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The Honolulu Advertiser
Posted on: Sunday, September 23, 2001

Many factors to influence economy

By John Duchemin
Advertiser Staff Writer

Accurate predictions are tough in a world suddenly rendered more uncertain than ever. That's why the Sept. 11 terrorist attacks have caused economists to throw out their short-term forecasts. In the aftermath, most say information is too scarce to draw conclusions about how bad things are — or may become. Here's a look at some of the known and unknown factors that will help determine the course of the future:

1. The travel industry got a huge shock

Massive travel delays, postponements and cancellations mean planes, hotels and even Kuhio Beach have been virtually empty for much of the past two weeks. Although few Hawai'i companies have announced massive job cuts — Aloha Airlines was the first last week, announcing it would cut about 250 jobs — tens of thousands of airline workers have been laid off nationwide. Predicted losses for airlines and hotels reach into billions.

2. The stock market sank to three-year lows

The U.S. stock exchanges had already come well off their peak, thanks to the earlier dot-com and telecom collapses, earnings shortfalls of big companies and fears of a recession. The preponderance of analysts are predicting a major bounce-back — but it's impossible to predict how much, and how soon. Last week the Dow finished its its worst week in almost 70 years.

3. The economy wasn't exactly in the best spot to begin with

Growth rates slowed to a trickle this summer, and worries of a global recession were rife. Local economists predicted growth in Hawai'i, but job growth was down, unemployment was up and tourism was off from last year's record year. Now, many national analysts say the short-term losses racked up over the past few weeks likely have been enough to cause a national recession.

4. On the other hand, interest rates have gone down

Rates for both short-term (car loans, credit cards) and long-term (home mortgages) loans have fallen to the lowest levels in years. The trend was already downward — Hawai'i mortgage rates were pushing 52-week lows in August, and the Federal Reserve Board has cut the target rate eight times this year already. Many economists also expect it to cut rates again at its next meeting Oct. 2. But lower rates are usually a good thing for both consumers and investors, for the simple reason that borrowing costs less.

Unknown factors

1. Time will tell

Is this a short-run or a long-run crisis? That's in large part up to U.S. military, diplomatic and financial actions — and consumers. If people keep spending money, they could alleviate some of the economic problems with their own pocketbooks. But if events lead consumers to panic the crisis could get deeper.

2. The government to the rescue

President Bush wants to pump $100 billion or more into the national economy through tax cuts and spending increases. Congress has agreed to give $15 billion to the airlines. Gov. Ben Cayetano last week advocated releasing up to $20 million worth of state and private money for a comprehensive tourism marketing plan and said he will lead delegations to Japan and the West Coast to encourage people to visit Hawaii. He immediately waived landing fees for airlines, instituted tuition waivers for those who lose their jobs, and called for a special session of the Legislature to consider an economic stimulus package. Will it all work?

3. The multiplier effect

How much will a slowdown in tourism affect the rest of the economy? In Hawai'i, where the tourism industry represents a quarter of economic activity and employs about 200,000 workers, the tourism "multiplier" has particular significance, with a small army of retailers, restaurants, consultants, entertainers and others sustained by visitors.