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The Honolulu Advertiser
Posted on: Tuesday, March 25, 2003

Don't overreact, economics chief says

By Sean Hao
Advertiser Staff Writer

Hawai'i's robust construction business, low jobless rate and rising personal income should help fortify the state economy as the country engages Iraq in war, state officials said yesterday.

Hawai'i's economy recovers

Signs that Hawai'i's economy has recovered from the Sept. 11, 2001 attacks:

• Civilian employment up 2.7 percent in January compared to January 2002. Construction employment up 8 percent year-to-year.

• In February, median sales price for single-family home on O'ahu up 11.9 percent from February 2002. Median condominium price up 21.9 percent.

• Personal income grew 4.7 percent in the third quarter of 2002 versus third quarter of 2001. Wages and salaries grew 4.6 percent.

Source: Department of Business, Economic Development and Tourism

As the war entered its sixth day, state economic development officials moved to reassure Hawai'i's businesses and consumers who are worried about the potential economic fallout of the war, particularly on the state's important tourism industry.

Ted Liu, director of the state Department of Business, Economic Development and Tourism, said the war's impact on Hawai'i depends on two unknowns: its duration and whether terrorists will strike on American soil.

But because the fundamentals of the state economy are relatively strong now, most business sectors should get through the war intact, he said.

To illustrate the relative strength of the state's economy, Liu pointed to a 9 percent increase in general excise tax collections through February. The tax is considered a barometer of Hawai'i's overall business activity.

Liu's said his concern is primarily that consumers will rein in spending and businesses will cut jobs amid the uncertainty of war, exacerbating any direct effects on the state's economy.

"Be prepared, but let's not overreact," he said. "The war will have an impact on Hawai'i and it will have an impact on the hospitality sector, but it will have less impact on other sectors."

Construction, for example, continues to boom and "will still retain its role as a major driver of economic growth," Liu said.

Low interest rates will likely continue after the war, he said, and that should help maintain momentum. Additionally, major projects already planned, such as $2.2 billion in spending to upgrade and privatize military housing, won't be affected by war, Liu said.

War also won't curb the flow of government dollars into the state through programs like Social Security and Medicare, he said.

The conflict will likely alter some consumer spending habits, although mostly by causing delays in spending, Liu added. But that could lead to a release of pent-up demand once the war ends.

"Unless long and severe, war will not reverse the recent trend in Hawai'i of growth in personal income," Liu said.

The economy's relative areas of strength aside, the war is clearly taking a toll on the state's tourism industry where it can wreak the most economic damage.

Total passenger arrivals in the state have fallen every day since the start of the war in Iraq, according to DBEDT, and many hotels have reported declines in reservations extending into spring.

Businesses that are hurting because of a decline in tourists should look into cutting back worker hours rather than permanently eliminating jobs, Liu suggested.

Rex Johnson, executive director of the Hawai'i Tourism Authority, said it's too early to gauge just how deeply tourism travel will be affected by the war.

He said the industry would draw from experiences after the first Gulf War and Sept. 11 as it copes with declines in visitor traffic. Thousands of jobs were cut in the hospitality sector after the terrorist attacks, from which the tourism industry has not yet recovered.

"The tourism sector has been through this before, so I don't think there will be any knee-jerk reactions," said Johnson. "At some point if you see a huge change in visitor patterns, you would expect businesses to make adjustments."

Reach Sean Hao at 525-8093 or shao@honoluluadvertiser.com.