’09 worse for state economy — report

The economy in the islands is only going to get worse during 2009, according to a report released today by UHERO, the University of Hawaii Economic Research Organization.

Visitor counts, jobs, personal income and visitor spending are all expected to go down even more than they have done already, according to "No Quick Recovery from Hawaii's Recession."

As recently as September, UHERO had forecast zero real income growth in the islands for 2008 and 2009. With the rapid deterioration of the world and national economies in the months since then, the report now forecasts a drop in real income of 0.2 percent this year and 0.7 percent next year.

The authors note that it is difficult to determine when a regional or state economy enters a recession, but that it now seems certain that Hawaii's economy started declining in the July-September period. Changes in the labor market are the principal technical indicator that the overall economy was retracting.

The start of this recession was no surprise, although hard to pinpoint with precise statistics. The failure of Aloha Airlines in late March threw thousands out of work, a significant event in a state with fewer than 700,000 workers of all kinds. Construction has slowed; cruise ships withdrew, taking jobs both ashore and afloat; and tourism numbers have dropped.

UHERO forecasts a decline of 0.8 percent in statewide employment by the end of this year, accelerating to 1.4 percent in 2009.

In most sectors, the university economists are now predicting not merely a continuation of the current slowdown, but a rapid acceleration of the decline. Highlights of their report include:

* UHERO has raised its estimate of the rate of visitor decline this year by 20 percent from the dismal figure it presented just two months ago. Instead of a decline of 9 percent by year-end, it now expects a decline of 10.8 percent.

In part, even this higher figure represents masking from stable or slightly higher visitor traffic in the first quarter. By 2009, when all months should slow declines, the annual rate of decline should reach close to 20 percent.

* Visitor spending is forecast to be down 8 percent this year, and hotel room rates are expected to decline 4.4 percent next year.

* Jobs peaked in the early months of 2008, but this year should end with no net change in employment. Jobs should decline 1.4 percent in 2009, and the economists do not expect a return to the level attained earlier this year until the end of 2011.

* Unemployment should peak at about 6.2 percent in the second half of 2009 and not drop below 5 percent through 2011. Since Hawaii had enjoyed one of the nation's lowest unemployment rates over the past couple of years, this means that close to twice as many people will be unemployed for the next couple of years.

The October unemployment rate was published by the Department of Labor and Industrial Relations Thursday. The state rate continued at 4.5 percent. Maui County's rate declined slightly from September of 5.3 percent, but that was much higher than the 3.2 percent in October 2007.

The island rates were 5 percent on Maui, 12.5 percent on Molokai and 4.4 percent on Lanai.

* Total labor and proprietor income are expected to decline by 0.5 percent this year and another 0.4 percent in 2009.

* Inflation, now about 4.5 percent, should decline. (The inflation index is compiled only for Honolulu; there is no official inflation index for the Neighbor Islands.)

The UHERO economists are expecting the national recovery to be delayed until 2010, although a "very attenuated" rebound could start late next year.

As a result, they are predicting a "rather lengthy" recession for Hawaii, with "five consecutive quarters of net job losses."

* Harry Eagar can be reached at heagar@mauinews.com.