Economists' Presentation at Legislative Briefing

  • 841 views
Uploaded on

Economists Eugene Tian, Paul Brewbaker and Byron Gangnes discussed these presentations before state lawmakers, Dec. 18, 2013, at the Capitol Auditorium.

Economists Eugene Tian, Paul Brewbaker and Byron Gangnes discussed these presentations before state lawmakers, Dec. 18, 2013, at the Capitol Auditorium.

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
841
On Slideshare
0
From Embeds
0
Number of Embeds
3

Actions

Shares
Downloads
3
Comments
0
Likes
0

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. Current Hawaii Economic Conditions Eugene Tian Department of Business, Economic Development & Tourism to the Committee on Ways and Means and Committee on Finance December 18, 2013
  • 2. Historical Economic Growth and Projections
  • 3. A historical review of Hawaii’s Economic Growth Annual average growth, % Indicator 30 years, 1982 - 2012 20 years, 1992 -2012 Real GDP 2.1 1.0 Real personal income 2.2 1.7 Honolulu inflation rate 3.2 2.4 Wage and salary jobs 1.3 0.5 Unemployment rate 1/ 4.5 4.7 Visitor arrivals 2.1 1.0 Real visitor expenditures 2/ 1.4 0.1 1/ Average of 30 years, 1982 – 2012. 2/ Deflated by Honolulu CPI.
  • 4. Key Economic Indicators CY 2012 to 2014 (Annual % Change) Actual CY 2012 Forecast CY 2013 Forecast CY 2014 Total Population 1.0% 1.0% 1.0% Visitor Arrivals 10.0% 2.9% 2.7% Visitor Expenditures 18.1% 3.0% 4.2% Honolulu CPI-U 2.4% 1.7% 2.1% Personal Income 3.7% 4.0% 5.5% Real Personal Income 1.9% 2.3% 3.3% Total Non-Ag Wage and Salary Jobs 1.9% 1.3% 1.8% Unemployment Rate (actual rate) 5.8% 4.6% 4.2% Construction Completed 20.0% 15.8% 15.0% Real GDP 1.6% 2.4% 2.8% Source: Department of Business, Economic Development & Tourism.
  • 5. Hawaii Business Cycles
  • 6. Hawaii’s economy is influenced by the US and Japan, Hawaii’s economic growth is expected to be higher than those of U.S. and Japan in 2014 10.0% Real GDP growth, 1980 to 2012 (% change from previous year) 8.0% 6.0% United States Hawaii 4.0% 2.0% 0.0% -2.0% -4.0% Japan -6.0% -8.0% 1980 1984 1988 1992 1996 2000 2004 2008 2012 Source: US Bureau of Economic Analysis, Japan Ministry of Internal Affairs and Communications
  • 7. Hawaii Real GDP Growth 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% 11 years, avg=3.8% 10 years avg=2.3% 4 years Avg = 1.9%
  • 8. Construction activity was the cause for 1993-1999 economic downturn $B 30 Real retailing tax base $B Real services tax base 12 25 10 20 8 15 6 10 4 5 2 0 0 $B 8 $B 3.5 7 6 5 Real contracting tax base 3 2.5 2 4 3 2 1.5 1 1 0.5 0 0 Real hotel tax base
  • 9. Residential construction leads the way in business cycle and the last 2 expansion periods were about 8 years 2,500.0 Residential Commercial & Industrial Additionas & Alterations 2,000.0 1,500.0 1,000.0 500.0 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 0.0
  • 10. Planned housing units now is only 41% of what they were during 2000s (average annual planned units, building permits approved) 12,000 10,983 10,000 8,404 8,000 6,464 6,000 5,406 5,818 4,000 2,380 2,000 0 1960-1970 Source: State of Hawaii Data Book 1970-1980 1980-1990 1990-2000 2000-2010 2011-2012
  • 11. There is currently a short supply in residential housing units Year Increase in residential housing units # of persons per unit 2001 4,529 2.63 2002 4,426 2.63 2003 5,503 2.63 2004 6,867 2.64 2005 8,588 2.63 2006 9,278 2.62 2007 6,906 2.59 2008 6,389 2.59 2009 3,697 2.60 2010 2,107 2.62 2011 2,546 2.64 2012 1,861 2.66 Short supply = Source: DBEDT populaton/2.62 - existing housing units = 1,392,313/2.62 – 524,343 = 7,000 units Avg. = 2.62
  • 12. Annual demand for residential housing units is abut 5,700 Annual residential housing units needed = population change/2.62 = 15,000/2.62 = 5,700
  • 13. More housing units are converted into visitor use in recent years 12,000 Individual vacation units for visitor use 10620 10,000 8,000 7567 6440 5786 6,000 6719 5492 4,000 2,000 1230 1132 1355 1460 1704 1967 1867 2438 2347 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
  • 14. Personal Income And Labor Market Conditions
  • 15. Stable and Diversified Economy Wage and Employment Metrics The employment sector in Hawai’i continues to improve Per Capita Income ($000) Non-Ag Wage and Salary Jobs $50.0 640,000 620,000 Hawai‘i United States $45.0 600,000 $40.0 580,000 $35.0 560,000 540,000 $30.0 520,000 $25.0 500,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2013 Quarterly Personal Income Growth(1) (Compared to Same Period in Previous Year) Unemployment Rate, Not Seas. Adj. 12.0% 10.0% Hawai‘i 10.0% United States Oct. 2013 = 7.0% Hawai‘i United States 8.0% 6.0% 8.0% 4.0% 6.0% 4.0% 2.0% Oct. 2013 = 4.7% 0.0% (2.0)% 2.0% (4.0)% 0.0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (6.0)% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (1) As of 2Q 2013. Source: Hawai’i Dept. of Labor & Industrial Relations; U.S. Dept. of Commerce, Bureau of Economic Analysis; U.S. Dept. of Labor , Bureau of Labor Statistics. 15
