Economic Summary from Paul Brewbaker
Macroeconomic conditions stabilized over the summer, and recovery in the national economy seems to be emerging. Hawaii may be slower to recover, with construction still falling into a 2011 trough, and with tourism receipts still falling despite steady visitor arrivals. Economic policies may also exert drag: after nearly two years of recession, governments in Hawaii are only just now adjusting public payrolls downward to reflect fiscal constraints. Legislators are still talking about “exacting” affordable housing and other developer concessions from a construction industry in freefall. Tax increases in Hawaii cannot be ruled out. Recovery, if any, in Hawaii will seem elusive to many whose anecdotal experience doesn’t jive with the data.
Hawaii’s unemployment rates remained unchanged on a seasonally-adjusted basis through late summer, after settling a peak in the spring. Oahu’s 5.5 percent unemployment rate blends with 9.5 percent Neighbor Island rates – in round numbers after unofficial seasonal adjustment – producing a 7.5 percent statewide rate. Both Hawaii and national unemployment rates have risen five percentage points, to just under 10 percent nationwide since 2007, and will be sticky well into 2011. Part-time employment trends do not provide information on the cyclical component of unemployment (levels do not vary much over the cycle), but all measures of unemployment, including those tracking those working part-time for economic reasons, have risen by the same increment. Still, Hawaii unemployment rates compare well to lows in the Dakotas (4.5 percent) and the high end of the range in Michigan (15 percent), Nevada (13 percent) and California (12 percent).
Hawaii housing market statistics showed a mix of positive trends and possibly unsustainable trends through third quarter 2009. Sales have risen. Inventory has shrunk. Price declines are moderating. Seasonally adjusted Oahu existing home sales rose during the first nine months of 2009. Sales trends are more ambiguous for the Neighbor Islands for two reasons. First, foreclosures comprise a larger share of Neighbor Islands’ total than Oahu’s (statewide foreclosures are lower than nationwide). Second, Neighbor Island volumes are more volatile and less amenable to seasonal adjustment; their improvement remains murky.
Existing home sales prices began to stabilize in the single-family segment on Oahu, continued drifting lower in the condominium segment, and remained pressured on the Neighbor Islands where trends are less clear. It remains to be seen how much of the real estate recovery is a bounce-back from a post-Lehman “overshoot.” New home sales incentives, low interest rates, and rebounding stock prices all have provided positive influence. Existing home inventories have fallen from more than 12 months remaining to less than 6 months, at current sales rates. (During the peak of the 1990s cycle, nearly 24 months of inventory remained.)
Domestic tourism volumes have recovered over the last 5 quarters at rates consistent with the gradual increase in scheduled seats but, adjusted for transitory H1N1 virus effects last spring, international visitor counts have continued declining along the long-established trend back to the mid-1990s. While total visitor counts have been largely unchanged on a seasonally-adjusted basis for more than a year, constant-dollar real visitor expenditure has fallen all through the year. The drop in real visitor outlays contrasts with a stabilization in nationwide retail sales that began in the spring, with a recent uptick attributable to the Cash-for-Clunkers program of tax credits for older vehicle trade-ins. Evidence now suggests that the program produced a net increase in vehicular production—as opposed to time-shifting. Encouraging signs of a recovery also are emerging in non-motor vehicular consumer spending categories. Still, as a long-haul leisure destination it seems likely that Hawaii will be one of the followers rather than leaders in that chain of improvements.
Federal Reserve policymakers have been increasingly open about the sequence and pace of their exit strategy from credit easing, while encouraging market participants not to get too hung up on timetables. Bond markets seem comfortable with interest rates rising slowly to levels consistent with steady-state economic growth. Gradualism seems to be the dominant economic policy theme.