Despite reports of steady growth, many residents aren't feeling it

By Glenn Scott
Advertiser Staff Writer

When Ashley Thairathom loses her job at a submarine company, Renee Gray devises a new service to make up for a lack of orders from dotcom companies and Jason Caporus anticipates a busy year for his construction crew, they each are navigating their way through an increasingly demanding business climate in Hawai'i.

Ashley Thairathom will lose her job at Voyager when they close this month. Voyager is among many Hawai'i companies falling victim to changing consumer habits of Japanese tourists, who are no longer relying on pre-booked tours. Jeff Widener • The Honolulu Advertiser

Still, 3 percent growth doesn't mean customers line up around the block at every new store that opens. Competition is intense, and few people seem willing to believe that Hawai'i's economic troubles of the past decade are over.

"People may be reluctant to go out and party based on statistics, and they might be justified in that," said Christopher Grandy, an economist for the state Department of Business, Economic Development & Tourism.

There are plenty of reasons to worry. The slowdown on the Mainland, once expected to fade by the end of this year, is now showing signs of hanging around well into 2002. Japan has just unveiled a set of economic reforms that could mean three years of almost zero growth for the world's second-largest economy. And the promise of a strong high-tech industry in Hawai'i remains just that — a promise.

This is not the time for Hawai'i businesses to relax.

Gray, owner of The Floral Specialist, knows that. Her once plentiful orders from dot-com companies, which used to bring employees here for perk-filled motivational sessions, are evaporating. She is hoping to find new customers through a Web site she is building.

Thairathom's company, Voyager Submarines, discovered the hard way that more Japanese visitors are planning their own itineraries and avoiding the big packaged tours that used to include a submarine trip. Voyager is closing shop this month.

Caporus' construction company, meanwhile, is reaping the benefits of energized competition. When a company renovates a shopping center, builds a new hotel tower or opens an entertainment complex, the competition is forced to respond. That ensures that construction contracts will continue to roll in.

But how long it will last is what concerns Bruce Coppa, executive director of the construction interest group Pacific Resource Partnership.

"It's fragile," Coppa said. "We're walking delicately, and we're keeping an eye on what's going on worldwide."

The tendency of Island residents to view the economy negatively frustrates economists, including Paul Brewbaker from the Bank of Hawaii, who look at a string of positive economic indicators in the state and wonder why conventional wisdom doesn't match.

"People in Hawai'i don't want the economy to be good," Brewbaker said, only partly in jest. "They are oblivious to the fact that it has improved. Hawai'i people would rather whine."

Virtually all measures of the state's economy are on the rise. Two key categories — personal income and job growth — each have risen this year by at least 2.5 percent.

The best measure of Island retail activity — general excise and use tax collections — is up nearly 8 percent over the past year.

Hotel revenue is rising thanks to an increase in average room rates. Tax collections from hotel occupants were up 11 percent in the last half of 2000 and first part of this year.

Construction is up. Builders should earn $2.5 billion this year compared with $2.3 million last year, Coppa said.

Home resales are up for the year. Sales of single-family homes increased 9 percent in the past year. Prices are up 3.4 percent.

And if that doesn't convince people that the economy is healthy, there is the long list of companies that are investing in Hawai'i.

Federated Department Stores Inc., the operator of Macy's stores, bought the Liberty House department store chain last week after walking away from the deal in the late 1990s when it thought the state's economy looked too scary.

"We were really afraid of the Hawaiian economy at that time," said Jeremiah Sullivan, Macy's West chairman. "It was heading in a not very good direction."

Last month, Paris-based BNP Paribas SA, the largest bank in France, bought the rest of the parent company of First Hawaiian Bank that it didn't already own for $2.5 billion.

The Hilton opened the $95 million Hilton Hawaiian Village Kalia Tower last month. Hawai'i's cruise-line industry will roughly double in size over the next three years, and theater operators are opening 26 new screens this summer — 16 at Ward Centres and 10 at Windward Mall.

What has contributed to the confidence behind all this positive activity?

Most economists trace it back to last year's record-breaking numbers for the tourism industry. The economy in Hawai'i is still 50 percent dependent on tourism and a year like 2000 goes a long way in building confidence in the state.

Another piece of the puzzle is the increasing diversity of Hawai'i's economy. The increasing use of technology has made Hawaiian companies more productive.

Economist Brewbaker says the state's business climate is no longer linked as directly to the effects of the Mainland or Japanese markets as many people suppose. The Mainland slowdown, he says, does not mean an automatic reaction here.

If the connection were more immediate, he reasons, Hawai'i would have performed better during the Mainland's remarkable expansion in the 1990s. Brewbaker sees what he calls a "much more varied and turbulent pattern of influences" that give the state its own economic character.

Businesses have to take advantage of the parts of the economy that show promise while getting out of those that are stagnant.

"You just have to keep your eyes open to what the clients are expecting and give it to them," said the florist Gray. "Honestly it is a lot of guessing and taking calculated chances."