  • 16. In the United States, other than Federal and State governments, all industries gained jobs during the 1st 11 months of 2013 (change in jobs from same period in prior year, in 1,000 jobs) Prof. services Health care Food services Retail trade Construction Financial activities Wholesale trade Transp. Warehouse & Util. Manufacturing Entertainment Other services Mining and logging Educational services Local gov't Accommodation Information State gov't Federal gov't -200 -100 0 100 200 300 400 500 Source: BLS, Employment, Hours, and Earnings – National(Current Employment Statistics - CES) <http://www.bls.gov/data/> 600 700
  • 17. During the 1st 10 months of 2013, Hawaii gained 8,000 jobs Nat. Resources, Mining, Constr. 2,740 Other Services 1,540 Food Services & Drinking Places 1,460 Health Care & Social Assistance 1,050 Professional & Business Services 890 Transp., Warehousing, Util. 880 Accommodation 620 Arts, Entertainment & Recreation 470 Wholesale Trade 370 Financial Activities 200 Information 20 Manufacturing -90 Educational Services -320 Retail Trade -350 State and Local Government Federal Government -400 -1,040 (1,500) (1,000) (500) - 500 1,000 1,500 2,000 2,500 3,000
  • 18. Real Estate Market
  • 19. Honolulu Home Prices Have Been Higher & More Stable Than Other Major Vacation Destinations Median Single Family Home Prices: FY 2006 – 2013 Q3 $700 638 626 615 620 627 630 580 570 583 565 $600 660 663 602 469 379 370 372 358 360 371 323 317 $300 251 252 206 $200 186 187 185 182 223 207 208 213 155 155 172 182 161 168 Q1 2013 Q4 2012 Q3 2012 Q2 2012 Q1 2012 Q4 2011 Q3 2011 Q2 2011 San Diego Q1 2011 Q4 2010 Q3 2010 Q2 2010 Orlando Q1 2010 Q3 2009 Miami Q2 2009 Q1 2009 Q4 2008 Las Vegas Q3 2008 Q2 2008 Q1 2008 2007 Honolulu 147 126 128 128 125 136 135 138 Q4 2009 $100 146 155 126 123 122 122 131 138 Q3 2013 270 $0 485 412 394 405 Q2 2013 $400 2006 ($ Thousands) $500 Source: www.realtor.org, National Association of Realtors [for Honolulu from 2012Q3] and Honolulu Board of Realtors 19
  • 20. Real estate markets are booming on all the islands (% change during 11 months of 2013) Single Family Homes Island Closed sales Median price Condo Homes Closed sales Median price Honolulu 5.7% 3.2% 13.9% 4.8% Maui 6.0% 14.0% 10.0% 6.0% Hawaii 19.5% 17.1% 11.4% 4.1% Kauai 7.7% 16.9% 12.0% 2.4% Source: Property Profiles Incorporated, and Honolulu Board of Realtors
  • 21. Tourism
  • 22. Visitor Accommodation Statistics Occupancy Rates Average Room Rates 80% 75% 76.9% 77.6% 75.0% 70.7% 70.5% 73.2% $200 70% $202 $177 $174 $190 $204 $227 $100 $50 60% 55% (1) $0 (1) 2007 2008 2009 2010 2011 2012 2013* 2007 2008 2009 2010 2011 2012 2013* Room Inventory Revenue Per Available Room (thousands) $200 $150 $200 $150 64.8% 65% $250 $150 $157 $142 $115 $123 $176 80.0 $139 77.7 78.0 $100 76.0 $50 74.0 (1) $0 2007 2008 2009 2010 2011 2012 2013* 74.2 75.2 75.0 2008 2009 2010 74.7 73.2 72.0 70.0 2007 2011 2012 Source: Smith Travel Research, Hospitality Advisors LLC and Hawaii Tourism Authority. * First 9 months of 2013 22
  • 23. Diverse and Growing Economy Hawai‘i’s Tourism Industry Continues to Show Remarkable Strength Visitor Arrivals Over the Last 7 Years (000)1 9,000 8,000 8,265 8,486 8,029 7,628 6,823 7,000 Visitor Expenditures Over the Last 7 Years ($mm)1 7,018 $18,000 14,790 $16,000 7,299 $14,000 6,517 6,000 $6,000 2,000 $4,000 1,000 12,158 $8,000 3,000 11,399 $10,000 4,000 12,811 $12,000 5,000 15,405 14,365 $2,000 9,993 11,066 $0 0 2007 2008 2009 2010 2011 2012 Source: DBEDT, Smith Travel Research, Hospitality Advisors LLC 1 2013 & 2014 figures are projections 2013 2014 2007 2008 2009 2010 2011 2012 2013 2014
  • 24. Smaller markets are creating new records while big markets are recovering Region Historical peak level 2008 Arrivals LTM Arrivals1 US Mainland 5,173,264 4,452,343 5,019,119 Japan 2,216,890 1,175,199 1,498,975 477,564 459,580 509,588 China 81,738 54,235 132,579 Korea 122,902 38,110 175,318 Taiwan 88,193 11,482 17,217 Australia 237,808 137,812 290,804 Europe 231,604 115,172 138,780 22,116 18,896 29,546 Canada Latin America Source: Department of Business, Economic Development & Tourism, Hawaii Tourism Authority 1 Last Twelve months from November 2012 to October 2013 % Change 12.7 27.6 10.9 144.5 360.0 49.9 111.0 20.5 56.4
