Fed Forecasts Faster Growth as Economy Improves

By SEWELL CHAN
Published: February 16, 2011
Article from: NYTimes.com

WASHINGTON — The Federal Reserve revealed Wednesday that its policy makers had substantially upgraded their forecasts for how much the United States economy will grow this year, though they expect unemployment to remain painfully high for some time.

Top Fed officials now expect the output of goods and services to grow by 3.4 percent to 3.9 percent this year, up from the previous forecast, released in November, of 3 percent to 3.6 percent. But their grim outlook for the job market was largely unchanged: 8.8 percent to 9 percent unemployment this year, only one-tenth of a percentage point lower than in the November forecast.

Growth expectations were lifted by an improvement in consumer spending in the fourth quarter, though Fed officials were uncertain how long that would last, according to minutes released on Wednesday of the Fed’s policy meeting in late January.

“On the one hand, the additional spending could reflect pent-up demand following the downturn, or greater confidence on the part of households about the future, in which case it might be expected to continue,” the minutes noted. “On the other hand, the additional spending could prove short-lived, given that a good portion of it appeared to have occurred in relatively volatile categories such as autos.”

At the meeting, the Federal Open Market Committee, the Fed’s main policy arm, voted unanimously to continue a plan announced in November to purchase $600 billion in Treasury securities, the second round of a strategy that is intended to push down long-term interest rates and lift share prices. The strategy, known as quantitative easing, has been controversial — critics say it could set the stage for future inflation and asset bubbles — but the Fed has been fairly unified behind it.

The minutes indicated that Fed officials saw a diminishing risk of deflation, a protracted fall in prices of the sort that has afflicted Japan for more than two decades. That fear of deflation was a principal factor behind the decision in August to set the stage for the bond purchases.

Other economic reports issued on Wednesday supported the Fed’s view of an economy starting to gather some steam. The Commerce Department reported that new home construction rose by the largest amount in 20 months, and the Labor Department reported that wholesale prices rose sharply in January, driven up by gasoline and pharmaceuticals. Excluding the volatile food and energy categories, the index rose by the most in more than two years.

The Federal Reserve’s own report on industrial production in January was more mixed. Factory output rose for the fifth straight month, spurred by strong car and struck sales, but utility and mine output fell, leaving the overall level of production lower, the first month-to-month decline in 19 months.

For their part, investors have been bidding up stock prices steadily since late November. In midafternoon trading, the S. & P. 500 index was about 0.6 percent higher for the day and 6.2 percent higher for the year.

The minutes painted a picture of a committee that was not quite certain about how long and painful the recovery would take from the 2007-9 recession — the longest downturn since the Depression.

“On the downside, participants remained worried about the possible effects of spillovers from the banking and fiscal strains in peripheral Europe, the ongoing fiscal adjustments by U.S. state and local governments, and the continued weakness in the housing market,” the minutes stated. “On the upside, the recent strength in household spending raised the possibility that domestic final demand could snap back more rapidly than anticipated. If so, a considerably stronger recovery could take hold, more in line with the sorts of recoveries seen following deep economic recessions in the past.”

Although food and energy prices have increased recently, especially in fast-growing emerging markets, the committee did not have a consensus on whether that development would lead to higher inflation in the United States, noting that the factors affecting businesses’ ability to pass higher costs through to their consumers were “complex and hard to monitor in real time.”

The minutes noted that most Fed officials viewed the large slack in the economy — that is, the economy’s underperformance relative to its potential — as “likely to remain a force restraining inflation,” and believed that while price declines were unlikely, inflation was likely to remain below its desired level (2 percent or slightly below) “for some time.”

Some participants also said that if the public doubted the Fed’s willingness to reduce its huge balance sheet — by selling the financial assets it acquired as a response to the crisis — when the time comes to do so, “the result could be upward pressure on inflation expectations and so on actual inflation.”

In recent months, the Fed chairman, Ben S. Bernanke, has been adamant in saying that the Fed was ready and willing to curb inflation — and could even raise interest rates at a moment’s notice if it needed to.

The committee’s unanimous vote in January to consider the $600 billion bond-buying program, which is to continue until the end of June, surprised some observers, because a small but vocal minority on the committee had questioned the need for the program. But the minutes revealed that for now, the committee was unified on continuing the purchases, viewing the risks to doing so as manageable.

“A few members noted that additional data pointing to a sufficiently strong recovery could make it appropriate to consider reducing the pace or overall size of the purchase program,” the minutes stated. “However, others pointed out that it was unlikely that the outlook would change by enough to substantiate any adjustments to the program before its completion.”

Government of Singapore offers to buy Grand Wailea

Proposal is for 5 elite resorts

February 15, 2011 – By HARRY EAGAR, Staff Writer
Article from: The Maui News

According to Bloomberg News, the government of Singapore is offering to buy the Grand Wailea and four other resorts that the Paulson & Co. group put into bankruptcy Feb. 1.

