Inflation may cool economy
By Sean Hao
Advertiser Staff Writer
Key areas of Hawai'i's economy are expected to cool next year as higher inflation erodes earnings, and the pace of job growth slows.
Rising inflation, or the cost of living, is likely to lead to lower real income growth in 2005, according to two economic forecasts released separately yesterday by the University of Hawai'i and the state. In addition, job growth, which has been robust this year, is expected to ease.
In a separate report yesterday, the state said Hawai'i's jobless rate rose for a second straight month, to 3.3 percent in October from 3.1 percent in September, but remained well below the national rate of 5.5 percent.
A major challenge facing Hawai'i next year is rising inflation, according to local economists. Consumer prices in Hono-
lulu were 3.3 percent higher through the first six months of 2004, compared with the same period a year earlier, as soaring housing and gasoline costs drove inflation to its highest level since 1992.
Hawai'i's economy has benefited from strong tourism, real estate and construction. However, a byproduct of that growth is rising inflation, which can cut into purchasing power. The UH Economic Research Organization is forecasting personal income growth to rise 2.5 percent next year on a real, or inflation-adjusted basis. That would be level with this year's estimate of 2.5 percent growth.
The Department of Business, Economic Development and Tourism is forecasting real income growth of 2.6 percent next year, versus 2.5 percent this year. However, both reports' real income estimates were revised downward from previous forecasts because of higher-than-expected inflation.
"Somebody increased the speed of the treadmill," explained Paul Brewbaker, chief economist for Bank of Hawaii. "You're still in the same place, except you're working harder.
"That's what this increased inflation has done. It's housing, it's in energy and it's in medical costs."
Meanwhile, the October jobs report showed a decline in jobs dealing with real estate, information, and administration. That contributed to an increase in the number of unemployed by 1,000 to 20,600.
Hawai'i's jobless rate hit a 13-year low of 2.9 percent in August and rose to 3.1 percent in September. There was an increase in the number of employed workers to 611,500 last month versus 610,900 in September.
October's seasonally adjusted jobless rate of 3.3 percent remained well below the 2003 rate of 4.5 percent. The seasonal adjustment attempts to smooth distortions caused by holidays and other recurring events.
On a nonseasonally adjusted basis, the Big Island's jobless rate in October fell to 4.7 percent from 6.2 percent a year earlier. Honolulu's rate fell to 3.0 percent, compared with 4.1 percent a year ago. Maui County recorded 3.3 percent, down from 4.8 percent a year earlier. Kaua'i's rate fell to 4.1 percent from 4.7 percent a year ago.
Next year job growth statewide is expected to slow to 1.8 percent, versus an estimated 2.2 percent gain this year, according to the UH report.
Similarly DBEDT's forecast has job growth slowing to 1.5 percent next year, compared with an estimated 2.2 percent rise this year.
"We just think that off that higher base it's harder to grow," said Pearl Imada Iboshi, the state's chief economist. "You just can't get that many people moving from being out of the labor market to being in the labor market.
"Because of higher housing costs it's hard to get people moving in as well."
DBEDT expects Hawai'i's gross state product to edge up slightly to 2.7 percent next year from an estimated 2.6 percent this year.
For Hawai'i's main industry — tourism — visitor arrival growth next year is expected to return to a more normal growth rate. The UH report forecast visitor arrival growth dipping to 3.6 percent in 2005, versus an estimated 7.9 percent gain this year. DBEDT's forecast has visitor arrival growth slowing to 3 percent next year, compared with an estimated 7.6 percent gain this year.
Bank of Hawaii's Brewbaker said last year's concerns about the war in Iraq and SARS skewed year-to-year visitor arrival comparisons.
"SARs made last year's numbers look worse than they should and it's made this year's numbers look better than they should have," he said. "In 2005, they'll return to a more normal rate."
Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.
