Recession ending slowly but surely

By Frank Cho
Advertiser Staff Writer

The U.S. economy is close to recovering from recession and Hawai'i may not be far behind, a top economist said yesterday.

Gary Zimmerman, the Federal Reserve Bank of San Francisco's chief economist, told Hawai'i business leaders yesterday that the U.S. economy could turn the corner by the end of this year, reaching 4 percent growth by early 2003.

"We are going to expect to see a relatively slow recovery by historic standards," Zimmerman said.

Zimmerman said that a month ago, many economic forecasts were much less optimistic. But holiday sales nationally were better than analysts had predicted, energy prices are lower and corporate inventories are on the decline.

"We are using the 'R' word again, but the 'R' word we are looking for right now is recovery as opposed to recession," Zimmerman said yesterday during a lunch meeting of the Chamber of Commerce of Hawai'i at the Hawai'i Prince Hotel Waikiki.

Spending patterns and consumer behavior will be very important, Zimmerman said. "The economy needs to have strong consumer spending to stay on track."

The U.S. economy fell into recession in March, according to the National Bureau of Economic Research.

Gross domestic product grew at a 0.2 percent annual rate in the final three months of last year after shrinking at a 1.3 percent pace in the previous quarter.

The Sept. 11 attacks added to the economic woes, with tourism and retail sales suffering severe downturns. In Hawai'i, where tourism is the biggest industry, hotel occupancy rates have fallen sharply since Sept. 11 because of consumer fears about travel.

But Leroy Laney, a professor of finance at Hawai'i Pacific University, said the impact of Sept. 11 has been largely confined to the tourism sector and Waikiki in particular.

"Waikiki is our ground zero," Laney said yesterday at the chamber meeting. "The further you get away from the tourism sector, the better things look."

One of the risks to Hawai'i's recovery would be another economic slowdown globally, particularly in Japan.

Zimmerman said Japanese visitor arrivals, the most important segment of Hawai'i's international visitor industry, have not returned to pre-Sept. 11 levels and that remains a concern.

"That certainly is an issue for a rebound in this state," Zimmerman said. "We are looking at 75 to 80 percent (of pre-Sept 11 arrivals) on a daily basis following a sharp decline after Sept. 11, so it's been a pretty dramatic shock to Hawai'i's economy."

Zimmerman said Hawai'i has toppled from the top of the list of western states to the bottom in terms of job growth.

Laney said the consensus forecast is that Hawai'i might emerge from recession by the middle of this year, if Japanese travelers return to the market. But Laney said it will take until 2003 to reach pre-Sept. 11 levels.

"I think we are emerging, but I think it will be a little while before we recover to pre-Sept. 11 levels," Laney said.

Reach Frank Cho at 525-8088, or fcho@honoluluadvertiser.com.