HAWAII COUNTY'S ECONOMY CONTINUES TO GROW
Island’s Construction, Real Estate Markets Peaked in 2005 and 2006

(Hilo, Hawaii, October 3, 2007) - Although Hawaii County's economy is showing many visible signs of strong economic activity, a slower pace of growth can be expected for the near future, First Hawaiian Bank economics consultant Leroy Laney said today at the bank's 33^rd Annual Economic Outlook Forum held today at two sites -- Naniloa Hotel and Hapuna Beach Prince Hotel.

"Hawaii County is seeing many of the same indications of slowdown - especially in the construction and real estate sectors - as in other areas of the state," said Laney, who is also a professor of economics and finance at Hawaii Pacific University. "Many leaders on the island have suggested that a bit of a slowdown would actually be welcome. Any economic cycle contains periods of cooling down. This is not only inevitable, it's required for infrastructure to catch up and for slowly rising incomes to help bring affordability back."

• Laney noted that:
• Construction activity on the Big Island peaked in early 2006, and the decline has continued into this year.
• Residential real estate prices have been dropping since a high in 2005.
• Hawaii tourism is doing well in 2007.

He made these comments on Hawaii economic sectors:

Construction
"Construction industry leaders expect the year-long slowdown to continue into 2008. Luxury condominium projects on the West side are winding down, and speculative building in areas like Puna on the East side has slowed markedly," Laney said.

He noted that building permit data clearly signal that trend. "After a surge in late 2005 and early 2006, the contraction in private permit growth is clear. Some of that obviously has to do with the turn in the housing market," Laney said.

Real Estate
"One of the biggest economic stories on the Island and throughout the state and the Mainland is real estate," Laney said. "In 2006 and 2007, the long awaited turn in the real estate market began. In 2006, the median island-wide single family home price was $440,000. In the first half of 2007, it fell to $420,000 - a 4.5 percent drop.

Puna (off 5.5 percent) and North Kona (down 7.5 percent) had the biggest price declines in the first half of 2007, Laney noted, adding that the 4.7 percent increase for South Kohala is likely due to transactions in higher-end second homes, a market segment that has remained firm.

"In the first half of 2007, the number of sales was down 19 percent island-wide, with declines of 12 percent in Puna, 28 percent in South Kohala, and 19 percent in< North Kona," Laney said.

"Once such a cooling starts, it usually doesn't reverse in just one year, though there usually aren’t sharp declines, just a plateau. I frankly believe there are more contractions to come, as the market returns to equilibrium," Laney said.

"But we wouldn't want price accelerations like those earlier this decade to continue, because soon no one who just works for a living in Hawaii County could afford to live there. Also, if you are buying to use housing rather than speculate on short-term gains, real estate is still one of the better and more assured investments there is over the long haul. In the local market, booms of about 10 years tend to be interrupted by plateaus lasting about half that long."

Tourism
"In the first half of 2007, major visitor industry indicators show that the Big Island is doing quite well. The state as a whole is having another flat year with respect to total arrivals, but the Big Isle had the second highest growth rate in the state, trailing only Kauai," Laney said. For the first half of 2007, Big Island arrivals were up 4.1 percent and visitor spending rose more than 6 percent, more than any other county in the state.

"Hawaii County's hotel occupancy rate usually runs below the state average, and that continues to be the case in 2007. Of course, the industry will get a boost sometime in 2008 when the Mauna Kea Beach Hotel reopens after repairs from the earthquake," Laney said.

The Job Picture
The Hawaii County unemployment rate (an estimated 3.1 percent for the full year of 2007) is slightly higher than the state," Laney noted. "West Hawaii, as usual, is much tighter than the East side, and probably lower than the state as a whole."

Laney said Big Isle job growth has been running quite strong in recent years, although the growth rate has decelerated some this year. "But Hawaii County jobs are still growing at a relatively healthy rate of 2.8 percent, compared to statewide job growth of only 2.2 percent," he said.

University of Hawaii at Hilo
"The growing role of the University of Hawaii at Hilo is important for the Big Isle economy, especially the East side," Laney said. "A recent study by UH-Hilo economist David Hammes measures the direct contribution at $136 million annually, up from $103 million in 2003. UH-Hilo is the second largest employer in East Hawaii, not counting the aggregate of public sector jobs."

He said student housing remains a critical expansion constraint for the campus, with the town a bit too far away and public transportation inadequate.

"A new $14 million Student Life and Events Center, slated for early 2008 opening, should help with student attrition. The first College of Pharmacy class enters in 2007, about 80 students. The building to house the college is planned for a 2008 start," Laney said.

• Agriculture
• "As a share of the economy, agriculture remains more important for Hawaii County than for any other part of the state," Laney said, noting that "in 2007, the agriculture picture is a mixed bag:"
• "Macadamia nuts are experiencing a glut in the market, due to a bumper crop in Australia, and a good crop locally as well. Ironically, Kona has been getting good rain while the rest of the state has seen drought"
• "Coffee, which also benefits from good rainfall, is anticipating a 2007 crop that is slightly better than 2006."
• "Dry conditions elsewhere on the island have reduced feed for cattle, which encourages early shipment to the Mainland. Ranchers are being squeezed by higher feed prices, due partly to corn demand for ethanol production. But cattle prices are holding up due to strong demand."
• "The three larger Big Island dairies are struggling. Higher milk prices can't offset rising operating costs. State subsidies may help, but are not a long-term solution."

Astronomy
"Astronomy in Hawaii County has always been an exotic and clean industry, providing higher-income jobs in an economy where they are scarce. The Mauna Kea summit is also perhaps the best site in the entire world for astronomy," Laney said.

"Now under discussion are the Pan-STARRS project, an observatory that will search for dangerous asteroids, and the new generation Thirty Meter Telescope, which dwarfs its predecessors in lens size.

"But the future of the industry here is not about astronomy so much as it is about process. Cultural and environmental objections have spelled doom for earlier projects like the Outrigger telescope. Where the industry goes in the future depends greatly on community support and acceptance."

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