UHERO Hawai'i Quarterly Forecast Update:
No Quick Recovery from Hawai'i Recession

November 21, 2008

Carl Bonham and Byron Gangnes

University of Hawai'i Economic Research Organization

Subscribe to the UHERO EIS

UHERO's Economic Information Service provides complete analysis and detailed industry-level forecasts for up to five years. The EIS is a research program of the University of Hawaii at Manoa and depends on financial support from report subscribers and program sponsors. The complete versions of this and other EIS reports are also available for individual purchase. For more information, visit our EIS information page.

For previous forecast reports, visit UHERO Forecast Reports Archive.

EXECUTIVE SUMMARY

download pdf file

The global financial crisis and widening global downturn have materially worsened prospects for the Hawai'i economy. Economic conditions are now poor in virtually every visitor market, and as a result we expect the current sharp tourism downturn to continue well into next year, with no significant recovery until 2010. Moderate contraction of the construction industry and the developing state fiscal crunch will also weigh on the local economy. The Hawai'i economy is now in recession, and as the downturn continues into 2009 we will see larger job and income losses than we have experienced to date.

• Measured by real gross domestic product (GDP), the U.S. economy contracted at a 0.3% annual rate in the third quarter. We expect sharply negative GDP growth for the current quarter and the first quarter of next year, with a very attenuated recovery beginning in the year's second half. For 2008 as a whole, GDP is expected to grow by 1.4%, and to fall by 0.8% in 2009. A return to quarterly growth in the 3% range (annualized) is likely by the beginning of 2010.

• After expanding at a 3.2% rate in the first quarter, Japan's real GDP dropped at a nearly 3% annual rate in the second quarter of this year, and an additional 0.3% in the third quarter. On an annual basis, 2008 GDP growth will come in at just 0.3%, and 2009 will see a 0.5% contraction.

• The summer's poor visitor industry performance has continued in recent months. As a result, we have reduced our 2008 forecast for visitor arrivals growth from -9% to -10.8%. Based on our forecast of a relatively deep and lengthy global recession, we now expect an additional 6% decline in visitor arrivals in 2009. We have lowered our 2009 visitor forecasts for most markets. On top of this year's estimated 14% arrivals decline, 2009 will see a 7.6% decline in U.S. arrivals. Japanese arrivals will drop nearly 9% in 2009.

• Nominal visitor spending will drop nearly 8% in 2008, nearly double the 4.6% rate of decline forecast in our September report. Because of the growing visitor industry weakness, hotel room rates will decline 4.4% next year.

• An analysis of changing labor market conditions suggests that Hawai'i likely entered recession during the third quarter of this year. Jobs will decline by 1.4% next year, compared with our previous forecast of a 0.8% decline. The severity and expected duration of U.S. and global recessions will also mean a slower pace of local job recovery.

• We have revised downward our 2009 job forecasts for most industries. Notably, transportation & utilities and the accommodations & food services sectors will contract by about an additional 1.5 percentage points next year, compared with our September forecast. While construction sector jobs are now declining, strength in the first part of the year means that jobs in the sector will expand by nearly 1% for 2008 as a whole, before annual job declines begin in 2009.

• Labor market deterioration has driven the unemployment rate higher in recent months. The state unemployment rate will peak at about 6.2% in the second half of 2009.

• Real income growth will also be weaker than previously anticipated. We now expect real income to decline by 0.2% in 2008 followed by a more significant drop of 0.7% next year. Significant recovery will not begin until 2010. Total labor and proprietor income will decline by 0.5% this year and a similar 0.4% in 2009.

• The 2008 Honolulu consumer price index will average 4.5% inflation this year, down from 4.9% in our previous forecast because of recent dramatic energy price declines. Inflation is expected to average 2.4% in 2009.

• As for the U.S. as a whole, Hawai'i's current recession will be a rather lengthy one (we see five consecutive quarters of net job losses), and the structural changes now underway make our eventual recovery likely to be a rather anemic one by historical standards.

*Source is UHERO. Figures for 2009-2010 are forecasts. Full macro and industry detail are available to subscribers and sponsors.

Copyright © 2008 UHERO. All Rights Reserved.  

Upcoming UHERO Forecast Reports

The following are reports scheduled for delivery to sponsors in the coming months. Brief executive summaries will be released to the public.

1st Quarter: Annual Hawai'i Economic Forecast. Our full annual report on the outlook for the Hawai'i economy.

1st Quarter: Hawai'i Construction Forecast Update. Review of construction industry conditions and multi-year forecasts.

2nd Quarter: County Economic Forecast. Review of economic conditions and detailed three-year forecasts for the four counties.