Credit, debit card sales growing at slower pace

The economy may be decelerating, but consumers apparently still have enough confidence in their financial future to take on home improvement projects.

That’s good news for Honsador Holding LLC Chief Financial Officer Scott Choi, who saw credit and debit card sales rise 29 percent in the first quarter from a year ago for subsidiary Honsador Lumber.

"We do see a lot more consumer confidence that’s motivating them to purchase more, but also you see the median sales prices keep bumping up and it’s getting harder and harder for more people to afford new construction or existing homes," Choi said. "So renovations and remodel work is becoming a big factor."

Home improvement card sales rose 13.9 percent and was the second best-performing category from January through March, according to the First Hawaiian Bank quarterly business activity report released Sunday. The sector, which trailed only medical services (up 14.2 percent), was one of the few bright categories during a quarter that saw card sales rise just 3.8 percent from the year-earlier period.

The percentage increase in sales for companies open at least a year was the smallest of any first quarter since the first three months of 2010, the bank’s first reporting period. It followed a 2.3 percent increase in the fourth quarter of 2013 — the worst quarter in the history of the report — and was the fourth quarter in a row with a single-digit percentage increase.

But First Hawaiian President and Chief Executive Officer Bob Harrison was not deterred by the small gain that overall represented the state’s 17th straight quarter of card sales growth.

"The good news is it’s still growing," he said. "You can’t have double-digit growth all the time. At some point we knew there would be some slowing from that continual rate of growth. Is this a trend? We’re not sure yet. But I have to look at the bright side, and there’s nothing wrong with 4 percent growth.

"We’ve been very fortunate to have those 17 quarters of growth. We did that off a low base because in 2010 when we first did the report, we were coming off the 2008 market crash. Consumer confidence has grown and improved since then from a low point, and that’s what we’ve been enjoying for that period of time."

First Hawaiian, the largest bank in Hawaii with $17.1 billion in assets, is able to track the economic pulse of the state through its card processing services. The bank is the largest local card processor of debit and credit card transactions in the state. It has nearly 7,000 merchants on its network, with most of those in Hawaii.

Honsador Lumber’s 29 percent increase in card sales represented just a small component of its overall revenue, which rose 8 percent in the quarter, said Choi, who conjectured that people used their charge cards to accumulate miles and points. Most of the company’s transactions are made on accounts with Honsador and paid by check within their credit terms each month, he said.

Choi said Honsador Lumber caters more to professional contractors than the do-it-yourselfers who would typically go to such stores as Home Depot, Lowe’s, Hardware Hawaii or City Mill.

"The bulk of the purchases would be building materials, such as siding, trim, drywall, roofing, frame-making, decking, lumber and millwork, which applies to windows, doors, cabinets and flooring," he said.

Despite some strength among the 16 sectors that First Hawaiian tracks, the bank’s report reflects what economists in the state have been saying for a while about the slowing pace of growth.

Tourism, the state’s leading industry, has been on a downward trend. Through the first two months of this year, arrivals were down 2.1 percent and spending was off 2.8 percent, according to data from the Hawaii Tourism Authority.

Not surprisingly, the state’s Department of Business, Economic Development and Tourism in February revised lower its 2014 forecast for real, or inflation-adjusted, gross domestic product, to 2.6 percent from its forecast of 2.8 percent three months earlier.

The state Council on Revenues last month forecast zero tax revenue growth for the fiscal year that ends in June, down from 3.3 percent growth in the forecast made in January. The council also reduced its growth projection for next fiscal year to 5.5 percent from a previous forecast of 7.4 percent growth, an estimated $100 million loss.

"I’m a member of the council, and there’s a lot of us looking around and saying all this deceleration is certainly real, and most of us are pointing to the visitor sector as being part of it," said Jack Suyderhoud, a professor of business economics at the University of Hawaii and adviser to First Hawaiian. "The other part of it is the nondefense federal sector."

Suyderhoud noted that even though medical services has been the leader in percentage change in the last two business activity reports, and home improvement just recorded a strong quarter, the two sectors are small categories in terms of card sales volume.

"Restaurants are up a pretty solid 51⁄2 percent, but hotels and retails are down less than half a percent," he said. "The numbers in the report are driven more by the larger categories than the smaller categories."

Still, Suyderhoud called the double-digit gain in home improvement "encouraging."

"One of the hallmarks of the pres­ent year is that economists are basically talking about a deceleration in tourism but that there is a pickup in construction-related activities," Suyderhoud said. "So that’s consistent with this shift of the growth away from tourism and more toward construction and construction-related activities."

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