  • 25. Visitor Activity For the First 10 Months of 2013, 62.6% of Hawaii Visitors Were From the U.S. with Japanese Visitors Accounting for 17.8%  Visitors from Canada and other markets are increasing 2003 Canada, 3.2% First 10 Months of 2013 Others, 9.0% Canada 5.9% Others 13.9% US West, 42.4% Japan, 21.0% US West 40.5% Japan 18.7% US East, 25.9% US East 21.5% Source: DBEDT and Hawaii Tourism Authority 25 25
  • 26. The economies of Hawaii visitor origin countries will look better in 2014 2012 2013 2014 USA. 2.2 2.0 2.6 Canada 2.1 1.9 2.5 Japan 1.8 0.7 1.2 S. Korea 2.3 3.1 4.0 Hong Kong 1.7 3.2 4.1 Taiwan 1.3 3.1 4.1 China 7.7 8.0 8.1 United Kingdom -0.1 1.0 1.7 Germany 0.9 0.9 1.4 France 0.1 0.2 1.0 Eurozone -0.4 0.0 0.9 Australia 3.5 2.7 3.1 Brazil 1.5 3.4 4.1 Source: Blue Chip Economic Indicators, December 10, 2013
  • 27. New Airs seats for 2013* New airseats added in 2013 on scheduled flights MMA STATE HONOLULU KAHULUI KONA HILO LIHUE TOTAL 524,939 465,350 62,609 -10,653 -9,306 16,939 US WEST 154,435 89,760 70,941 -13,735 -9,306 16,775 US EAST 66,075 75,698 -9,623 120,415 120,415 159 -4,378 68,239 68,239 115,124 115,124 492 492 JAPAN CANADA OTHER ASIA OCEANIA OTHER *1st 10 months of 2013 Source: HTA and OAG 1,291 3,082 164
  • 28. Air Seats Will Increase by 0.7% in 2014 12,000,000 2013 +0.7% 2014 10,000,000 +1.6% 8,000,000 6,000,000 4,000,000 -4.6% 2,000,000 +4.9% -18.3% +3.5% 0 State Honolulu Kahului Kona Hilo Lihue -2,000,000 28
  • 29. Business Formation
  • 30. LLC and LLP Firms Registered in Hawaii 12,000 Formed Cancelled 10,000 8,000 6,000 4,000 2,000 0 Source: Hawaii State Department of Commerce and Consumer Affairs 30
  • 31. 0 2000:1Q 2000:2Q 2000:3Q 2000:4Q 2001:1Q 2001:2Q 2001:3Q 2001:4Q 2002:1Q 2002:2Q 2002:3Q 2002:4Q 2003:1Q 2003:2Q 2003:3Q 2003:4Q 2004:1Q 2004:2Q 2004:3Q 2004:4Q 2005:1Q 2005:2Q 2005:3Q 2005:4Q 2006:1Q 2006:2Q 2006:3Q 2006:4Q 2007:1Q 2007:2Q 2007:3Q 2007:4Q 2008:1Q 2008:2Q 2008:3Q 2008:4Q 2009:1Q 2009:2Q 2009:3Q 2009:4Q 2010:1Q 2010:2Q 2010:3Q 2010:4Q 2011:1Q 2011:2Q 2011:3Q 2011:4Q 2012:1Q 2012:2Q 2012:3Q 2012:4Q 2013:1Q 2013:2Q 2013:3Q Hawaii bankruptcy filings has been declining since the 3rd quarter of 2010 1,600 1,400 1,200 1,000 800 600 400 200
  • 32. Summary  All the economic indicators show that Hawaii’s economy is on a normal growth path  Visitor industry growth will be slowing down due to capacity limit  Labor market will continue to improve in 2014  Construction industry will be the main driver for economic growth in 2014, probably a new record year  Personal income will continue to grow at a rate similar to the national average  Hawaii’s economy will grow at a higher rate than the nation in 2014  Hawaii’s unemployment rate will still be better than the nation in 2014
  • 33. For ecast Pr oj ect No Shutdown for
 Hawaii Growth Dr. Byron Gangnes
 Chair, UH Department of Economics Senior Research Fellow, UHERO ! S e n a t e C o mmit t e e o n W a y s a n d M e a n s Ho u s e C o mmit t e e o n Fin a n c e Ho n o lu lu , Ha wa ii D ec emb er 1 8 , 2 0 1 3
  • 34. No Shutdown for Hawaii Economy US performance in the face of fiscal austerity ‣ Federal damage significant this year ‣ Areas of private sector strength ! Prospects for the US and the Asia-Pacific region ‣ What’s on tap? ‣ What are the concerns? ! Hawaii conditions and outlook ‣ Is there room for more tourism? ‣ Construction boom developing ! D ec emb er 1 8 , 2 0 1 3 U HE RO. HAW AI I . E D U © 2 0 1 3
  • 35. Excessive austerity, even before shutdown Source: Goldman Sachs via calculatedriskblog.com D ec emb er 1 8 , 2 0 1 3 U HE RO. HAW AI I . E D U © 2 0 1 3
  • 36. Budget turmoil took toll on confidence Gallup Daily: U.S. Economic Confidence Index 0 -7 -14 -21 -29 -36 -43 D ec emb er 1 8 , 2 0 1 3 U HE RO. HAW AI I . E D U © 2 0 1 3 13 /2 4 -2 6/ 20 13 Source: Gallup, http://www.gallup.com/poll/151550/gallup-daily-economic-confidence-index.aspx 11 10 /2 5 -2 7/ 20 13 8/ 20 -2 /2 6 09 08 /2 8 -3 0/ 20 13 13 8/ 1/ 20 -0 13 07 /3 0 7/ 1/ 20 -0 13 /2 9 06 05 /3 1 -0 6/ 2/ 20 3 /2 - 4/ 20 1 3 05 /3 - 5/ 20 1 3 04 03 /4 - 6/ 20 1 3 4/ 20 1 /1 - 02 01 /3 - 5/ 20 1 3 -50
  • 37. No surprise that consumer spending is weak Percent 10 Government Spending 5 0 -­‐5 -­‐10 5 1.4% 3 0 -­‐3 Consumer Spending -­‐5 13% 20 0 -­‐20 Residential Investment -­‐40 01 002 003 004 005 006 007 008 009 010 011 012 013 20 2 2 2 2 2 2 2 2 2 2 2 2 D ec emb er 1 8 , 2 0 1 3 U HE RO. HAW AI I . E D U © 2 0 1 3
