The state’s tourism industry is recovering faster than expected, and visitor arrivals could approach record levels in 2012, according to one of Hawaii’s leading economists.
"Hawaii tourism has proven to be more resilient than most of us thought a year ago, and hopefully that will be the leading edge of economic growth as it spreads to other sectors of the local economy," First Hawaiian Bank economic adviser Leroy Laney said yesterday at the bank’s 41st annual business outlook forum at Dole Cannery Ballroom.
Laney said visitor arrivals — as well as spending — are tracking ahead of this year’s estimates, and he expects arrivals to easily exceed his 2010 estimate of a 5.5 percent increase.
Through September, visitor arrivals were up 7.2 percent to 5,298,830, and expenditures were ahead 13.7 percent to nearly $8.4 billion, according to data released yesterday by the Hawaii Tourism Authority.
Laney said a 4.5 percent increase in arrivals next year would be "realistic" and bring the state above the 7 million threshold so that in 2012 it would be in position to challenge the 7.5 million arrivals record achieved in 2006 and 2007.
But as critical as tourism is to the state, a sustained recovery is dependent on a return to health of the construction industry as well, he said.
"The statewide construction picture still has a while to go," Laney said. "The decline in construction coincided with the local recession and would have happened even if other blows had not occurred. But it was felt acutely, especially because construction had been such a major underpinning to our economy in the previous boom years."
He said even though construction permits rose 14 percent in the second quarter from the year-ago period, the growth is uneven because Honolulu and the Big Island fared better than Maui and Kauai. Laney also said construction jobs continue to decline even though the pace has decelerated.
"The general picture that emerges here is that construction jobs still have a bit further to go before growth starts to turn the corner," Laney said.
He said Hawaii is undergoing an "L-shaped recession," and there is still some question "how steep a slope the bottom of that L will be."
But he said key economic numbers are showing increases, and those that are falling are doing so at declining rates.
"That at least constitutes a recovery, something that was still a way off last year," he said.
Laney said he expects job growth to edge up 1 percent next year from his estimated decline of 0.5 percent for 2010. He sees unemployment improving to 5 percent in 2011 from his 2010 estimate of 6.2 percent.
He expects inflation to rise 2 percent — the same as he estimates for 2010 — while he projects real, or inflation-adjusted, personal income to go up 1 percent next year from his no-growth estimate for 2010.
"For the last couple of years, I’ve been saying that 2010 would be a year of stabilization in the Hawaii economy, but it will likely be 2011 before sustained recovery sets in," Laney said. "That projection has been borne out so far, so I have no reason to revise it now."
Laney said the median prices of single-family homes are starting to rise in Honolulu after a two-year decline but that those on the neighbor islands are still falling. Overall, he said economic weakness has been concentrated more on the neighbor islands than in Honolulu, which is more diversified.
"Not only were the neighbor isles hit harder by the recession with their greater dependence on tourism and their lesser degree of diversification, the greater share of higher-end offshore second homes drags prices down there," he said.
However, Laney said an overall trend toward more of a seller’s market in the state is favorable, and it eventually could bode well for the stimulation of construction.
"Led by its economic mainstay of tourism, Hawaii can look forward to better times in the future if we aren’t blindsided by other setbacks," he said. "I couldn’t have said that last year or the year before."
Richard Koo, chief economist of the Tokyo-based Nomura Research Institute, also spoke at the forum and said it’s important that the United States and other countries keep fiscal stimuli in place while the private sector is reducing its debt. Otherwise, he said, the economies will get weaker.
"You don’t cut fiscal stimulus when the private sector is sick," Koo said. "Someone has to pick up the pieces and put money back into the income stream, and the only one who can do that … is the government."