Hawaii’s resilient tourism sector will be the catalyst for solid growth in 2016 while the slowly improving construction sector is expected to gain momentum next year, a local economist told several hundred business and community leaders Tuesday at the 46th annual First Hawaiian Bank Business Outlook Forum.
Jack Suyderhoud said the outlook for the remainder of 2015 and 2016 is a familiar story as the state concludes its sixth year of economic expansion following the 2008-2009 recession.
“Growth will continue, led by tourism and construction,” he said in an invitation-only event at the Neal Blaisdell Concert Hall.
Suyderhoud is forecasting visitor arrivals by air to finish this year up 4 percent and slow to 2 percent growth next year with airlines — benefiting from lower fuel prices — bringing more seats into the Hawaii market. He sees visitor spending rising 3 percent each year. If arrivals and spending increase this year and in 2016, it would give Hawaii five consecutive years of records in both those categories.
“The reduction in (visitor arrival) growth next year is a reflection of capacity constraints,” said Suyderhoud, an economic adviser to First Hawaiian Bank and professor of business economics at the University of Hawaii Shidler College of Business. “The growth of visitor counts has been so good that now the conversation is shifting to the issue of capacity. Future growth rates are expected to be modest because additions to lodging capacity are limited, mostly to some neighbor island areas.”
Suyderhoud said the rebound in the construction sector has been slow to take hold, but he sees a silver lining. He estimated the gross income of construction companies will end this year up 10 percent and rise an additional 12 percent next year.
“Construction has been accelerating in 2015,” he said.
That should help bring back some of the 6,000 construction jobs that the state has yet to recover since the recession, he said.
Suyderhoud said his optimism stems from studies by the state Department of Business, Economic Development and Tourism that show there is a demand for 65,000 housing units statewide from 2015 to 2025. In addition, he said a healthier fiscal position for state and county governments means that deferred maintenance and infrastructure renewal spending will continue to contribute to construction’s growth.
He said the return of more construction jobs will contribute to improvements in the overall labor market, with total jobs to rise 1.4 percent this year and 1.6 percent in 2016. That will help lower the state’s not-seasonally-adjusted unemployment rate to an average 3.8 percent this year and 3.2 percent next year, Suyderhoud said.
Hawaii’s gross domestic product — the broadest measure of economic output — is now more than $80 billion. Suyderhoud said the state’s economic growth has translated into higher income levels and that inflation-adjusted, or real, personal income is now 8 percent above the low point in 2009.
He is forecasting that inflation-adjusted personal income will rise 2.3 percent this year and 2.5 percent in 2016.
Inflation, which has been benign, is expected to be 1 percent this year and 2 percent next year as consumers benefit from significantly declining energy prices as well as lower costs for clothing, according to Suyderhoud.
“Normally at this stage of the economic recovery, we expect inflation to be picking up steam,” Suyderhoud said. “However, both nationally and in Hawaii, inflation as measured by the Consumer Price Index has been both low and in fact trending downward.”
Suyderhoud said, though, that he doesn’t expect inflation to remain at ultralow levels and that higher housing costs, both for homeownership and rentals, eventually will affect the state’s inflation rate.
In addition to Suyderhoud’s presentation that focused on the outlook for Hawaii, the First Hawaiian Bank forum included a presentation on the global and U.S. economic outlook by Canadian-based Martin Barnes, chief economist of BCA Research.
“The global economy is stuck in mediocre growth, implying that inflation will remain tame and monetary policy will” continue to foster low interest rates, Barnes said. “The Federal Reserve is desperate to raise interest rates and remains intent on moving before the end of 2015. Nonetheless, future hikes will proceed at a very gradual pace, and it will be quite some time before the Fed’s policy stance is even back to a neutral level. Meanwhile it could be several years before the European Central Bank and the Bank of Japan are able to raise interest rates.”
Suyderhoud said his optimism stems from studies by the state Department of Business, Economic Development and Tourism that show there is a demand for 65,000 housing units statewide from 2015 to 2025. In addition, he said a healthier fiscal position for state and county governments means that deferred maintenance and infrastructure renewal spending will continue to contribute to construction’s growth.