  • 38. The US and Asia-Pacific Forecast 2013 has turned out to be another weak year ‣ Slow US and Europe hit exports Japan fiscal contraction in the pipeline ‣ China’s lower growth path D ec emb er 1 8 , 2 0 1 3 4% 2% Ap O r-1 ct 4 -1 5 r-9 0% 7 Consumption Tax Rate Ap Big risks are policy related ‣ Are we out of fiscal woods? ‣ Backend of Abenomics ‣ How will Fed manage tapering? 6% 9 ! 8% r-8 Picture appears to have stabilized ‣ Europe has exited recession ‣ US growth expected to firm 10% Ap ! U HE RO. HAW AI I . E D U © 2 0 1 3
  • 39. Stronger US, but Japan at risk Growth of Real GDP Percent 12 China United States 10 6 Japan 8 4 6 4 2 2 0 0 -2 -4 2010 D ec emb er 1 8 , 2 0 1 3 2011 2012 2013 2014 U HE RO. HAW AI I . E D U © 2 0 1 3 2015 -2
  • 40. Not much headroom for Hawaii tourism Oahu Room Revenue and Occupancy Rates 90% Occupancy Rate 87 $ 250 Room Rate 230 60 50 13 20 12 20 11 20 10 20 09 20 08 20 07 20 06 20 05 20 04 20 03 20 02 20 01 20 00 20 99 19 98 19 * Source: Hospitality Advisors & UHERO D ec emb er 1 8 , 2 0 1 3 q1 70 q1 63 q1 90 q1 66 q1 110 q1 69 q1 130 q1 72 q1 150 q1 75 q1 170 q1 78 q1 190 q1 81 q1 210 q1 84 U HE RO. HAW AI I . E D U © 2 0 1 3
  • 41. This year’s slowing: Lower Japanese spending Year-on-year growth in per-person, per-day spending In Yen D ec emb er 1 8 , 2 0 1 3 7/ 1/ 13 1/ 1/ 13 7/ 1/ 12 1/ 1/ 12 7/ 1/ 11 1/ 1/ 11 In Dollars 7/ 1/ 10 1/ 1/ 10 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% U HE RO. HAW AI I . E D U © 2 0 1 3
  • 42. This year’s slowing: Neighbor Islands faring better Year-on-year growth in US visitor days 20% 15% 10% 5% 0% -5% -10% Oahu NBI -15% D ec emb er 1 8 , 2 0 1 3 U HE RO. HAW AI I . E D U © 2 0 1 3 9/ 1/ 13 7/ 1/ 13 5/ 1/ 13 3/ 1/ 13 1/ 1/ 13 11 /1 /1 2 9/ 1/ 12 7/ 1/ 12 5/ 1/ 12 3/ 1/ 12 1/ 1/ 12 -20%
  • 43. Arrivals growth slowdown Statewide Visitor Arrivals Thou. (SA) 2,200 2,000 1,800 1,600 1,400 * Source: Hawaii Tourism Authority Seasonal Adjusted—UHERO D ec emb er 1 8 , 2 0 1 3 U HE RO. HAW AI I . E D U © 2 0 1 3 15 20 14 20 13 20 12 20 11 20 10 20 09 20 08 Updated Forecast 20 07 20 06 20 05 20 04 20 03 13Q4 Forecast 20 02 20 20 00 20 19 99 1,200 01 History
  • 44. Don’t bet against the cycle Oahu Single Family Sales and Inventory 1,500 2,600 1,250 2,167 1,000 1,733 750 1,300 500 867 250 433 Oahu Sales (left) Oahu Inventory (right) Source: Prudential Locations 0 19 93 Q 19 4 D ec emb er 1 8 , 2 0 1 3 96 Q4 19 99 Q4 20 02 Q4 20 05 Q4 20 08 Q4 20 11 Q4 U HE RO. HAW AI I . E D U © 2 0 1 3 0
  • 45. Don’t bet against the cycle Oahu Home Price Dynamics Thou. $ (SA) 900 788 675 563 450 338 225 Affordable Mortgage SF Resale Price 113 D ec emb er 1 8 , 2 0 1 3 U HE RO. HAW AI I . E D U © 2 0 1 3 4 20 15 Q 4 20 13 Q 4 20 11 Q 4 20 09 Q 4 20 07 Q 4 20 05 Q 4 20 03 Q 4 20 01 Q 4 Q 99 19 19 97 Q 4 0
  • 46. Don’t bet against the cycle 3,000 Real Building Permits—Statewide Mil. 12$ 2,400 1,800 1,200 600 D ec emb er 1 8 , 2 0 1 3 U HE RO. HAW AI I . E D U © 2 0 1 3 16 20 14 20 12 20 10 20 08 20 06 20 04 20 02 20 00 20 98 19 96 19 19 92 19 90 19 88 19 86 19 84 19 19 82 0 94 Private Residential Non-Residential Bldg Permits
  • 47. Growth leaders changing Change in State Job Counts Construction Other Services Food Services Health Care Prof. Services Transportation Accommodation Wholesale Trade Public Education Local Gov. Finance & Ins. Information Manufacturing Retail Trade State Gov. Federal Gov. Source: DLIR -1,200 D ec emb er 1 8 , 2 0 1 3 2012 -600 0 600 1,200 1,800 2013 YTD 2,400 U HE RO. HAW AI I . E D U © 2 0 1 3 3,000
  • 48. Expansion expected to gain speed Hawaii Job and Income Forecasts 4 Percent 2 0 -2 -4 -6 -8 Non-Farm jobs Real Income 2005 2006 D ec emb er 1 8 , 2 0 1 3 2007 2008 2009 2010 2011 2012 2013 U HE RO. HAW AI I . E D U © 2 0 1 3 2014 2015
  • 49. No Shutdown for Hawaii Economy The environment for growth is improving ‣ The worst of the federal drag is behind us ‣ Private sector conditions will strengthen ‣ Improving confidence and labor market gains ‣ Housing and construction ‣ Apart from Japanese worries, Asia-Pacific will strengthen ! Hawaii’s expansion will continue ‣ Tourism upside is limited ‣ But the construction upswing has staying power ‣ Moderate economic gains will continue to spread ! D ec emb er 1 8 , 2 0 1 3 U HE RO. HAW AI I . E D U © 2 0 1 3
  • 50. Mahalo D ec emb er 1 8 , 2 0 1 3 U HE RO. HAW AI I . E D U © 2 0 1 3
  • 51. Mahalo D ec emb er 1 8 , 2 0 1 3 U HE RO. HAW AI I . E D U © 2 0 1 3
  • 52. Mahalo D ec emb er 1 8 , 2 0 1 3 U HE RO. HAW AI I . E D U © 2 0 1 3
  • 53. Mid-cycle hiccups? Hawaii’s economic expansion risks losing momentum slides prepared for a joint informational briefing of the Senate Committee on Ways and Means House Committee on Finance Hawaii State Capitol Auditorium by Paul H. Brewbaker, Ph.D. TZ Economics, Kailua, Hawaii December 18, 2013 Copyright 2013 Paul H. Brewbaker, Ph.D.
