The September 11th attack
Hawai'i economy faces task to rise from ruins
• Lessons from the Gulf War: Hawai'i tourism to decline
By John Duchemin
Advertiser Staff Writer
Blind-sided by tragedy and cut off for days, Hawai'i has suffered through some of the hardest days in its history as a state. Now, the Islands face another challenge.
Eugene Tanner • The Honolulu Advertiser
The economic impact of last week's terrorist attacks will wash ashore and the state will face a period of near-certain economic decline that could last months.
Tony Glushenko and his wife, Gail, of Pearl City claim their luggage at Honolulu airport after their return flight Thursday from Las Vegas on Aloha Airlines as connections between the Islands and the Mainland were slowly restored.
Even before last week, job growth in the state had already slowed, unemployment had already risen, visitor arrivals were already down, and the reeling national economy was already dangerously close to a recession.
Now, with a geopolitical climate wavering dangerously close to violence, and a psychological climate not conducive to immediate leisure travel, the only question for the state's economy is how bad will things get and for how long?
Some expect Hawai'i to wrench itself through a tough quarter or two, but then lift itself up as Americans' lives return to normal. Others fear that the impact could last far longer — especially if life in America doesn't return to normal.
For now, a lack of solid data makes many reluctant to make predictions.
"We don't have anything solid to base a forecast on," said Pearl Imada-Iboshi, head of research at the state Department of Business, Economic Development and Tourism. "Yes there are going to be (visitor) cancellations.
"But if people cancel now, does it mean they're not coming at all, or are they coming later? The initial shock in this situation is so great, it could be bigger than the end result."
With the stock exchanges closed since the end of Monday's session, it's been impossible to get a read on corporate and consumer psyches from the stock market. Analysts predict huge drops in the airline sector, which before Tuesday had already estimated billions in losses this year, and in volatile technology stocks. But no one will know for sure until the market actually opens this week.
Financial implications of last week's tragedy are somewhat clearer. The federal government has pledged to inject huge sums of money into money markets, and observers are betting the Federal Reserve Board will make its eighth interest-rate cut of the year. This could lead interest rates, already low, to decline further — potentially cutting local mortgage rates, bankers here say. Those rates recently bottomed out at 6.34 percent, on average, for a 15-year mortgage in Hawai'i.
"Since they're already low, interest rates on mortgages may not be affected right away, but the obvious trend is down," said Walter Horikoshi, senior vice president in charge of credit administration at Central Pacific Bank. Short-term rates for credit cards and auto loans are "almost guaranteed" to head down, Horikoshi said.
But there's more bad out there than good. Already, Hawai'i has seen trip cancellations and several postponed meetings, including a high-tech industry summit scheduled for last week. The state must now wait to see what will happen to consumer confidence.
If the memory quickly fades, and if the effects on consumers' travel patterns, vacation spending and disposable income are minimal, the state could emerge relatively unscathed in a few months, observers said.
"I'm sure there will be some residual economic impact, but I'm confident we will do the right things to make people feel safe and welcome in our islands," said Walter Dods, chairman and chief executive officer of First Hawaiian Bank. "We have experienced this type of impact in the past, and I expect the leadership of the community will get together and come up with the right campaign to recapture lost visitors."
If, on the other hand, the attacks on the World Trade Center and Pentagon lead to a global economic funk, the decline in Hawai'i could last much longer, observers said. As it was, national economic growth slowed to 0.2 percent in the second quarter of this year, an eight-year low. Predictions had called for recovery sometime next year.
"Right now we're at the bottom of a relatively shallow slowdown — but the risk at the moment is that any drop in consumer confidence could precipitate a recession," said Paul Brewbaker, chief economist for Pacific Century Financial Corp.
Also, a long-term trend toward greater defense and security spending — while potentially beneficial to Hawai'i's military industry — may constrain growth as the nation spends more on protecting itself and less on creating new wealth. If growth is slower, Hawai'i is sure to suffer, said James Mak, economics professor at the University of Hawai'i.
"Tourism is very sensitive to economic growth, because vacation is a luxury good," Mak said. "We are particularly vulnerable when growth isn't as fast."
Many in Hawai'i have turned to the Gulf War for an indication of what could happen. This is a reasonable analogy, despite some difference in details, many observers say.
Associated Press
Fear of terrorism kept people off planes during the six-week war in January and February 1991. In Hawai'i, this meant a drastic drop in visitor arrivals in February. Visitor arrivals were down 13 percent in the first quarter of that year. Japanese arrivals were particularly down -- they plummeted from 139,000 in January 1991 to 71,000 in February, the lowest monthly Japanese visitor count in the 1990s.
A businessman trudged through New York's ash-covered financial district last week in the wake of the terrorist attacks that destroyed the landmark World Trade Center towers, home of hundreds of the nation's top financial companies.
By summer 1991, however, tourism had recovered its steam. Arrivals finished the year barely down from 1990, while tourism spending was actually higher. The recovery of 10 years ago gives observers some reason to hope that a similar quick rebound is on its way.
But they point out that the Gulf War ended in only six weeks with an unquestionable U.S. victory, and that the military action happened far away from the lives of most Americans.
The response to last week's attacks could take more time — and that attack happened at home, hitting at the core of Americans' sense of safety. The economic effects thus are bound to be far more profound than the short-term scare caused by Desert Storm.
"If you don't feel secure enough to leave your own house," Mak said, "you're not going to go on vacation."
