State’s economy expected to heat up

Hawaii’s economy is poised to grow this year at its fastest pace since 2005, buoyed by continued strength in the visitor market and a long-awaited turnaround in the construction industry, according to a forecast scheduled for release today by the University of Hawaii Economic Research Organization.

UHERO’s outlook, titled "Expansion shifts into higher gear," was more upbeat than its previous forecast released in November, with the group issuing upward revisions to nearly every economic indicator it tracks.

The forecast for growth in the broadest measure of the state’s economic health — inflation-adjusted gross domestic product — was boosted to 3.5 percent for 2013 from the previous forecast of 2.5 percent. If the forecast holds true, it would be the fastest growth rate since 2005 when the economy grew by 4.8 percent.

"Our overall forecast for 2013 is reasonably robust — a little above the long-term average," said Carl Bonham, UHERO executive director. "It’s not as strong as the last boom in 2005-2006, but we’re getting close to that."

"Tourism is booming and it’s not just arrivals. There are expectations of continue rising room rates that will contribute to high spending," he said. "Also, construction and government jobs are no longer negative factors pulling down GDP growth."

UHERO revised upward its estimates for both visitor arrivals and spending for 2013 following a record-breaking performance last year that exceeded expectations. Instead of a 3.6 percent increase in arrivals this year, UHERO is now forecasting a jump of 6.5 percent. The group boosted its forecast for visitor spending to a gain of 12.6 percent from an 11 percent increase.

"Based on planned air capacity and other early indications we expect another impressive year for Hawaii tourism in 2013, if off last year’s blistering pace," researchers wrote.

The state’s labor market is on track this year to post its biggest gains since the start of the 2008-2009 recession, according to the forecast. The construction and government sectors, which were hardest hit by the economic downturn, are expected to lead the job market expansion this year.

Overall nonfarm payroll jobs are forecast to grow by 2.6 percent this year, up from the previous forecast of 2.2 percent growth.

Although construction jobs declined during the first half of 2012, they rallied to post a 0.6 increase for the year. It was the first yearly gain since 2007.

Healthy increases in building permits issued last year for both government and private projects bode well for future construction activity, according to the report.

"This pickup in permitting figures presages what we think will be a strong industry expansion building over the next several years," according to the report.

One of the biggest uncertainties in the forecast is what will happen in Washington, D.C., with negotiations over federal spending cuts, Bonham said.

Congress acted Jan. 1 to address part of the so-called fiscal cliff, but the country "still faces a series of fiscal speed bumps in the months ahead and longer-term budgetary challenges," according to the UHERO report. "For Hawaii there is the added uncertainty of how the passing of Sen. Daniel Ino­uye could affect the level of federal spending in the islands," the report continued.

The assumption built into the UHERO report is that Congress will be able to reach agreement on a deal that will prevent the imposition of across-the-board spending cuts known as the "sequester."

The cuts would be especially harmful to Hawaii, which receives a larger share of federal spending than most states.

"Having said that we think it extremely unlikely that the sequester will be allowed to occur. Instead Congress will probably enact further extensions and more measured cuts that, while weighing on economic activity, will not derail the current recovery," according to the report.