October 1, 2008

KAUAI COUNTY JOINS REST OF STATE
IN SLOWDOWN AFTER 11-YEAR EXPANSION

(Poipu, Kauai, Hawaii, October 1, 2008) - Kauai's economy has decelerated along with the rest of the state of Hawaii and may see little or no growth during 2008 after an 11-year expansion. First Hawaiian Bank economics advisor Leroy Laney said today at the 34th Annual First Hawaiian Bank Economic Outlook Forum at the Grand Hyatt Kauai Resort.

  • Laney, who is also a professor of economics and finance at Hawaii Pacific University, said factors in the slowdown on the Garden Island include:
  • A weaker tourism industry, thanks in part to airline and cruise cutbacks and the nation's economic woes.
  • Last month's announcement that Gay & Robinson would harvest its last crop of commodity sugar in 2010, meaning Kauai will no longer grow cane for traditional uses.
  • A slump in retailing.
  • Slower job growth and higher unemployment.
  • A severe drop in housing sales, although prices are holding up well.

“Remember that we're talking about real (inflation-adjusted) growth when we refer to economic expansion or contraction. Current-dollar growth may continue to be positive; it's just that the number becomes negative when we subtract inflation,” Laney said. “And in times of higher inflation such as this, it takes a bigger current-dollar growth number to remain positive after subtracting that inflation.”

“There seems to be greater acceptance of the downturn this time than in the 1990s when there was greater denial of the downturn's existence or its length. And that alone is comforting because it will foster more realistic decisions.”

Laney's analysis of the Kauai economy, sector by sector:

Kauai's job growth slowing, while jobless rate climbs
Lower job growth (estimated at 1 percent for 2008) shows how Kauai's economy has been decelerating along with the state during 2008. The main causes are slower tourism, construction, retailing, and other sectors.

The labor shortage is history. Employers no longer are unable to find qualified workers. One indication is that the island unemployment rate has started to rise.

Island's high-flying visitor industry came back to earth in 2008

“Tourism, of course, is still Kauai's big economic engine,” Laney said. “In 2007, the island's visitor industry had a very good year, leading the state in total arrivals and total spending. However, 2008 hasn't been so kind; Kauai lags other islands in both arrivals and spending.”

By market area in 2008, he noted, U.S. West, U.S. East, and Japan have all been weak. Even Canada, which has shown strength statewide partly due to the strong Canadian dollar, has shown weakness in arrivals for Kauai.

“Hotel activity has been noticeably slow this year. Kauai can thank its concentration of time-shares for some support, because those visitors - having already paid for their accommodations -- are more likely to come in more uncertain times,” he said.

“And of course, those parts of the economy that rely on cruise passenger spending have felt the exit of two Norwegian Cruise Line ships. This is especially hard because the cruise segment ramped up so fast, causing new investment in land activities and retail establishments that cater to passengers.”

  • Tourism sector is key to Kauai construction picture
  • A good deal of Kauai's construction is related to the tourism sector, Laney said, citing these projects:
  • Princeville: Princeville is renovating its North Shore hotel, forecast to come back in 2009 as Hawaii's first upscale St. Regis hotel. Also of note are renovation and expansion of the Princeville shopping center, opening of the 179-unit Westin Princeville Vacation Villas time-share development, planned renovation of the makai golf course and sale of units in the 77-unit Kaiulani of Princeville duplex development.
  • Kauai Lagoons: Activity here includes new Marriott time-share as well as the Ritz Carlton Residences, which broke ground in June 2008.
  • Poipu: Construction activity continues at several sites in Poipu, with trends toward time-share evident. However, several projects have been pushed back as developers observe market trends and adopt a “wait-and-see” attitude. Other sources of delay come from the permit process and financing. In some cases site work permits have been granted, but actual building permits have not.
  • Kukui'ula: The shopping center now going up at this South Shore site was 60% leased as of mid-2008.

Kauai housing sales plummet, although prices are holding up
“Sales of both single-family homes and condos have been off significantly during 2008,” Laney said. “It is greater comfort that single-family home prices have held steady and condo prices have actually increased.”

However, he noted that in a small market such as Kauai such numbers can be distorted by the mix of product sold in any given time period.

Role of Missile Range grows in a tough economy
“In leaner economic times, we always appreciate sectors of the economy that aren't so cyclical, such as the Missile Range at Barking Sands,” Laney said.

There are more than 800 jobs at the range, he said, counting contractors as well as uniformed military and government civilians. “Most of these jobs are much higher paying than elsewhere on Kauai. Payroll is about $135 million annually, but counting additional people related to tests, the range estimates that the contribution is closer to $160 million. And the range also generates high-tech spin-offs that create better jobs in Hawaii's economy,” he said.

Tests on both ship- and land-based anti-ballistic missiles have been ramping up. There were 320 days of testing and training in 2007, up from 307 in 2005.

Gay & Robinson announces end to sugar growing in 2010
Gay & Robinson announced in September that it would harvest its last crop of commodity sugar in 2010, Laney noted.

“The sugar planter had previously planned to partner with Pacific West Energy LLC to pursue an ethanol refinery. This would be the first U.S. refinery to use sugarcane -- which is more efficient than corn -- as the feedstock,” Laney said.

He said the firm's announcement about the future of sugar production leaves it to Pacific West Energy to concentrate on ethanol production. “If Pacific West Energy picks up the bulk of the Gay & Robinson workforce, job losses will not be major,” he said.

Kauai's seed corn research: a $100 million industry
Laney said the seed corn research industry on Kauai has been present for over 30 years and these growers rank only behind the Missile Range as an employer on the West side. “Industry sources estimate that payrolls as well as local purchases are tallied pump over $100 million into the economy statewide, about $30-40 million on Kauai,” he said.

All four major seed corn research firms are on Kauai: Pioneer Hybrid (a DuPont subsidiary), Syngenta Seeds, BASF Plant Science and Monsanto.

“Because of Kauai's climate, three or four crops of corn per year can be grown, compared to one in temperate locations. The seed is grown strictly for development of new varieties that can be grown in larger quantities elsewhere. The focus might be on nutrition, oils, disease or drought resistance, more efficient use of fertilizer - or, increasingly nowadays, a better feedstock for ethanol production;” he said.

Kauai County benefits from 'Thundering' year for film
Thanks partly to the 20% Neighbor Island tax credit for productions with budgets of $200,000 or more, 2007 was a record year for filming statewide, Laney said, adding that the industry can serve as an important stabilizer in a down economy, because producers know they can get better deals.

Kauai led the way with the biggest production -- Tropic Thunder, starring and produced by island resident Ben Stiller. The total budget for the movie was over $100 million, and Kauai's share of that has been estimated to be about $60 million, including local hires, hotel accommodations, rental cars, and the like. That movie also spent a record time filming on Kauai - 10 months, perhaps due partly to the fact that Stiller lives on the island. In addition, there were other smaller productions.

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