  • 54. Outline and preface Preface-three key points: points • Tourism share 15-20% of value-added (GDP)—what happens really matters • Government share 25%: 10% military, 6% civilian, 9% state and local • Average duration of post-1982 U.S. economic expansion is 8 years; this is year 5 Slide copyright 2013 1
  • 55. Hawaii economic value-added (GDP) shares in tourism and military: combined approx. 25% State and local 8.9% Tourism 14.8% Federal military 9.6% Federal civilian 5.8% 2010 Tourism vs. Non-tourism Non-tourism 85.2% 2010 Military vs. Non-military Private industry 75.6% See also: James Mak, 2005. “Tourism demand and output in the U.S. Tourism Satellite Accounts: 1998-2003,” Journal of Travel Research, 44 (1), pp. 4-5 Eugene Tian, James Mak, and PingSun Leung, “The direct and indirect contributions of tourism to regional GDP: Hawaii,“ UHERO Working Paper No. 2011-5 (July 28, 2011) (http://www.uhero.hawaii.edu/assets/WP_2011-5.pdf) DBEDT State of Hawaii Data Book (http://hawaii.gov/dbedt/info/economic/databook/2010-individual/07/073410.xls) James Hosek, Aviva Litovitz, Adam C. Resnick, 2011 “How Much Does Military Spending Add to Hawaii’s Economy?” Rand Corporation Technical Report TR-996 (http://www.rand.org/pubs/technical_reports/TR996.html); note that this report incorrectly doubles the military share of Hawaii GDP to inflate its “association” with other industries using input-output multipliers, which is like doubling everything. Slide copyright 2013 Source for underlying data: Bureau of Economic Analysis, U.S. Department of Commerce, Hawaii DBEDT, Hawaii Tourism Authority; all calculations by TZE 2
  • 56. U.S. economic expansions, contractions: odds are this expansion is half over Duration of economic expansions and contractions from NBER troughs to peaks and back again Expansions in months Mean Contractions Median Max 1857-1928 1929-1982 25.5 46.2 22 39 46 106 1983-2010 95.0 92 120 Mean ** ● Median 20.5 13.8 18 11 11.3 Max 8 65 * † 43 18 ∆ *The Panic (Oct. 1873 - Mar. 1879) The Great Depression (Aug. 1929 - Mar. 1933) **Camelot (Feb. 1961 - Dec. 1969) ● dot.com (Mar. 1991 - Mar. 2001) ∆ The Great Recession (Dec. 2007 - Jun. 2009) † Slide copyright 2013 Source: National Bureau of Economic Research 3
  • 57. Outline 1. Tourism 2. Housing 3. Construction 4. Macroeconomic outlook Slide copyright 2013 4
  • 58. Hawaii tourism was declining during 2013 [This slide intentionally left blank] Slide copyright 2013 5
  • 59. Seasonally-adjusted statewide visitor arrivals declined since late last year: demand or supply? P Monthly in thousands, s.a. (log scale) 750 T U.S. recession shaded 700 Down is the new up (just like after mid-2005) 650 Aloha shutdown 600 Lift Tohoku 550 500 H1N1-A 450 04 05 06 07 08 09 10 11 12 13 14 Slide copyright 2013 Source: Raw monthly data through October 2013 from HTA, Hawaii DBEDT; seasonal adjustment using Census X-12 ARIMA filter by TZE 6
  • 60. Statewide total visitor days (s.a.): growth stalled P Monthly in millions, .s.a. (log scale) 6.5 T U.S. recession shaded 6.0 Aloha shutdown 5.5 Lift Tohoku 5.0 H1N1-A 4.5 04 05 06 07 08 09 10 11 12 13 14 Slide copyright 2013 Source: Raw monthly data through October 2013 from HTA, Hawaii DBEDT; seasonal adjustment using Census X-12 ARIMA filter by TZE 7
  • 61. Total seats to Hawaii through October 2013 (s.a.): after two pushes (2010, 2012) capacity flattened P Monthly in thousands, s.a. (log scale) 950 T U.S. recession shaded 900 850 800 No Aloha Tohoku 750 700 650 04 05 06 07 08 09 10 11 12 13 14 Slide copyright 2013 Source: Data through October 2013 from HTA, Hawaii DBEDT; seasonal adjustment by TZE 8
  • 62. Monthly in billion 2012$, s.a. (log scale) Real Hawaii visitor expenditure (s.a.) through 2013Q3 4.5 U.S. recessions shaded 4.0 Aloha shutdown 3.5 SARS 3.0 Tohoku 2.5 9/11 H1N1-A 2.0 2002 2004 2006 2008 2010 2012 Slide copyright 2013 Sources: Hawaii Tourism Authority, Hawaii DBEDT, Bureau of Labor Statistics; deflation calculations by TZE 9
  • 63. Relationship between hotel occupancy rate and real hotel room rate appreciation getting “steeper” Real room rate appreciaiton (%) 15 2009-2013 10 2000-2008 5 1978-1999 0 *Each tourism cycle, for a given rise in hotel occupancy, real room rates appreciate faster than before because new accommodation supply is constrained by regulatory barriers -5 -10 -15 60 65 70 75 80 85 Occupancy rate (%) Slide copyright 2013 Sources: Raw data from PKF Hawaii and Joseph Toy, Hospitality Advisors LLC; UHERO; deflation, vacancy rates, and regressions by TZE 10
  • 64. Visitor days growing faster than capacity (more highly-utilized): past 2.5 visitors/room “sold out” 3.0 E Visitors / unit 2.5 2.0 1.5 1.0 0.5 1950 1960 1970 1980 1990 2000 2010 E estimated based on January-October 2013 data Slide copyright 2013 Sources: Hawaii Visitors Bureau, Hawaii Tourism, Authority Hawaii DBEDT; visitors/unit is calculated by dividing total visitor days by the previous year’s visitor plant inventory, and dividing the resulting ratio by 365.25 (days/year), data are annual except for 2013 estimate (10-mos. data). 11
