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The Honolulu Advertiser
Posted on: Friday, November 2, 2001

Hawai'i in recession until late 2002, UH experts say

By John Duchemin
Advertiser Staff Writer

Predicting rising unemployment and declines in income, jobs and tourism for the next three quarters, University of Hawai'i forecasters have become the first to use the word "recession," and say the local economy won't regain momentum until the end of 2002.

 •  The complete report is available at the UH Economic Research Organization Web site at www2.hawaii.edu/~uhero
UH economists Carl Bonham and Byron Gangnes' "Hawai'i Outlook Report: The Terrorism Recession," is a first attempt by local researchers to statistically model the economic shock Hawai'i suffered after the Sept. 11 terrorist attacks.

Bonham and Gangnes predict a drop in Hawai'i personal income —a broad measure of economic health that is a total of wages, dividends and other income — of about 1.5 percent from the previous year in fourth-quarter 2001. That would be followed by drops of about 1 percent in the first and second quarters of next year.

The last time Hawai'i experienced economic declines of this magnitude was the Persian Gulf War in 1991, when fears of terrorism and higher oil prices caused a short-lived drop in tourism.

But this time, Bonham said, the state is not looking at the kind of quick snap-back that Hawai'i emjoyed after the Gulf War.

"If the war on terrorism doesn't end by Christmas, and the anthrax scares don't end quickly, we're not going to get a quick snap-back in the Japanese market," Bonham said.

Bonham and Gangnes said the shock has spread beyond tourism — the immediate victim of grounded flights and global uncertainty — to the rest of Hawai'i's economy.

Like other economists, Bonham and Gangnes said the economy will reach a low ebb in the next three months, remain poor through the first part of 2002 and return to growth next fall. A recession is typically defined as a period of income decline that lasts at least six months.

"As the tourism downturn continues, weakness will spill over more substantially to the broader economy," the economists said.

A strong U.S. recovery, stimulated by lower interest rates and other government aid, should help Hawai'i's economy recover late next year, they said. But a slowly recovering Japanese economy will limit recovery of tourism until 2003, they said, and personal income should begin growing at a "robust" 3.5 percent annual rate in that year.

The University of Hawai'i researchers' conclusions echoed a report earlier this week by Paul Brewbaker, a Bank of Hawai'i economist, who said Hawai'i will face "severe" losses next quarter and regain its momentum late next year.

Bonham and Gangnes also forecast worsening numbers for visitor arrivals, jobs, inflation and unemployment.

Visitor arrivals from the Mainland will fall 9.2 percent from the previous year in fourth-quarter 2001, and then decline about 3 percent in each of the following two quarters, the economists said. The next several quarters will see growth between 3 percent and 15 percent.

Visitor arrivals from the East, however, will be very slow to recover, dropping 41 percent next quarter and remaining well under pre-attack levels through 2003, Bonham and Gangnes said.

Overall, they expect a 7.8 percent drop in visitors in 2001, followed by a 2 percent rise next year and a 7.4 percent increase in 2003.

Jobs should drop by 1 to 2 percent per quarter for the next four quarters, regaining a slow growth rate in late 2002, Bonham and Gangnes said.

Unemployment, recently about 4 percent, should rise above 5 percent and remain there through 2003, the economists said. Inflation should fluctuate between 0.7 and 1.7 percent through 2003, they said.

Bonham and Gangnes warn that the forecast is made during very uncertain times, and the actual numbers could vary because of outside influences, such as further terrorist actions, an expanded war in the Middle East, the state of the Japanese economy and changing attitudes of travelers.