The reported offer of $1.5 billion is close to what the five elite resorts have been valued at in a complicated change of ownership that resulted from Morgan Stanley’s takeover of CNL Resorts.

Bloomberg said the offer was revealed in the U.S. Bankruptcy Court in Manhattan on Monday.

The bidder is the Government of Singapore Investment Corp., a sovereign-wealth fund.

Sovereign-wealth funds are investment businesses run by governments that, like Singapore, enjoy large trade surpluses and need to find ways to use their foreign currency balances. The fund has $100 billion and, according to Bloomberg, is one of the creditors of the resorts.

An investment group led by the Paulson hedge fund managed to take over the Grand Wailea by foreclosing on the previous owner. But the five resorts were pledged as collateral for a billion-dollar loan, and while the new owners tried to work out a restructuring and extension of the debts, they did not do so by a Feb. 1 deadline.

Hence, the bankruptcy filing.

At Monday’s hearing, Judge Sean Lane approved an order allowing the resorts to use the cash collateral of lenders until Feb. 28. “Without access to the cash, the resorts won’t be able to operate and the ‘entire restructuring may be jeopardized,’ lawyers said in court papers,” according to Bloomberg.

Hotels ended 2010 with higher rates, occupancy

By Allison Schaefers
Article from: Star-Advertiser

Hotel Occupancy and room rates in December helped push Hawaii’s hotel room revenue to $2.55 billion in 2010, according to hotel consultancy Hospitality Advisors LLC.

While the 8.7 percent year-over-year gain was good news for the beleaguered industry, room revenue was still well below the 2006 peak of $3.12 billion.

“What we saw in 2009 and 2010 was that the revenues essentially evaporated from the market, dampening profitability and short-circuiting debt services,” said Joseph Toy, Hospitality Advisors’ president and CEO.

In mid-2010, Hawaii’s hotel industry began to turn around, Toy said. After two years of discounting, Hawaii hoteliers finally saw the statewide average daily room rate (ADR) increase during four of the last six months of 2010, Toy said.

December provided a strong finish to the year, he said.

In December, statewide occupancy rose 6.8 percentage points to 69.4 percent. At the same time, ADR increased 3.8 percent to $203.56, and revenue per available room (RevPAR), a key measure of profitability, climbed 15 percent to $141.88.

For the year, Hawaii’s statewide occupancy rose 5.9 percentage points to 70.7 percent, earning it the nation’s third-best occupancy behind New York City and San Francisco. Hawaii’s year-end ADR fell 1.56 percent to $174.33, but the state’s nightly rates came in second only to New York. The state’s year-end RevPAR, which also lagged only New York, rose 7.39 percent to $123.25.

Hawaii’s hotel industry might have held its own against other U.S. destinations; however, it has a long way to go before matching the peak levels of several years ago.

“The occupancy has returned to more normal levels, but the average rate is still down about 15 to 20 percent from the peak and costs have risen 5 to 10 percent,” said David Carey, president and CEO of Outrigger Enterprises Group. “Hotels and their owners continue to be squeezed.”

Factors such as rising oil prices, increased labor and operational costs and loan terms could make or break some hotels this year, he said.

Hawaii’s tourism recovery gained momentum in 2010 as hoteliers regained some of the nearly 25 percent in revenue per available room that was lost during the industry downturn in 2008 and 2009. However, Toy said that most of the improvements were related to occupancy gains from price discounting. Moving forward, the challenge for hoteliers will be to sustain consistently high enough occupancies to achieve lasting rate growth, he said.

“When we see occupancies that are sustained above 78 percent, we’ll see hoteliers with the ability to raise rates,” Toy said.

For instance, hoteliers raised rates 21.9 percent from 2005 — the year occupancy peaked at 81.8 percent — to 2008 when statewide ADR topped out at $202.64.

While Hawaii hoteliers are hoping this year to continue building on the strides made during the latter half of 2010, soaring rates are still far away, said Keith Vieira, senior vice president and director of operations for Starwood Hotels & Resorts in Hawaii and French Polynesia.

“We are still six years away from even achieving the profitability of 2006 and 2007,” Vieira said.

Save for Hawaii’s highest-demand periods, consumers probably will see similar prices this year, Vieira said.

“We’ll probably take away some of the value-adds like free breakfasts and room nights, but it’s hard to drive prices without consistent yield,” he said.

In addition, commitments that were made last year when the market was down to travel wholesalers and package providers will lock about half of the state’s hotel inventory into softer prices through December, Carey said.

“It’s hard to respond quickly when the market changes,” he said.

While some sought-after properties in Waikiki and Maui are seeing pockets of high occupancy now, Toy said statewide recovery is uneven. Waikiki hotel rates likely will recover next year, followed by Maui, he said. The Big Island and Kauai probably won’t see significant gains until compression in Waikiki and Maui sends more travelers their way, Toy said.

“It could be 2013 or longer before the state’s entire hotel industry begins to regain rate,” he said. “Profitability is even longer out.”

