Economies improving, but recovery is fragile

Tourism leading Maui out of recession.: Maui News      

KAHULUI – To a degree that exceeds any other county, tourism is leading Maui out of the recession, professor Leroy Laney told a capacity crowd during the 36th annual First Hawaiian Bank Economic Outlook Forum on Thursday in the Elleaire Ballroom.

Laney, who teaches finance and economics at Hawaii Pacific University, has been presenting the local scenario for 21 years. He said his forecast last year of an L-shaped recession – steep fall, slow recovery – has proven to be about right so far.

The bottom has either been reached or is very close.

One of the key graphs at each forum is the First Hawaiian report on credit card spending growth (or shrinkage) as based on its 300 largest customers.

This figure is not available elsewhere.

Until 2008, the story was always growth, sometimes as much as 15 or 16 percent, in 2003 and 2004. The recession for Hawaii began in the middle of 2008, and the credit card account finished the year flat – up the first half, down the second half.

In 2009, credit card charge volume fell 6 percent. So far, through June, volume is up 6 percent.

Laney said Maui retailers catering to tourists seem to be doing better, even if tourists are bargain-conscious. But regional malls and other places more dependent on local business are still reporting sluggish sales.

This is not surprising, since unemployment remains high. Comparatively high, since going into the recession, Hawaii has had some of the lowest unemployment rates in the nation, near 2 percent in some counties. It zoomed to around 7 percent – still lower than the national average.

And while the rate of joblessness is no longer going up, it is not yet coming down much. Maui County unemployment is more than 8 percent, showing how the Neighbor Islands, more dependent on tourism, are affected more strongly in a downturn than Oahu, with its more diversified range of jobs.

Another key local statistic, Maui Electric Co. power sales, is closely tracking the bank’s credit card report. Sales (by kilowatt-hours, so unaffected by rate changes) were growing between 2 and 4 percent per year until 2003. Sales growth slowed but remained positive until 2007. Then it declined more than 3 percent for two years in a row.

In 2010, electricity sales are estimated to grow again, but by a hair-thin 0.2 percent.

Laney said numbers can be deceptive, so each year he spends a week visiting island economic centers. At the harbor, he found that traffic is down, although he was told that the remaining cruise ship is running full, disembarking about 2,800 passengers every week.

But while visitor arrivals are rebounding – although from quite low 2009 levels – construction, the other big economic factor, is not.

It is improving on the Big Island and Oahu, Laney said, but not here.

In the first quarter of 2009, private permit values declined by a third. In the first quarter of this year, they declined by half against even that low target.

“Some in the industry still cite Maui’s 50 percent affordable housing requirement for new residential development, as well as the Show Me the Water ordinance,” Laney said.

His visit to Hawaiian Commercial & Sugar Co. turned up an estimate of a 170,000-ton crop this year. That is less than the 200,000 tons HC&S considers a good year, but it will be about 43,000 tons better than last year’s drought-impacted total.

Real estate is still being affected by “overhang,” from short sales and bank repossessions, but the sector is slowly working its way back to normal, Laney said.

He noted that the fall in values, which is not felt by the county tax collectors until a year later, has a somewhat smaller effect on Maui than other counties, because of the high homeowners’ exemption.

He noted that one booming business on the island is the University of Hawaii Maui College, with record enrollment and a vigorous building and remodeling program.

Although Laney gave a generally upbeat report, much more so than last year, he and his outlook partner, professor Jack Suyderhoud, repeatedly cautioned that the upturn is fragile, uncertain and dependent on outside forces.

Laney concluded: “Barring unforeseen misfortunes, economic recovery is under way or imminent, but do not expect a rapid snapback.”