October 7, 2008

LAGGING BIG ISLAND TOURISM, CONSTRUCTION
MARK SLOWDOWN AFTER 11-YEAR EXPANSION

(Hilo, Hawaii, October 7, 2008) - Like the state as a whole, the Hawaii County economy has recently weakened after an 11-year expansion in several major sectors. Slower tourism, construction, retailing, and other sectors have led to a flat job count and rising unemployment in Hawaii County, economist Dr. Leroy Laney said today at First Hawaiian Bank's Hawaii County Economic Outlook Forums held at the Hilo Hawaiian Hotel and the Waikoloa Beach Marriott.

  • Laney, First Hawaiian Bank economic advisor and a professor of economics and finance at Hawaii Pacific University, told the audiences at the 34th annual forums that factors in the slowdown on the Big Island include:
  • Unexpected blows to tourism - loss of both air carriers and cruise ships.
  • The impact of the Wall Street financial crisis, the weak national economy and higher airfares.
  • An accelerating downturn in construction.
  • Slumping real estate sales and single-family housing prices.
  • Vog's impact on diversified agriculture.
  • On the positive side for the island, Laney cited:
  • Upcoming reopening of the Mauna Kea Beach hotel after repairs for earthquake damages. Other hotels are using the slowdown to do renovations, he noted.
  • A major infusion of County construction projects could help counteract the slowdown in that sector.

“Even if the Hawaii County economy avoids an overall shrinkage, it may feel like one after the recent boom years,” Laney said. “At junctures such as this, it is important to remember that the business cycle cannot be repealed. It will always have ups and downs, even though we tend to forget the downs when we are in the up cycles.”

Big Island job growth slows, while the jobless rate climbs
The Big Island economy has decelerated along with the state, thanks to slower tourism, construction, retailing, and other sectors, Laney said. Job growth slowed some in 2007, and the overall job count in 2008 is flat.

“The labor shortage is history. Employers no longer report that their No. 1 problem is an inability to find qualified workers. The county unemployment rate, which has been above the state average for a few years, has started to rise,” he said.

Island tourism hit by U.S. economy plus loss of air seats, cruises
In 2007, Hawaii County visitor arrivals were about flat, but visitor spending grew nearly 4 percent, trailing only Kauai, Laney said. “But 2008 hasn't been as kind,” he noted, with both arrivals and spending dropping significantly. “The weak national economy and higher airfares have taken their toll.”

Hotel activity naturally has been slower, Laney added. “On the West side, the Mauna Kea Beach Hotel will reopen after repairing damages from the 2006 earthquake. Other hotels are using the slower economy to close wings for renovations.

“Little will help the visitor industry in Hilo until its hotel situation improves. Recent new ownership at the Naniloa raised hopes, but progress has been disappointing. New owners need longer state leases to encourage investment.”

Tourist activities and retail that depend on cruise passenger spending have felt the loss of two Norwegian Cruise Line ships, Laney said. “Never has an industry come upon the scene so fast, then exited so quickly.”

Big Island construction peaked during 2006, still heading down
“The Hawaii County construction industry reached a peak in mid-2006. It started winding down through 2007 and at an accelerated pace in 2008,” Laney said. “In a couple of years, industry officials project even lower activity when projects underway will have been completed. A reasonable projection is that the residential construction market will bottom out in 2009, with more activity coming on about 2010 driven by local demand.”

During the lull, Laney said, help will come from several sources. The County approved a $114 million bond issue for public sector activity including County building repairs and the $51 million West Hawaii Civic Center. “This construction serves as a countercyclical stabilizer when private activity is down, and better bids on projects can be expected,” he said.

“In commercial construction, work is under way on the Kona Commons retail complex, which will be the island's biggest such retail center. Confirmed occupants include Sports Authority, Office Max, and Petco; Phase Two will include Target.”

Residential sales drop sharply, but condo prices holding up
“The real estate sector, a good economic barometer, corroborates the slower economy,” Laney said. “In the first half of 2008, the number of sales was down 31 percent for single- family homes and 24 percent for condos. Single-family median prices were off 10 percent, but there was a similar increase in condo median prices, likely because of product geared to the offshore buyer.”

Higher education is playing a growing island economic role
The University of Hawaii at Hilo plays an increasing role in the Big Island economy, Laney said. “With 600 employees, UH-Hilo is the second largest employer in East Hawaii.”

Laney cited a study by economist David Hammes showing that direct campus expenditures pump an estimated $135 million annually into the local economy.

  • Of roughly 700 acres on campus, about 300 acres are now occupied, he said, so there is much room for expansion. Current activity:
  • The $14 million Student Life Center has been completed.
  • The $25 million Science and Technology Building is just beginning.
  • A $14 million Student Services Building should be underway shortly.
  • The $5.5 College of Pharmacy is ramping up.

On the West side, by next year there will be a 20,000-square-foot classroom and office complex for a UH West Hawaii campus within Palamanui, a residential and commercial center underway north of Kailua-Kona, he said, replacing rented facilities in Kealakekua.

  • Both good and bad news for diversified Big Island agriculture
  • Isle agriculture in 2008 has had some bad news and some good news, Laney said:
  • The 2007-2008 crop of macadamia nuts is estimated to be down almost 40 percent, but prices have been down because of oversupply in the world market. “As a result, many independent farmers elected not to harvest at all,” he said.
  • “Coffee continues to be a bright spot. The demand for Kona coffee remains good, though there has been a concern that a slower national economy could lead to lower sales and prices.”
  • “The state's two remaining dairies, both on the Big Island, continue to struggle with rising feed and transportation costs plus competition with Mainland milk.”
  • “Aquaculture products produced for local consumption have been feeling the effect of the slowing Hawaii economy and higher energy costs; without price increases, profit margins have suffered.”

Astronomy growth depends on local cooperation for projects
“The site for the Thirty Meter Telescope (or TMT) has been narrowed down to two locations: Mauna Kea and Chile,” Laney said. “A May 2009 decision is expected on this first of a new generation of much larger telescopes, and it would mean a great deal for the future of astronomy in Hawaii if Mauna Kea is chosen.

“Mauna Kea is said to be the first choice for this privately funded scope, but the fate of earlier projects such as the Outrigger - which NASA eventually abandoned - is still fresh in many minds. Cooperation among all stakeholders, including environmental and cultural interests, will be necessary if the project is to succeed here.

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