Hawaii’s Economy in “Pause Mode”

By Susan Halas

The good news is there are a few bright spots in the most recent report on statewide economic activity compiled by the University of Hawaii Economic Research Organization (UHERO) and circulated by the Bank of Hawaii.

Hawaii real personal income. Image courtesy UHERO. (Click to enlarge)

UHERO pointed to double digit leaps in visitor arrivals from countries other than the US or Japan.

Seats on the Seoul-to-Honolulu flights are up 78% from a year ago, likewise Australia traffic is up 28% and Canada arrivals are up 21%. Visitor arrivals from these markets are up a combined 18% for year through September.

That said, the bad news is there isn’t any other good news.

Hawaii shares with the mainland a stagnant labor market, lagging construction, and limited growth in personal income. “Our forecast,” said UHERO, “is for gains as we move into 2012, but not at a pace that will lead to rapid improvement in economic conditions.

“Most worrisome has been the steady decline in visitors from the US mainland.”

Unemployment by county, showing Maui a little better off than Kauai and the Big Island. Image courtesy of UHERO.

These arrivals began the year roughly 10% higher than the start of 2010, by August they were 10% below the year earlier levels. Sept. brought some firming in US travel with arrivals 2.3% over prior year figures, but added, “It’s hard to get too excited about future US visitor performance given the generally dismal economic outlook for the US.”

The report anticipates relatively strong visitor numbers in the final quarter of 2011 spurred by the post-earthquake Japan rebound and the November APEC conference.

“Clearly the jobs recovery has been disappointing,” UHERO said.

The employment gains that started at the beginning of 2010 have stalled, and statewide payroll job count in September was still 5% below the December 2007 peak.

The aggregate figures hide substantial differences across sectors. In percentage terms year to date gains have been the largest in private education (+14.6%), administrative services (+8.7%), and professional and business services (+4.6%).

Visitor arrivals and spending for the state. Image courtesy UHERO.

Biggest sector losers were wholesale trade (-3.4%), finance (-2%) and transportation and warehousing (-1%). Despite some large month-to-month fluctuations state government payrolls are essentially flat for the year-to-date.

“Hawaii construction remains in the deep doldrums,” the report said, “but there is now clear evidence of stabilization on Oahu.”

With the exception of Kauai, neighbor island construction jobs are still running considerably below last year’s level.

Adjusted for inflation real building permits for both residential and non-residential construction are at levels not seen since the early 1980s.

Residential real estate in the islands has lost some ground this year after rallying a bit in 2010.

On Maui, and to a lesser extent the Big Island, there is still a clear downward trend with no sign of price stabilization.

Economic indicators year over year. Image courtesy of UHERO.

There continues to be a substantial foreclosure overhang, equal to at least two months of resale inventory. Figures for new foreclosures are down considerably from a year ago, but this is artificial reflecting the effective moratorium that resulted from changes in the law during the past legislative session.

UHERO sees the biggest present risk to Hawaii coming from Europe – an area that is already in recession “that could be crushed by the sovereign debt crisis.”