Sunday, January 28, 2001
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Posted on: Sunday, January 28, 2001

Some experts sounding cautionary notes

By John Duchemin
Advertiser Staff Writer

When Hawaii’s economy hit bottom in 1998, few residents were aware of it. Economists were citing statistics indicating the state was ripe for a rebound, but surveys showed consumer confidence stayed low.

In 2000, residents’ perceptions caught up with reality. Not only were the experts calling the economy good, but surveys found many consumers felt the same way.

The year ahead, however, may reflect the reverse of that situation. While residents are generally confident about the current economy, some experts and business leaders see reason for concern about the future.

As usual, the culprits are outside forces.

"Everything we see now is positive, but the clouds we see in Japan and the Mainland give us concern," said Michael O’Neill, chairman and chief executive officer of Bank of Hawaii parent Pacific Century Financial Corp. "How bad is it? We don’t know yet, but our antennae are certainly up."

To the West, Japan has still failed to lift itself from a long-term economic slump. And the yen has dropped in value nearly 15 percent in the past year, a trend that could affect Japanese visitor spending in Hawaii as goods here seem more expensive.

To the east, the U.S. economy has been hit in the last year by a stock market correction, the failure of dozens of dot.coms, thousands of layoffs, disappointing earnings among many blue-chip companies, and California’s power shortage, which has only started to send ripples through the national economy.

Hawaii business leaders thus, while generally positive, are still hedging their predictions.

"We forecast continued economic strength in Hawaii for 2001, but that’s definitely dependent on how well the Mainland performs," said T. Michael May, president and chief executive officer of Hawaiian Electric Co., in a conference call last week with analysts. Hawaiian Electric predicts moderation of growth in power usage, which company officials consider a strong economic indicator.

"There are strengths in the Hawaii economy, but there will be more worries than in 2000," said David McClain, dean of the University of Hawaii business school. McClain figures the economy will chug along at about a 3 percent growth rate.

"We’ll be feeling (the slowdown) at some point," said Christopher Grandy, economist at the state Department of Business, Economic Development and Tourism. Six months ago, Grandy thought Hawaii would have 3.5 percent growth this year. Now he’s thinking 2.7 to 2.8 percent.

"As we begin the new year, we are watching the U.S. economy closely for changes that may impact Hawaii negatively," W. Allen Doane, president and chief executive officer of Alexander & Baldwin Inc., said in the company’s fourth-quarter 2000 earnings statement last week.

For the next several months, Hawaii is pretty well set, observers say. The state is still in the midst of its strongest economic recovery since the Japanese investment bubble burst - with indicators like job growth, construction, personal income, visitor arrivals, hotel occupancy, gross state product and the unemployment rate at their healthiest levels since the early 1990s.

But signs of future moderation have grown increasingly evident. In tourism, a record-setting pace of visitor growth is showing signs of slacking off. Hotel room bookings have slowed for the summer, and several groups have cancelled room reservations, said Joseph Toy, president of consulting firm Hospitality Advisors L.L.C.

"I’m not pessimistic - just cautious," Toy said. Bookings could rebound quickly, he said - "but keep in mind, the leisure market reacts quickly to bad news and slowly to good news."

Hawaii’s official leading economic indicator - which accurately forecast this year’s job growth and attempts to predict trends five to 10 months in advance - has dropped nine of the past 12 months, the state announced last week.

State officials have said the downward trend of the indicator means the Mainland slowdown will catch up with Hawaii in 2001.

This time, however, the government framed the January indicator drop - the fourth straight decline - in positive terms.

"We should avoid reading too much into a single month’s number," Seiji Naya, director of the state Department of Business, Economic Development and Tourism, said in a statement last week discussing the indicator’s recent results. "However, if the moderate decline ... is followed by an upturn in the index, then Hawaii’s growth should pick up in the second half of this year."

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