  • 65. Musical chairs? Recent visitor arrivals (s.a.) losing ground except in “other foreign” category—new Asia Quarterly in thousands, s.a. (log scales) 640 1500 1400 Japan Other Canada U.S. recessions shaded 1300 Japan Other 320 1200 1100 9/11 U.S. Aloha 160 1000 Canada 900 80 U.S. domestic 800 2000 2005 2010 2015 40 2000 2005 2010 2015 Slide copyright 2013 Sources: Underlying data from Hawaii Tourism Authority, Hawaii DBEDT, data seasonally-adjusted and posted by UHERO (http://uhero.prognoz.com/TableR.aspx). 12
  • 66. Outline 1. Tourism Tourism leadership in “first half” now impaired by capacity constraint No more rooms ⇒ higher room rates at faster rates of increase Higher lodging expense reduces: (a) stay length; (b) non-lodging outlay/visitor; and (c) total real (inflation-adjusted) tourism export receipts Loss of momentum in U.S., Japan, Canada arrivals: probably not “demand” 2. Housing 3. Construction 4. Macroeconomic outlook Slide copyright 2013 13
  • 67. Housing trends: cyclical recovery hindered by slow-moving regulatory process [This slide intentionally left blank] Slide copyright 2013 14
  • 68. Home price appreciation (%) The (Mike) Sklarz Curve: Oahu home price appreciation, lagged inventory remaining 1994-2013 Single-family Condominium 30 ˆ SF : pt = 28.474 − 13.618[ln(mt −5 )] ˆ CO : pt = 28.830 − 13.529[ln(mt −5 )] 20 @3 months of inventory remaining, prediction is 10-15% appreciation before next summer 10 0 -10 -20 0 4 8 12 16 20 24 Months of MLS inventory remaining (-5) Slide copyright 2013 Source: Honolulu Board of Realtors; seasonal adjustment, regressions on logs of months of inventory remaining by TZE; see Norm Miller and Mike Sklarz, “A Note on Leading Indicators of House Price Trends,” Journal of Real Estate Research 1:1 (Fall 1986) pp. 99-109 15
  • 69. Monthly Oahu median existing home sales prices Thousand dollars, s.a. (log scale) 800 +2 years: $850k Single-family Condominium Recessions shaded +2 years:$450k 400 200 100 1995 2000 2005 2010 2015 Slide copyright 2013 Source: Honolulu Board of Realtors (raw data through September 2013); seasonal adjustment using Census X-12 ARIMA filter by TZE 16
  • 70. California, Neighbor Island existing single-family home median sales prices: strong co-movement Quarterly in thousand $, s.a. (log scale) 800 U.S. recessions shaded Cross-correlation 90% and up 400 SF Bay Area Orange Co., CA Maui Kauai Kona side 200 1995 2000 2005 2010 2015 Slide copyright 2013 Sources: Hawaii Information Service, Realtors Association of Maui, National Association of Realtors; seasonal adjustment by TZE 17
  • 71. Median single-family existing home sales prices: replicating the last (early-2000s) price acceleration $1.25 million by 2025 @ c. 4.8% Thousand dollars, s.a. (log scale) 1000 U.S. recessions shaded 320 100 Oahu Anaheim, Santa Ana (Orange Co., CA) San Francisco, Oakland, Fremont (Bay Area, CA) 32 75 80 85 90 95 00 05 10 15 20 25 Slide copyright 2013 Sources: Honolulu Board of Realtors, National Association of Realtors. Prudential Locations, UHERO; seasonal adjustment by TZE; regression estimate of the natural logarithm of Oahu median home prices on a constant and time trend, 1980Q1-2013Q2 18
  • 72. Thousand units/quarter, s.a. (log scale) Hawaii existing home sales outpace new residential units permitted (especially slow Neighbor Isle recovery) 6.4 3.2 Existing home sales New units authorized 1.6 0.8 U.S. recessions shaded 0.4 80 85 90 95 00 05 10 15 20 Slide copyright 2013 Source: Prudential Locations, UHERO, County Building Departments, Hawaii DBEDT and TZ Economics; seasonal adjustment, trend extraction by TZE, housing unit authorization data through third quarter 2013, existing home sales through second quarter 2013 19
  • 73. Annual new housing units authorized by building permit 14 Thousand new units/annum 12 Oahu Neighbor Isles 10 8 6 WWII 4 2 0 20 30 40 50 60 70 80 90 00 10 20 Slide copyright 2013 Sources: Robert C. Schmitt Historical Statistics of Hawaii, Hawaii DBEDT (http://dbedt.hawaii.gov/economic/county_report/), Bank of Hawaii Annual Economic Report (various); annual TZE data through 2012 20
  • 74. Hawaii now: population growth > housing formation 10.0 8.0 10.0 Housing growth rate (%) (ΔKt/Kt-1) 8.0 6.0 Housing growth rate (%) (ΔKt/Kt-1) 6.0 4.0 4.0 2000s “boom” 2.0 o 2000s “boom” P 2.0 0.0 0.0 Population growth rate (%) -2.0 Population growth rate (%) -2.0 -4.0 -4.0 1930s 1950s 1970s Oahu oMilitary downsizing (BRAC) PProjection 1990s 2010-12 1930s 1950s 1970s 1990s 2010-12 Neighbor Islands to 2020 with Koa Ridge, Ho’opili, Kakaako; assumes housing cycle tapers after 2017 (next slide) Slide copyright 2013 Sources: Robert C. Schmitt Historical Statistics of Hawaii, Hawaii DBEDT (http://dbedt.hawaii.gov/economic/county_report/), Bank of Hawaii Annual Economic Report (various), annual TZE data through 2012 21
