Economy should see better year despite higher unemployment, inflation

Hawaii’s economy should begin moving toward a more satisfactory growth path in 2012 following a stop-start recovery last year, according to a report issued today by the University of Hawaii Economic Research Organization.

The organization said signs of life in the U.S. economy will enable the state’s recovery to gain “a bit more ground” this year.

UHERO revised upward its forecasts for visitor arrivals, payroll jobs, inflation-adjusted personal income and inflation-adjusted gross domestic product. But the organization expects the unemployment rate to worsen from its previous forecast and predicted inflation would rise more than it previously expected.

“The year 2011 brought a few positives in the form of Oahu construction stabilization and a late-year rebound of visitors from earlier lows,” the researchers wrote. “But it would be hard to sugarcoat what was a bitter year overall. Hawaii’s labor market deterioration was particularly disheartening, considering the incremental gains that have been seen in the U.S. as a whole. Conditions abroad are a mixed bag: Strong recent overseas arrivals provide hope, while the European (debt) crisis looms dangerously.”

UHERO said it now expects visitor arrivals to rise 4.1 percent this year — up from 2.7 percent in its November forecast — to just under 7.5 million. The state’s peak year was 7.6 million in 2006.

“Newly scheduled (Japan) flights from Fukuoka and Osaka and the historically strong yen will be positives this year, while a poor economic environment will present challenges,” the report said, noting that a strong yen and weak overseas demand have hammered exports and production.

“Overall, we expect Japanese arrivals to rise more than 7 percent in 2012, reflecting in part the rebound that has already occurred (from the March 11 earthquake, tsunami and nuclear fallout).”

The report cautioned that higher oil prices could have an adverse effect on all markets.

“Pricey oil will restrain visitor growth,” the report said.

UHERO raised its forecast for payroll jobs to 1.8 percent, from 1.7 percent, partly due to Hawaiian Airlines’ route and fleet expansion this year. However, the report said the unemployment rate for the year will average 6.2 percent, up from its previous forecast last November of 5.5 percent. In December the seasonally adjusted unemployment rate rose to 6.6 percent, its highest level since August 2010.

The report said construction jobs this year will get a boost from the Oahu rail project and that jobs in that sector will expand by more than 4 percent this year and then nearly 10 percent in 2013. However, the report noted that while Oahu construction jobs bottomed out in mid-2010, neighbor island construction continues to slide “with no sign of a slackening in the pace of construction.”

“With the (overall) drag from construction easing, the combined wholesale and retail trade sector will expand by 1.5 percent,” the report said. “Health care will be hit hard by the 1,000 HMC (Hawaii Medical Center) layoffs, showing no net job gains this year.”

UHERO said personal income data, an important overall indicator of economic health, was disappointing in the first three quarters of last year. However, UHERO said it expects a better performance this year due to payroll tax cuts and extended unemployment benefits that will be continued through the end of this election year. The organization forecast that inflation-adjusted personal income will rise 1.8 percent this year from 2011, up from its previous forecast of 0.9 percent.

In other areas, Hawaii’s inflation-adjusted gross domestic product — the broadest measure of the state’s economic activity — was revised upward to 2.3 percent from 2.1 percent, while the inflation rate was moved up to 1.9 percent from 1.6 percent.