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The Honolulu Advertiser
Posted on: Friday, December 14, 2007

Hawaii economy stuck in fairly decent rut

By Sean Hao
Advertiser Staff Writer

New year, same economy. That's the consensus among local economists who predict Hawai'i will continue an 11-year economic expansion into 2008.

However, a weakening U.S. economy and high energy prices pose potential risks to Hawai'i's economy, which otherwise should continue along a path of slow growth, according to a new University of Hawai'i forecast.

"We do not yet see an end to the current long economic expansion," said UH economist Carl Bonham. The outlook "is a little bit weaker, but not much. The tone of the report is a little more pessimistic."

Tourism and construction will likely remain stable next year, economists said. That should translate into continued income and job growth and low unemployment, though at less favorable levels than in recent years. The continued "soft landing" of the economy is in stark contrast to the late 1980s and early 1990s, when Hawai'i's economy faltered following a sharp drop in home values.

So far Hawai'i is expected to sidestep a U.S. real estate slowdown that has hobbled home prices in many Mainland markets. Hawai'i housing prices stabilized this year — a trend expected to continue in 2008.

Next year "is going to be a stable real estate market," said Chason Ishii, president of Coldwell Banker Pacific Properties. "It's not going to be a banner year, but it will be a very consistent year.

"You're going to start to see some neighborhoods price their properties at what I consider appropriate market levels versus those that are out there still trying to gain price appreciation."

Slower growth also means Honolulu residents should get some relief from rising prices. Honolulu's inflation rate is expected to drop from 5 percent this year to 3.8 percent next year. Honolulu's inflation rate hit a 15-year high of 5.8 percent in 2006 amid booming real estate prices.

MORE UNEMPLOYMENT

For residents, particularly those on fixed incomes, high inflation is damaging because it erodes buying power. As the inflation rate drops, inflation-adjusted personal incomes of Hawai'i residents are expected to rise 1.9 percent in 2008 compared with 1.6 percent this year.

Meanwhile. Hawai'i's jobless rate is forecast to rise from 2.5 percent to 2.8 percent.

That could help ease an already tight labor market.

"Right now we're at pretty much full employment, and you can't find workers to go to work in the industry," said Rex Johnson, president and chief executive officer of the Hawai'i Tourism Authority.

FLAT VISITOR INDUSTRY

Growth in tourism, the state's No. 1 industry, is expected to remain essentially flat next year, which would be close to a 2006 peak of 7.5 million visitors. Overall visitor arrivals for 2007 are now projected to decline by 1.1 percent, followed by flat arrivals next year and 1.1 percent growth in 2009.

"That's the most effervescent report that I've heard so far," Johnson said.

Within the visitor sector, the Japanese market has suffered the most in recent years amid general sluggishness in Japan's economy. Japanese arrivals are expected to fall less than 1 percent in 2008, followed by a nearly 1 percent gain in 2009, according to UH.

Higher fuel surcharges and room rates have forced Japan tour operators to raise prices, which has reduced travel to Hawai'i, said Akio Hoshino, senior vice president of travel agency JALPAK International Hawaii, a subsidiary of Japan Airlines. That's likely to continue into 2008, he said.

"The circumstances around us are more or less the same," Hoshino said. "So we expect the status quo."

Recent Waikiki renovations could help revitalize Japanese arrivals by providing visitors with new attractions, he added.

The Royal Hawaiian Shopping Center is in the midst of a $115 million renovation slated for completion by the end of the year. In addition, the Royal Hawaiian Hotel will soon have a new entrance and swimming pool complex as part of a wave of hotel renovations.

"Those things may help demand from Japan," Hoshino said. "Hawai'i needs a change."

Reach Sean Hao at shao@honoluluadvertiser.com.

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