Eugene Tian

Eugene Tian went to work after college as an economist at the state’s Department of Business, Economic Development and Tourism and now, as Hawaii’s chief economist, expects that a state economist is what he’ll be for the rest of his career.

Tian makes forecasts on the basis of studies completed elsewhere, and his conclusions about the future are his own — and the state’s.

“I think our concentration is on tourism, and we look at the market and our forecast actually has a lot of input from the Hawaii Tourism Authority,” he says. “The information they gather goes into our forecast. UHERO (the University of Hawaii Economic Research Organization) concentration is on the real estate market and they do construction forecasts.

“It’s all the same information, but we look at things a little differently,” he explains. “Most of the indicators are similar, but we have a different time frame to release the forecast.”

His latest was released on Dec. 12.

Tian arrived from his native China in 1985 to study at the University of Hawaii and obtained his Ph.D. at Manoa seven years later, at which point he went to work in his first job at DBEDT. He became the first chief of tourism research at the department in 1999.

Tian, his wife and their son live in Kaimuki.

QUESTION: What are the strongest economic indicators for Hawaii at this point?

ANSWER: I think all of the economy indicators are strong. All of them means that the ones that are supposed to be positive, they are positive.

For example, the visitor arrivals, visitor spending, they all are going to be a record year. In terms of our levels, we are reaching 8 million visitors. This is a record high, a historical high, and the spending is going to be a record high as well. The job count increase for this year is going to be about 1.5 percent. That is higher than normal; the normal is about 1 percent. The unemployment rate is around the 13th lowest in the nation. For the month of October, we were the eighth-lowest in the country. I think the trend will continue into next year. Our unemployment rate will be lower than the nation. The labor market will still improve. Another indication is the construction industry. The construction industry has been turning the corner already this year. Two indicators: One is the building permit. The awarding of permits for the first 10 months of the year is already a 43.7 percent increase from the previous year, the same 10 months. The construction jobs is a lagging indicator; the jobs normally lag one year.

Q: Why is that?

A: Because businesses don’t lay off people until they have to, because it’s hard to find good workers, so they would like to keep them for awhile to see what happens in the business. So usually the job lags about a year, so construction is the same. When the construction permits and everything increase, the jobs are still lagging. But we do see the last three months — from August, September, October — the construction sector actually adding 500 jobs, so that’s a good sign. So next year, it looks like the construction industry is going to be bright.

The real estate market is slow and we see both sales and median price for Honolulu and for Maui, they have been increasing and it’s going to increase more in the coming year. The Big Island has a little fallen behind, and Kauai is catching up. I think overall, the real estate market is very healthy, is increasing. I think those are the positive indicators, from tourism, from construction, from the real estate market, from the labor market.

Q: Does construction include the prospect of the rail project?

A: Not yet, it’s not including the rail, because this year we don’t have the rail. It’s already increasing the permit value. It’s measured by the permit value. The rail is a special project and they don’t go to the open bidding process, so they are not in the building permit numbers. So without rail it is already turning the corner. … The unemployment claim, people when they are unemployed making claim for unemployment insurance, for the first 10 months decreased by 10.8 percent. That’s a good sign, because during the recession, we had about 2,500 per week made claims for unemployment insurance. Now that number has come down to about 1,500, so it’s a good sign. And also our bankruptcies have been declining, so that’s another sign the economy is turning around.

Q: Do you continue to expect that Hawaii’s economic growth to be similar to the mainland and stronger than Japan?

A: Yes, because there is a forecast for the U.S. and Japan. The U.S. economic growth rate is going to be 1.6 percent this year, and next year it’s going to be 2.2. For Japan, this year it’s going to be 1.8 and next year it’s going to be 1.5, so it’s going to be slower for Japan. Our growth rate is similar, around 2 percent, to the U.S. but better than Japan.

Q: Hawaii’s economy seems to have been higher than the nation during most of the past decade but appears to have been about the same in the past two years and now is higher. Can you say what that reflects?

A: I think that has something to do with two areas: One is construction, because we lose jobs, and now construction is coming back. … Another is the state government. We had a 10 percent cut when the state workers had to follow, and now we have a 5 percent cut. It’s a combination of factors: Tourism is booming. All the tourism sectors have added income. A lot of it is in the most recent two years, and that increased our personal income. Hawaii used to be leading the U.S. in the last 10 years in terms of personal income growth, that we are higher than the U.S. growth rate and lower in the unemployment rate.

Q: Why is that?

A: I think our economy is mainly tourism and also the federal government. During recessions, the federal government usually doesn’t cut its spending, so the federal spending continues to increase every year, even during the recession, since 2008. The federal spending now is standing at about $20 billion. That’s including everything, including military, including the pay, including all the Social Security retirement pay. I think the federal government on the mainland, when they are in recession, the economy slows down, but in Hawaii, because federal is the second largest sector, next to tourism, that’s why when elsewhere is declining, Hawaii doesn’t, because of the factors of the federal military and tourism.

Q: Why has tourism done so well in the past couple of years?

A: I think one reason is the Hawaii Tourism Authority, the marketing I’ve heard. We’ve made a lot of flights and a lot of air seats from the supply side. For example, Hawaiian Airlines has been expanding not only to the mainland but also to the Korea market, the Japan market, Australia and New Zealand, and now they’re going to fly to Taiwan and looking for opportunities to fly to China also.

Q: Could it be that tourism has been stable because people who come here are less affected by the recession, since they are in a higher income level?

A: That’s right, especially visitors from China and Korea, which has been booming in the last two years, and these are high-spending visitors.

Q: From the United States mainland as well?

A: From the mainland, we do see an increase in visitors for the past two years, and their spending also increased, but they are still below the peak year. For Japan and U.S. visitors, they are still below the peak level, but other smaller markets are increasing.

Q: Building permits fell pretty harshly after the recession began but seem to be rebounding this year. Do you expect those numbers will increase in the years ahead?

A: Yes, because the building permit is a leading indicator. Usually there was a few months between use of the permits and actual construction, so the permits for this year increased a lot, by 7 percent, so that means in the future actual construction in 2013 will be busier.

Q: Once the rail construction starts in full, what effect will that have?

A: That will definitely add to the economic activities, because construction is a major part of the economy, contributing about 4.5 percent now, lower than what used to be 6 percent. So I think construction impacts not only the short term, by adding income jobs, but impacting the future. For long-term growth that is sure to grow, sustain. You need investment, you need those infrastructure investments, and the rail is one of them.

Q: Because of the tourist industry, is Hawaii unique?

A: Tourism is No. 1. Tourism continues to be about 17.7 percent of the economy, but in the U.S. as a whole, tourism continues at about 2.6, so there’s a big difference. … (Florida) is not close to Hawaii. Hawaii is the highest.