  • 75. Oahu annual new housing units authorized by building permit actual and projected for 20-teens Actual/projected Trend/cycle Thousand new units, s.a. (log scale) 8.0 4.0 2.0 You are here 1.0 Projected 80 85 90 95 00 05 10 15 20 Projection assumes that existing home sales prices rise 15% annually 2014-2017 to approximately $1 million (SF), $530k (condo), long-term Treasury bond yields rise to 4% by 2015, production of 5,500 high-rise condominium units in Kakaako is completed but absorption reduces notional annual production amounts at Koa Ridge (300 units) and Ho’opili (500 units) by one-third in 2017 and two-thirds in 2018 at the end of a U.S. economic expansion of average duration for the post-1970s era (eight years) Slide copyright 2013 Sources: County building departments, Hawaii DBEDT, TZE database; trend extraction by TZE 22
  • 76. Outline 1. Tourism 2. Housing Tight inventory: model predicts10-15 percent appreciation in 2014 Housing market fundamentals improving, demand outstripping supply Upswing will face headwinds: eroding affordability, rising interest rates Production constraints limit homebuilding to less than population growth (Regulatory, geographic constraints amplify valuation cycle in housing) 3. Construction 4. Macroeconomic outlook Slide copyright 2013 23
  • 77. Construction: head fake—PV panels are not buildings [This slide intentionally left blank] Slide copyright 2013 24
  • 78. Recent growth of Hawaii real private building permits dominated by equipment* (PV), not new structures 1000 1000 New private building permits Additions and alterations (includes equipment installation) 100 10 100 All data monthly in millions of 2012$, log scales 85 90 95 00 05 10 10 15 85 90 95 00 05 10 15 *Building permits are required for installation of photovoltaic equipment, but investment (gross capital formation) customarily distinguishes structures from equipment and software—buying a diesel generator for hurricane preparedness may be a good idea but it’s not building (the verb) a building (the noun), nor is the installation of rooftop photovoltaic panels Slide copyright 2013 Sources: County building departments, Hawaii DBEDT, U.S. Bureau of the Census; seasonal adjustment, deflation and trend-cycle extraction by TZ Economics 25
  • 79. Construction receipts and jobs correlate, but buying PV or a diesel generator is equipment investment Thousand jobs, s.a. (log scale) 40 400 200 20 106 2012$, s.a. (log scale) 800 Contracting receipts* (right scale) Construction jobs (NAICS) (left scale) Construction jobs (SIC) (left scale) 10 U.S. recessions shaded 1980 1985 1990 1995 2000 2005 2010 2015 *Excludes military housing privatization which was tax-exempt Slide copyright 2013 Sources: Hawaii Department of Taxation, Hawaii DLIR and DBEDT, U.S. Bureau of the Census; seasonal adjustment, deflation and trend extraction by TZE, tax base data through May 2013, payroll employment data through August 2013 26
  • 80. Construction jobs not keeping up with spending c. $640 million/month Thousand jobs, s.a. (log scale) 600 40 400 36 32 106 2012$, s.a. (log scale) 800 28 Contracting* (right scale) 200 Jobs (left scale) 24 U.S. recessions shaded 20 90 95 00 05 10 15 *Excludes military housing privatization which was tax-free Slide copyright 2013 Sources: Hawaii Department of Taxation, Hawaii DLIR and DBEDT, U.S. Bureau of the Census; seasonal adjustment, deflation and trend extraction by TZE, tax base data through May 2013, payroll employment data through August 2013 27
  • 81. Real new residential building permits: lagging Million 2012 dollars, s.a. (log scale) 320 160 Not even near halfway back 80 40 20 1980 1985 1990 1995 2000 2005 2010 2015 Slide copyright 2013 Sources: County building departments, Hawaii DBEDT, U.S. Bureau of the Census; seasonal adjustment, deflation and trend extraction by TZE monthly data through August 2013 28
  • 82. Million 2012 dollars, s.a. (log scale) Real new commercial building permits: lagging worse 100 10 1980 1985 1990 1995 2000 2005 2010 2015 Slide copyright 2013 Sources: County building departments, Hawaii DBEDT, U.S. Bureau of the Census; seasonal adjustment, deflation and trend extraction by TZE monthly data through August 2013 29
  • 83. Quarterly, 106 2012$, s.a. (log scale) Quarterly real government construction contracts to mid-2013: signs of life or deferred maintenance? “Catch a Wave” “Uncle John” 400 “Choo-choo?” 200 100 65 70 75 80 85 90 95 00 05 10 15 Slide copyright 2013 Sources: Bank of Hawaii (discontinued), Hawaii DBEDT, U.S. Bureau of the Census; seasonal adjustment, deflation and trend extraction by TZE quarterly data through second quarter 2013, combined federal, state and county government construction commitments 30
