Worst is yet to come for Hawaii economy, according to forecast
By Greg Wiles
Advertiser Staff Writer
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The latest economic forecast for Hawai'i predicts that things will get worse in 2009 before they get better in 2010.
The outlook produced for First Hawaiian Bank by Hawai'i Pacific University professor Leroy Laney takes a view that is increasingly common among economists: The state economy will fall further next year before a gradual recovery starts in 2010. Laney's report predicts the number of jobs and visitor arrivals will recede next year as will personal income adjusted for inflation. Unemployment will rise.
"The bottom line is that Hawai'i can expect a contracting economy this year as well as next," Laney said yesterday to many of the state's top business leaders at the First Hawaiian Bank Annual Business Outlook Forum.
He said Hawai'i should see worsening numbers at least through the first half of next year. The decline in the state's No. 1 industry will continue because people worried about finances will cut vacations to Hawai'i.
Turmoil on Wall Street in September and October probably ravaged tourist bookings for 2009, while the cumulative effect of months of recession may persuade consumers to spend less.
"We all know things are tough out there and the problem is going to get worse before it gets better," Don Horner, First Hawaiian president and chief executive officer, said in introducing Laney. But he said his bank is in good shape to get through this business cycle and that it had increased lending this year, unlike most Mainland banks.
Laney said numbers for the second half of 2009 should start to show some improvement with a gradual recovery beginning the year after.
"By 2010, the visitor industry will have had time to recover, and the construction cycle could be beginning to recharge," he said, noting he usually doesn't offer a prognosis for more than a year out. But, he said, as economic cycles go, Hawai'i's downturns are shorter than growth periods.
"By 2011, it is possible for the Hawai'i economy to be firing on all cylinders once again."
Laney isn't alone in projecting declines continuing into next year. The state Department of Business, Economic Development and Tourism this week released an outlook showing fewer tourist arrivals and jobs, and lower expenditures and income next year. Bank of Hawaii's 2009 forecast also calls for a continued drop in income, construction and visitor counts.
The University of Hawai'i Economic Research Organization, which releases its updated economic forecast tomorrow, has previously said income and visitors will decline further next year.
Laney's 2009 forecast also says:
"Tourism has been particularly hard hit," Laney said. "That's obviously the most hard-hit sector. Mainland financial turmoil won't help those considering a Hawai'i vacation."
Laney, while not making projections for construction and other facets of the economy, noted the state is on the downside of a building cycle, and that credit card spending data show Hawai'i consumer and tourist spending were constant this year, but that the number is down when inflation is factored in.
Laney delivered his forecast with a caveat that the level of uncertainty surrounding the national and Hawai'i economies remains high and therefore his outlook is subject to change. For example, he noted unemployment rolls would swell by 3 million people if General Motors were to fail.
For Hawai'i, there is uncertainty about how discounting will work compared with vacationers' decisions to remain home because of financial worries.
"You do a forecast this year and a week later it's out of date," Laney said.
Reach Greg Wiles at gwiles@honoluluadvertiser.com.
