The University of Hawaii Economic Research Organization has revised downward its economic forecast for the islands.
In its annual update issued today, UHERO says, "A much deeper and longer recession is now expected."
It predicts a further drop of 5 percent in visitor arrivals, on top of the 10 percent drop last year. It expects visitor business to remain flat through 2010.
It also expects employment to keep shrinking, with no job growth before 2011. The economists expect unemployment to peak at 7.7 percent in the third quarter of 2010 but to remain above 6 percent "for several years thereafter."
Six percent is double what Hawaii had experienced since it recovered from the very sharp drop after the terrorist attacks on Sept. 11, 2001.
"Construction has become a bigger drag on the local economy." UHERO expects overall construction spending, adjusted for inflation, to decline about 30 percent through 2009-10.
"The next several years will be difficult ones for Hawaii businesses and households," the report says.
And for elected officials, Gov. Linda Lingle and the Legislature are being forced to slash the state budget again and again because the Council on Revenues continues cutting projected income from taxes. The council is likely to reflect a good deal of UHERO's pessimism as the executive director of the research organization is UH economics professor Carl Bonham, one of three members of the state council.
The pessimism is fueled by gloom about the economic climate outside the state. UHERO expects United States gross domestic product to decline by 2.8 percent this year, and Japan's to fall by 4 percent.
About the only cheery note is that "the outlook for inflation has improved markedly since the middle of last year." In the middle of 2008, housing prices were deflating but food and energy prices were rising quickly. The Consumer Price Index in Honolulu rose 4.3 percent. This year, UHERO expects a rise of 0.5 percent.
(The CPI is done only on Oahu; there is no official index for Maui or the other Neighbor Islands.)
The forecast expects less effect in Hawaii than nationally from the federal stimulus package, although in the medium term two local programs should provide some push, the state Highway Modernization Plan and Oahu Rail Mass Transit.
Real income (adjusted for inflation) will fall 2.5 percent this year and 0.2 percent in 2010, according to the research group. Job losses, most prevalent in construction and the hotel and food service sector, will start creeping into retailing, transportation and utilities, finance and insurance and real estate.
Although state and county officials have mostly said they intend to avoid reducing public jobs, the UHERO forecast says government job cuts are "likely."
"We are now approaching the point where the balance of risks is more evenly weighted between positive and negative," says UHERO. "The cycle of job and income destruction is still ongoing, and certainly deeper near-term losses are possible."
* Harry Eagar can be reached at heagar@mauinews.com.
