The gradual strengthening of Hawaii’s economy should be sufficient to weather the impact of the natural disasters in Japan and rising oil prices, a group of University of Hawaii researchers reported today.
After contracting in 2008 and 2009, the state’s economy is expected to continue building on last year’s modest growth and expand by 2.6 percent this year, according to a quarterly report from the University of Hawaii Economic Research Organization. That’s slightly less than the 2.7 percent growth in gross domestic product forecast by UHERO in February before the March 11 earthquake and tsunami sharply reduced the number of visitors to Hawaii from that market.
"It’s slowing us down, but it’s not going to derail the economic expansion," said Carl Bonham, UHERO’s executive director. "In a nutshell, I think we’re going to get through this without falling into recession."
UHERO forecasts visitor arrivals from Japan to fall by 10.8 percent this year before rebounding by 10.3 percent in 2012. In its February report the organization had predicted arrivals from Japan to edge up by 0.6 percent in 2011 and 0.9 percent in 2012.
Passenger counts from Japan in recent weeks have been running about 25 percent below year-ago levels. While Japan Airlines has restored a Narita-to-Honolulu flight that it had suspended after the quake, the Hawaii Tourism Authority reports that arrivals from Japan are expected to be well below year-ago levels.
A recently announced 30 percent fuel surcharge by All Nippon Airways and JAL also will "weigh heavily" on Japanese travel, according to the report. "Recovery to nearly normal levels will take more than a year."
Overall visitor arrivals are forecast to rise by 2.7 percent this year and 3.0 percent in 2012. A robust 8.8 percent increase in visitor arrivals in 2010 that carried over into the first quarter of 2011 helped build up a cushion that is allowing the industry to "weather the Japanese situation," Bonham added.
UHERO forecasts the price of oil to remain near its recent level of $112-$114 per barrel through the end of the year, dropping to $90 a barrel by the second quarter of 2012.
"At these prices we expect any falloff in U.S. consumer spending to be relatively mild and not large enough to significantly undermine the ongoing recovery of travel to Hawaii," according to the report.
The downward revision in state GDP will translate into personal income growth that is slightly weaker than expected. UHERO is forecasting personal income to grow by 2.1 percent in 2011 and 2.3 percent in 2012 after adjusting for inflation. That’s down from the previous forecast of 2.2 percent growth in 2011 and 2.4 percent in 2012.
Rising oil prices are expected to boost Hawaii’s inflation by 1.9 percent this year and 2.3 percent in 2012, according to UHERO.
Job growth is expected to resume in 2011 after three years of declines, thanks in part to increased construction activity associated with the rail project on Oahu. The number of payroll jobs is forecast to grow by 1.6 percent this year and 2.2 percent in 2012.
Kiewit Building Group, which won the contract for the first, 6.5-mile phase of the elevated rail guideway from East Kapolei to Pearl City and is in the running for other rail contracts, is adding several hundred direct hires to its payroll, said Lance Wilhelm, senior vice president for Kiewit in Hawaii.
Additional jobs will be created by Kiewit subcontractors, suppliers and maintenance companies that Kiewit is working with, he said.
The rail project is providing a timely boost to the construction industry, which has suffered disproportionally during the economic slowdown, Wilhelm said.
"The pulse of the industry in general is quite slow. Unlike in past years when you could look to big projects like Disney or H-3, there isn’t really any significant construction project outside of rail that is having a significant impact," he said.