Hawai'i business 'hanging in there'
By Sean Hao
Advertiser Staff Writer
With the war in Iraq increasingly appearing all but over, attention now is shifting to the economy locally and nationally, both of which were sluggish well before the outbreak of Middle East hostilities.
Economists agreed that what looks like the war's relatively short duration and its favorable outcome for the United States will work in favor of Hawai'i's economy.
In assessing where things stand after the war, there's been no major terrorist attack, crude-oil prices have dropped and despite a slide in tourism, no wave of layoffs in the hospitality and travel industries.
In addition home sales remain strong, unemployment as calculated by the state is relatively low, bankruptcies are down sharply and collections of general excise taxes — a broad measure of business activity — are up.
"We may find that 2003 is still not a bad economic year," said University of Hawai'i economist Sumner La Croix. "I think right now people are hanging in there a little bit.
"If it wraps up in the next couple of weeks, we'll have an easier future."
Still there are troubling signs for Hawai'i's economy, such as the potential impact of severe acute respiratory syndrome, or SARS, on tourism; continuing weakness in the Japan visitor market; airline industry troubles; and high gasoline prices that so far have fallen little despite a plunge in crude-oil prices.
Right now, some businesses are just happy the fallout from the war hasn't been worse.
"I've been pleasantly surprised," said Bob Taylor, president and chief executive of Maui Divers of Hawai'i. "I was expecting a much greater drop" in business.
Like many local retailers with ties to tourism, Maui Divers was prepared to cut hours, bonuses and other expenses to cope with lower sales during the war. And in the second half of March business indeed fell, Taylor said.
The Japanese segment of Maui Divers business still remains down about 20 percent from pre-war levels, however, sales have rebounded from their March lows, he said.
Taylor is among many Hawai'i retailers looking for a quick rebound.
"Hopefully, with the war winding down more visitors will start coming to Hawai'i and that will just provide the spark to get everything back going again," said Paul Kosasa, president and chief executive of ABC Stores.
With the uncertainty of war dissipating, several geopolitical concerns dogging the economy also disappear, said Anirvan Banerji, director of research for the Manhattan, N.Y.-based Economic Cycle Research Institute.
The biggest remaining threat is any increase in terrorism, but "the war is going relatively well," Banerji said. "The chances of a major disruption in oil supplies is becoming relatively low.
"Any of these could dip the economy into a recession."
Nationwide, lower crude-oil prices already are translating into cheaper prices at the pump with the average price of self-serve regular dropping from $1.706 a month ago to $1.606 on Friday.
In Hawai'i, however, prices remain higher at $2.060 versus $1.980 last month, according to the AAA auto club.
Lower crude-oil prices are expected to ultimately drive down fuel prices. They have already resulted in an abrupt drop in jet-fuel prices with the West Coast spot price Friday set at 85 cents a gallon after hitting a high of $1.17 a gallon Feb. 25.
Cheaper fuel helps ease the burden on the airline industry, which has been devastated by continued lackluster travel demand following the Sept. 11, 2001 terrorist attacks.
Absent a major terrorist attack or other unforeseen jolt to the economy, the Economic Cycle Research Institute predicts a sub-par recovery this year like last year, when the nation's gross domestic product grew 2.9 percent. After the first Gulf War in 1991, GDP grew 2.3 percent, Banerji said.
Last year's national economic rebound and the one in 1991 were dubbed "jobless" recoveries because of a lack of significant job growth during both periods.
The war's end won't in itself lead businesses to start hiring, but "as the uncertainty lifts the businesses that have been paralyzed in terms of decision making — we'll see them making decisions again to start hiring, start production," Banerji said.
Wall Street analysts are watching first-quarter earnings that companies have begun releasing to get a better handle on whether corporations will cut currently optimistic earnings forecast for the third quarter.
"Are they going to keep the numbers the same, or will they start slashing their estimates?" said Chuck Hill, director of research for Thomson First Call.
A rebound in the nation's economy later this year would bode well for Hawai'i's $10 billion tourism market, particularly since a resumption of Japanese spending levels witnessed during the heyday of the 1990s seems increasingly remote.
Since March, the average number of Japanese visitors arriving each day is down by 1,200, according to the Department of Business, Economic Development and Tourism. Mainland visits also are down, though to a lesser extent. One of the biggest concerns for the state will be how quickly the domestic market bounces back, UH's La Croix said.
Mark Hollander, president and chief executive of Hawai'i retailer Crazy Shirts, said the company is tracking sales for signs of a falloff from war or SARS at all of its 37 stores in Hawai'i, California, Nevada, Florida and Guam.
"As of yet, there has been no significant change in sales since the outbreak of the war," he said. "We are monitoring the situations in Iraq and with SARS very closely."
