Neighbor island economies join recovery

The neighbor island economies are continuing to gain on Oahu, setting the stage for the statewide economic expansion to continue through at least 2015, according to a forecast released today by the University of Hawaii Economic Research Organization.

Tourism posted another strong year across all counties, and the gains began to filter through the broader economy, according to the report.

"Oahu continues to be further along in recovery, but the neighbor islands are catching up fast," the report’s authors wrote. "This year, economic growth will quicken with an impetus from construction, which has turned the corner and is poised for a strong pickup in activity," they wrote.

"The broadening recovery together with modest inflation will drive growth in real (inflation-adjusted) incomes across the counties over the next several years."

While housing and construction on the neighbor islands suffered from the aftereffects of a boom-and-bust cycle that Oahu escaped, UHERO expects them to share in a cyclical rebound over the next several years, according to the report.

Visitor arrivals on all neighbor islands are forecast to outpace Oahu this year, led by an 8.9 percent gain on Kauai. Arrivals are forecast to increase 8.2 percent on Hawaii island and 7.7 percent in Maui County. Oahu, which led the state in visitor arrivals last year, is expected to see a 6.3 percent increase this year.

The neighbor islands are also forecast to surpass Oahu in the pace of growth of payroll jobs and real personal income. However, the labor market recovery has farther to go on the neighbor islands because job losses were greater there than on Oahu during and after the 2008-2009 recession.

This year, job growth is expected to firm and exceed 3 percent on the neighbor islands and 2 percent on Oahu. By the end of the year, Oahu will have regained all of the jobs lost during the recession. Maui County is forecast to get there in 2014, and Kauai and Hawaii island in 2015.

Real personal income, used by economists to measure economic activity, is forecast to grow by 4 percent to 5 percent on the neighbor islands this year and by 2.4 percent on Oahu.

The state’s long-suffering construction industry hit bottom and began to recover last year. Private building permits, a precursor of future building activity, grew by 30 percent to 35 percent across all counties in 2012, although from extremely low levels, according to the report.

Much of last year’s growth was attributed to installations of solar photovoltaic systems, UHERO reported. This year work on new residential and commercial projects is expected to drive construction hiring.

"By 2015 the next construction cycle will be in full swing with industry payrolls growing by more than 10 percent a year," the report’s authors wrote.

The primary risks to the forecast are from external sources, according to the report. The Federal Reserve is expected to begin tightening monetary policy this year, which will restrain U.S. economic growth. And economic conditions in Europe continue to deteriorate, which has the potential to cut visitor arrivals from that region.