University of Hawaii economists foresee a broader, stronger economy in the islands but, as with the recovery so far, most of the action is on Oahu.
Neighbor Island unemployment is expected to edge down to 6 percent by the end of this year, according to a report released Friday by the University of Hawaii Economic Research Organization. Not till 2013 do the economists expect it to reach 4.6 percent, roughly where it was before the national recession began in 2008.
UHERO says the recovery has yet to create sufficient jobs, but recent data show that job losses are dropping. For this year, UHERO forecasts that only government jobs - national, state and local - will decline.
But job growth will be slow, under 1 percent, in wholesale and retail trade; finance, insurance and real estate; and agriculture. By total, retail trade is the biggest job category in Maui County.
The economists are now including rail transit on Oahu in their forecast, since it has passed several milestones.
One sign that overall economic activity is picking up is that state tax collections rose 8.6 percent in the first four months of fiscal year 2011.
Yet the state revenue picture still shows a huge gap, put at $772 million over two years as of December, because gains in tax revenue are more than offset by two things: the winding down of federal stimulus money, and the $158.8 million cost of ending furloughs of state workers.
In 2010, the visitor industry, the most important segment of the economy, grew vigorously, although not yet recouping all the losses of the previous two years. Tourism will continue to lead the economy, UHERO projects.
Domestic air seats to the islands, which dropped from 2 million to 1.56 million, have regained about 40 percent of the fall.
Visitor spending and headcounts were rising by double-digit percentages toward the end of 2010. "The surprisingly rapid pace of visitor industry rebound is unlikely to persist," says the report.
UHERO estimates a gain of 3.4 percent in arrivals this year, and 1.9 percent in 2012.
A UHERO report last week on construction forecast a rebound in that sector, but concentrated almost entirely on Oahu, because of the multibillion-dollar rail project.
Inflation probably will remain moderate. The only survey is done on Oahu, and the latest figures come only to mid-2010. To that point, inflation was averaging 2.5 percent, with higher prices for consumer nondurables (like clothing) and energy driving the rise.
Over the next three years, UHERO estimates inflation will continue within the 1.4 to 2.6 percent range.
Since personal income is rising faster than that, this year will mark the first time since 2007 that real personal income will rise.
The positive outlook is threatened by three factors: delays in rail transit, rising energy prices and the possibility that interest rates could begin rising if fears of inflation on the national level begin to mount.
The report says, "Hawaii growth will likely remain modest by historical standards, so that labor market and fiscal challenges will take time to abate."
* Harry Eagar can be reached at email@example.com.