis is nothing to celebrate. Total personal income grew by only 3.6% during the first quarter, despite more than 8 percent income growth in the accommodation and food service sector. One very positive sign is growth in construction earnings of over 6 percent. Still, these are all nominal growth rates, and after taking into account our forecasted 3 percent inflation rate during the first quarter, real labor earnings grew by a measly 0.7 percent.
As I said at the start, it is by no means certain that the policy makers in Europe will take the opportunity of the 19th European summit since the start of the debt crisis to deal decisively with the problems facing them. There have been many good suggestions leading up to this summit, including common banking supervision and deposit insurance, and a phased approach towards joint debt issuance to lower borrowing cost across Europe. The most positive signs yet are the banding together of France, Italy and Spain to counteract Angela Merkel’s insistence on punitive austerity plans for every country seeking assistance. Euro-area leaders agreed today to relax stringent requirements on emergency loans to Spain (and Italy should they require such help). Importantly, it may now be possible for banks to receive capital injections directly from European Union funds rather than first passing these moneys through the parent government. It will be interesting to watch market reactions over the next 48 hours.
– Carl Bonham