The University of Hawaii Economic Research Organization is not tentative about the economy. “Hawaii’s economic recovery has begun,” it says in its annual forecast released today.

It had been predicting recovery later this year. It acknowledges that “the visitor industry remains in a deep slump” – obvious from state tax collections – but with a “mild recovery” around the world, it now forecasts a gain of 2.9 percent in arrivals for the entire year.

For the first time, UHERO is forecasting a real gross domestic product figure. Although the recovery may have begun, it still forecasts a small contraction for this year, negative 0.2 percent. That would be an improvement on the 1.3 percent contraction the economists estimated for 2008 and the 0.4 percent contraction in 2009. UHERO forecasts Hawaii’s overall gross domestic product will grow in 2011, by 0.5 percent.

“While the past year has brought the anticipated business cycle turning point,” the report says, “there have been no developments that would warrant a substantially stronger forecast path.”

Hawaii as an exporting economy – economists consider tourism an export, even if the customers come to us – is subject to the economic conditions that prevail elsewhere, but the university economists are moderately confident that world and national conditions will improve.

“The biggest downside risk for Hawaii is the state budget crisis, where we are only now feeling the full impact of job losses and furloughs/pay cuts,” the economists say.

As with other projections for the national economy, UHERO is expecting a jobless recovery, at least in the near future.

Job counts should drop another 0.8 percent this year, and the unemployment rate will grow a smidgen, to 6.9 percent, the economists predict.

A lot of hidden unemployment is within that figure, since Maui County’s main job sources – retailing, the visitor industry and government – have all cut hours for many workers.

“Additional public sector job losses are likely,” the report says.

No increase in jobs is foretold before 2011, and if UHERO is right, the number of jobs will still be well below the peaks in 2007, since even the 2011 gain is projected to be less than 1 percent. Last year saw a drop of 4.4 percent, as the contraction that began in mid-2008 really began to take hold.

UHERO notes that visitor spending, construction employment and building permits all seemed to bottom out by the end of 2009.

Thanks in part to government stimulus spending, there should be some net hiring in construction over the next few months, even if the value of overall construction spending will fall by 17 percent.

Inflation has dropped along with the rest of the economy, and the Honolulu rate is expected to be 1.9 percent. That would be an increase over 2009, when housing prices were falling, but it still would be less than half what it was when the economy was expanding.

Information is not available to pin down the inflation rate for Maui.

Real personal income should be flat, according to the economists.

 POSTED: March 26, 2010

By HARRY EAGAR, Staff Writer

What are the positive influences affecting the 2010 market?

Prudential Locations – Bill Chee

One of the best reasons to own real estate in Hawaii is that there will always be a demand, due to the finite supply of land on Oahu. Sklarz says that the staircase-like pattern in sales prices here is very typical of supply-constrained coastal areas, such as Boston, Los Angeles, San Francisco and Seattle. In these areas, it is very difficult to build more, so demand increases and prices take off to offset demand.

In interior markets, such as Chicago, St. Louis or Kansas City, there is plenty of land to build on when demand increases, so these parts of the country trend very differently.

Additionally, the amount of housing authorized for construction shows that new construction is as low as it’s ever been since the 1940s. “We are not building homes in Hawaii at a pace adequate to endow the newborn with a house of their own,” said Brewbaker. I’m thinking we’re going to be supply short in a year or two.”

Other positive factors include the acceleration of growth in the country’s gross domestic product, one of the tests that will ultimately determine when the recession is over. Brewbaker is, therefore, not concerned about a double dip.

Mortgage delinquencies are also low, in spite of the news that Hawaii foreclosures are up.

“Things are way better here than they are on the mainland,” said Brewbaker. Where our toxicity exists is on the Neighbor Islands – particularly in the resort markets.”