October 13, 2004

FIRST HAWAIIAN BANK ECONOMIC FORECAST:

HAWAII’S ECONOMY STILL LOOKING SPECTACULAR,
AND THE OUTLOOK FOR 2005 LOOKS GOOD, TOO

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  HAWAII ECONOMIC FORECAST FOR 2005

  2004 Estimate 2005 Estimate
Job Growth +2.0% +2.2%
Inflation (CPI) +3.4% +3.7%
Visitor arrivals +7.0% +3.0%
Real personal income +2.8% +3.1%
Real Gross State Product +2.6% +2.9%<

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(Honolulu, Hawaii, October 13, 2004) – Hawaii's economy has continued its spectacular performance in 2004, thanks to a hot housing market, a continued strong construction industry, healthy Mainland tourism and a welcome return of Japanese visitors, economist Dr. Leroy Laney said today.

Laney, economics consultant to First Hawaiian Bank, said “the Hawaii economy is outperforming the nation as a whole and the 2005 outlook for Hawaii continues to be quite favorable as well. Job growth shows broad strength across most of the state economy, both in sectors driven directly by external factors and those more locally based.”

Laney, who is also a professor of economics and finance at Hawaii Pacific University, made his remarks at the bank’s 35th annual Business Outlook Forum at Dole Cannery.  His forecast for 2005:

  • Job growth: 2.2%. “Job growth has been running just under 2.0 percent so far in 2004, and I’m inclined to forecast a slight acceleration for 2005.   One of the biggest constraints might be the availability of qualified workers, especially as the unemployment rate falls and the labor market gets tighter and tighter.”
  • Inflation: +3.7%. “Because of rising costs for shelter and energy, Hawaii’s inflation rate has climbed in 2004, after a prolonged period of being very low -- and below the national rate.   Even if energy prices do stabilize, they may not decline dramatically.”
  • Visitor arrivals: +3.0%.   “Arrival growth will be about 7 percent in 2004, especially because of the reversal of the trend in Japanese visitors following a weak 2003.   Next year’s 3.0 percent forecast projects a continued healthy visitor industry, not subject to the swing effects that we saw in 2004 on the international side.”
  • Real personal income: +3.1%.  “Hawaii’s healthy growth in real personal income should continue and even rise some, with everything that’s now in the pipeline.  Next year’s forecast of 3.1 percent means that current-dollar personal income growth -- when you add inflation of 3.7% -- will be nearly 7 percent, which is quite plausible in good economic times here.”
  • Real Gross State Product: +2.9%.  “This figure always closely follows real personal income growth.”

  Laney said these factors contributed to his forecast:

Job creation, low unemployment:   “Hawaii lost jobs during the mid-1990s, but has returned to healthy job creation in recent years,” Laney said.   “It now appears that job growth is converging to a steady pace of about 2 percent a year, broadly based across the economy.”  He noted that the state’s unemployment rate has been the lowest in the nation for several months and dipped to 2.9 percent in August.

Declining bankruptcy filings.   “Bankruptcy filings are often a lagging indicator of economic conditions.   From a peak of almost 6,000 in 1998, that number fell to about 3,800 in 2003.   And if the trend continues it may end 2004 at just over 3,000.”

Growing credit card use.   “One excellent gauge of consumer spending, for locals and tourists alike, comes from First Hawaiian Bank’s own numbers on credit card spending.   A same-store comparison for credit card dollar volume among 300 of the bank’s major merchant customers shows double-digit growth this year on top of double-digit growth in 2003.”

U.S., Japan visitor markets humming.   “Domestic visitor growth was 6.6 percent through August 2004.   But the big news in tourism is the return of the Japanese market.  The 17.2 percent increase in Japanese visitors through August 2004 has been dramatic.   Some of the surge has been due to low numbers early in 2003, with SARS and the Iraq War.   But more than that, a long-waited revival in the Japan economy undoubtedly had something to do with it.   So with strength on both sides of the Pacific, total arrivals are up an unexpectedly high 8.5 percent through August 2004,” Laney said.

Construction continues strong.   “Construction completed – as measured in the tax base – continues its upward climb.   The 2003 total exceeded levels of the early 1990s; in 2004 we will easily top that.   And judging from private building permit growth – including both residential and commercial permits – the pipeline is going to be full for some time,” he said.  

“The legacy of low borrowing rates and pent-up demand is still being felt.  Also, the huge impact of military housing construction and renovation will underpin the Hawaii construction industry for some time to come – so much so that finding workers in the building trades may continue to be a problem.   The military projects aren’t subject to many of the things that often derail construction here -- such as entitlements, zoning, or even interest rates.”  

Real estate is economic driver.  “One of the most important drivers of the Hawaii economy nowadays continues to be real estate. On Oahu, both the number of sales and home prices have been skyrocketing.  As that happens, existing homeowners feel wealthier and spend more,” Laney said.

“As long as Hawaii home prices are viewed as a bargain relative to prices for comparable properties elsewhere, offshore demand will continue to be strong, and that in turn affects the local market,” he said. “Recent home price gains have been staggering for buyers just trying to get into the market – so much so that home affordability is again becoming a challenge.   This is especially true on the Neighbor Islands, where higher paying jobs are scarcer.”