Study: Landfill gases could be used as energy source

February 13, 2011 – By ILIMA LOOMIS, Staff Writer
Article from: The Maui News

WAILUKU – Converting those stinky gases from the Central Maui Landfill into electricity could create enough energy to power the equivalent of up to 3,000 Maui homes per year, according to a county-commissioned study.

The 2010 study by engineering consultant A-Mehr Inc. estimated it would cost around $12.6 million to develop a 3.2-megawatt gas-to-energy facility at the landfill or around $8.6 million for a smaller, 1.6-megawatt facility. The report will be reviewed by the Maui County Council Infrastructure Management Committee on Monday, at a meeting that also will include a presentation by the county Department of Environmental Management.

The county already has installed a system to collect and control gas emissions from the Central Maui Landfill, and officials now are evaluating alternatives for using the gases as a renewable energy source, the report notes.

Landfill gases can be used in a variety of ways, including electrical generation and conversion into a high-BTU fuel, according to the report. In addition to providing a source of renewable energy, harnessing the gases is beneficial because it reduces greenhouse-gas emissions and can generate revenue from the sale of the electricity.

According to the study, if waste continues to be disposed of in the landfill at current rates, the gases could generate from 1.6 to 3.2 megawatts, equivalent to the energy use of 1,500 to 3,000 typical Maui homes, the report says.

But if refuse were diverted to a waste-to-energy facility in 2015, as proposed in the county’s Integrated Solid Waste Management Plan, landfill gases would generate less energy – from 0.7 to 1.6 megawatts, or about what it would take to power 700 to 1,500 Maui homes.

The county could develop the gas into a resource either by producing its own electrical power right at the landfill, or by selling the gases to a third party, the report says.

It notes the only known potential buyer on-island would be the Hawaiian Commercial & Sugar Co. mill at Puunene. The company would need to invest in an expensive retrofit of its boiler systems in order to use the new energy source, but HC&S has expressed interest in potentially participating in an electric-power-generation project, according to the report.

The consultants recommend that the county move forward with a project to convert landfill gases into energy, but only after it determines whether the county will operate such a facility itself or work with a third party on the project.

The Infrastructure Management Committee will meet at 9 a.m. in eighth-floor Council Chambers of the Kalana O Maui building.

8,200 new jobs forecast for ’11

By Alan Yonan Jr.
Article from: Star-Advertiser

The number of jobs generated by Hawaii’s economy is poised to grow this year for the first time since 2007, helped by the launch of Oahu’s rail project and a modest acceleration of overall economic activity, a group of University of Hawaii researchers reported today.

Businesses are expected to add 8,200 positions this year, including 1,100 jobs related to the $5.5 billion mass transit line and other construction projects, according to a quarterly economic forecast from the University of Hawaii Economic Research Organization. The increase in payroll jobs forecast by UHERO follows three years of declines in which job losses totaled more than 35,000.

UHERO had not included the impact of the rail project in previous economic forecasts because of an uncertain start date. That changed last month when the project got the green light from the Federal Transit Administration and Gov. Neil Abercrombie. The city said it expects to break ground on the project in March.

“Rail transit work will accelerate what would otherwise be a very anemic construction upturn, contributing to a gradual broadening and deepening of Hawaii’s economic recovery,” according to the report.

As a result of the rail project, UHERO revised its job growth estimate upward by 1,000 in 2011, 2,000 in 2012 and 3,500 in 2012, said Carl Bonham, the organization’s executive director.

“At the peak of rail spending in 2014 to 2015, the project brings down the unemployment rate by a half of a percentage point,” Bonham said.

In addition to the increase in construction jobs this year, UHERO is forecasting employment increases in the hospitality, health care and retail sectors. State and local government jobs are forecast to decline for the third year in a row, while federal positions are projected to shrink for the first time since the recession.

The broadest measure of Hawaii’s economic activity, state gross domestic product, is forecast to grow by 2.7 percent this year, up from 1 percent in 2010. State GDP had contracted by 0.1 percent in 2009 and 1.5 percent in 2008.

The strengthening of the broader economy will help take the pressure off the tourism industry, which carried much of the load in 2010, Bonham said. Visitor arrivals and spending will continue to grow this year but at a slower pace than last year, he added.

The forecast calls for visitor arrivals to grow by 3.8 percent this year after climbing by 8.2 percent in 2010. One of the reasons the increase appeared so pronounced last year was that arrivals in 2009 had been so weak.

“Visitor arrivals in 2011 will grow a bit slower. I wouldn’t be surprised if it even came in lower than our forecast. The wild card to some extent will be the impact from APEC,” Bonham said, referring to the Asia-Pacific Economic Cooperation leaders meeting in November, which will bring heads of state from the 21 largest economies in the Asia-Pacific region to Hawaii.

Despite the acceleration of economic growth, inflation will remain subdued, according to the report. The consumer price index for Honolulu is forecast to fall slightly to 1.4 percent in 2011 from 1.7 percent in 2010.

Real personal income is forecast to grow to 2.2 percent this year from 0.2 percent in 2010.