Neighbor island economies forecast to maintain growth

The neighbor islands, which lagged behind Oahu in economic growth for much of the past five years, have closed the gap and are poised for continued improvement this year and next, according to a report scheduled for release Friday by the University of Hawaii Economic Research Organization.

Maui is projected to have the strongest growth of any county in terms of job creation and personal income, even as gains in the visitor industry continue to moderate.

Last year’s softness in tourism statewide extended into the first quarter of this year, and further gains in visitor arrivals and spending in 2014 are expected to be modest, according to UHERO.

Oahu has benefited the most from a rebound in construction, but the growth in the industry is poised to contribute to economic growth in all counties, UHERO said.

"In the broader economy, job growth will continue to bring down unemployment rates and will set the state for a return to more satisfactory growth in personal income," the report’s authors wrote.

Hawaii’s labor market has experienced gradual improvement during the past three years, with the growth of nonagricultural payroll jobs on the neighbor islands surpassing Oahu in 2013. By the first quarter of this year, the state had regained more than 85 percent of the jobs lost during the 2008-2009 recession, according to UHERO.

The state’s unemployment rate, which peaked at 7.1 percent, is now down to 4.4 percent. From the first quarter of 2013 to the first quarter of 2014, the jobless rate fell by nearly a full percentage point in Hawaii County, by five-tenths of a percentage point in Kauai County and by three-tenths of a percentage point in Oahu and Maui counties.

Increases in inflation-adjusted personal income earned by local residents, a leading indicator of economic activity, are expected to range from 2.1 percent in Hono­lulu County to 3.6 percent in Maui County this year.

"Similar real income growth will continue through 2016 as the jobs base expands and inflation remains moderate," the report’s authors wrote.

The residential construction sector has been mixed across the counties, according to the report. Construction is "poised to shift into high gear on Oahu, but residential building on the neighbor islands has not yet made any substantial recovery."

The outlook hinges on continued improvement on the global economy, according to the report. Any significant departure from that trend would represent a risk to the forecast.

"Although the fiscal drag in the U.S. has diminished and the yen has stabilized, Japan’s consumption tax hike poses a significant risk to its vulnerable economy," according to the report.

Adverse developments in those areas, as well as a potential reversal of the Federal Reserve’s easy monetary policy and an escalation of political instability in Eastern Europe, "could weaken the environment for spending by local residents and visitors alike," the report said.