State back on track, says bank economist

By John Duchemin
Advertiser Staff Writer

Despite several lingering problems, the Hawai'i economy is largely recovered from the shock caused by the Sept. 11 terrorist attacks, a local economist said yesterday in a report that projects moderate growth in the coming year.

A rebound in tourism, growth in income, improved business confidence, shrinking unemployment and an upward swing in real estate activity all point to recovery, said Paul Brewbaker, chief economist at Bank of Hawaii. Strength in most areas generally outweighs remaining problems, including poor international travel numbers, continued weakness in the job market and a drop in tax revenues, Brewbaker said.

"It's fair to say we've concluded our period of recovery," he said. "We have gotten back to where we were before 9/11."

The tourism-dependent Hawai'i economy reeled last fall as visitors canceled or delayed trips in the aftermath of the attacks. In the following several months, tourist arrivals plunged, hotels laid off thousands of workers, unemployment claims spiked and falling tax revenues provoked a state government budget crisis.

But as Hawai'i nears the one-year anniversary of the attacks, Brewbaker said several indicators show that the state economy has been resilient:

• Daily passenger arrivals to Hawai'i airports have returned to near last year's levels, and visitors from the West Coast have increased.
• Statewide personal income, a broad measure of economic well-being, rose a moderate 2 percent in early 2002.
• Unemployment has dropped to slightly above 4 percent of the work force — around the levels the state experienced during the expansion of 2000 and early 2001.
• Home sales have increased and prices have begun to rise, leading Brewbaker to say an economy-lifting real estate boom could be near. With inventories low and prices attractive compared to many major Mainland cities, the bank expects a continued rise in home prices, Brewbaker said.
• The bank's latest business confidence survey shows that an increased number expect higher profits and economic growth in the coming year. While the increase would be over a 2001 that, for many, was mediocre or bad, Brewbaker said it's still a sign that the climate is improving.

He acknowledged that areas of weakness still exist. The Hawai'i job count is still down by several thousand from last year's level, Japanese tourism remains 20 percent down, and tax revenues are hundreds of millions of dollars below previously forecasted levels.

Overall, however, the trend is positive, Brewbaker said.

"Yes, there are areas where we are still down but, in general, we have recovered," he said. "But the lack of uniformity in the recovery is important, because it tells us where we need to put our emphasis."

He said Hawai'i economists' earlier forecasts of continued growth and recovery through 2003 still apply, though the risk of further shocks such as war in Iraq or another terrorist attack add uncertainty to predictions.

Reach John Duchemin by email at jduchemin@honoluluadvertiser.com or by phone at 525-8062.