  • 84. Annual real government construction in Hawaii, through 2012 “Catch a Wave” “Uncle John” 6 5 1600 4 3 800 2 1 400 1960 1970 1980 1990 2000 2010 Federal, state, county contracts* (Million 2012 dollars) 0 1960 1970 1980 1990 2000 2010 Totals relative to Hawaii output (percent of GDP) *Excludes military housing privatization which is not public, duh Slide copyright 2013 Sources: Bank of Hawaii (discontinued), Hawaii DBEDT, U.S. Bureau of the Census, BEA; seasonal adjustment, deflation and trend extraction by TZE, quarterly data through second quarter 2013, combined federal, state and county government construction commitments 31
  • 85. Outline 1. Halfway into the current economic expansion 2. Housing 3. Construction Recovery is partly a head fake: PV panels are equipment, not buildings* Construction of new buildings recovering less quickly; commercial not at all Homebuilding mired in acronymphobia (LUC, DPP, HCDA, HHFDC, DHHL…) After rising, public construction as % of GDP still less than fifty years ago 4. Macroeconomic outlook *As in “building permit,” the noun, not the verb Slide copyright 2013 32
  • 86. Macroeconomic outlook: growth with challenges [This slide intentionally left blank] Slide copyright 2013 33
  • 87. U.S. real GDP growth forecasts (December 2013): October federal shutdown masked strong third quarter 8 High 5 Percent 4 Low 5 0 Actual NABE (Dec 2013) -4 U.S. recession shaded -8 05 06 07 08 09 10 11 12 13 14 Slide copyright 2013 Source: National Association for Business Economics, NABE Forecasters Expect Uptick in Growth with Healthier Labor Market in 2014 (December 9, 2013) 34
  • 88. Composition of U.S. real GDP since 2010: consumption-, investment-, and export-led growth 8 Percent 4 0 -4 Consumption Capital formation Government Net exports Inventory change U.S. recession shaded -8 -12 2005 2006 2007 2008 2009 2010 2011 2012 2013 Slide copyright 2013 Source: Bureau of Economic Analysis, U.S. Department of Commerce 35
  • 89. Compound annual growth of real U.S. GDP government components highlight shifting sources of fiscal drag Expansion to-date First 2 years 09Q2-11Q2 Second 2 years 11Q2-13Q3 2.3 2.25 2.36 Government -1.5 -1.5 -1.4 Federal National defense Nondefense State and local -1.1 -2.1 0.7 -1.7 1.1 0.8 1.8 -3.3 -3.0 -4.5 -0.3 -0.3 GDP Hawaii math: 0.25 of economy (public sector) is growing −1.5% per annum 0.75 of economy (private sector) is growing +3.5% Overall economy grows 2.25% Slide copyright 2013 Source: Bureau of Economic Analysis, U.S. Department of Commerce 36
  • 90. Hawaii quarterly real personal income growth (puka) and contemporaneous Honolulu inflation rates (line) HNL CPI-U inflation Hawaii real PI growth 6 CPI inflation 4 0 Percent 2 2-3% growth expectation (e.g. DBEDT, UHERO) Real personal income growth rates Federal government sequestration U.S. recession shaded -2 04 05 06 07 08 09 10 11 12 13 14 Slide copyright 2013 Source: Bureau of Economic Analysis, U.S. Department of Commerce, Bureau of Labor Statistics, U.S. Department of Labor; Honolulu CPI-U is interpolated from semiannual data 37
  • 91. Hawaii and U.S. unemployment rates(s.a.): Fed threshold, 6.5%, before short-term rates rise 12 U.S. average Neighbor Isles Oahu Percent 8 6.5% Neighbor Isles 4 Oahu U.S. recessions shaded 0 2000 2005 2010 2015 Slide copyright 2013 Source: Bureau of Labor Statistics, U.S. Department of Labor, Hawaii DLIR and DBEDT; seasonal adjustment of Hawaii data by TZE; Hawaii data through August 2013, U.S. data include September 2013 (delayed) estimate. 38
  • 92. Distributions of FOMC participant’s forecasts for the fed funds target rate and weighted averages 2013 2014 2016 2015 Longer-run 5 Percent 4 3.93% 3 2.26% 2 1.25% 1 0.40% 0.25% 0 0 5 10 15 0 5 10 15 0 5 10 15 0 5 10 15 0 5 10 15 Number of observations (FOMC participants, total = 17) Slide copyright 2013 Source: Advance release of Figure 2 Overview of FOMC participants’ assessments of appropriate monetary policy to be released with September17-18, 2013 FOMC minutes (released September 18, 2013) (http://www.federalreserve.gov/monetarypolicy/fomcprojtabl20130918.htm) 39
  • 93. Treasury constant-maturity yields (term structure) and fed funds rate trajectory implied by the FOMC U.S. recessions shaded 9/11 10-year U.S. Treasury Note yield Lehman Percent 6 “Longer-run (4%)” 4 2 Sept. 2013 FOMC fed funds rate forecast Effective fed funds rate 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Slide copyright 2013 Source: H.15 and advance release of Figure 2 Overview of FOMC participants’ assessments of appropriate monetary policy to be released with Sept. 17-18, 2013 FOMC minutes (released September 18, 2013) (http://www.federalreserve.gov/monetarypolicy/fomcprojtabl20130918.htm) 40
  • 94. Hawaii Council on Revenues multi-year forecasts for nominal General Fund revenue growth since FY1999 20 Actual Percent change 15 Forecasts 10 5 0 -5 -10 U.S. recessions shaded -15 2000 2005 2010 2015 2020 Fiscal years Slide copyright 2013 Source: Hawaii Department of Taxation (http://www.state.hi.us/tax/a9_1cor.htm) 41
  • 95. Quarterly, million 2012$ (s.a., log scale) The $6.4 billion dollar question: will real General Fund revenue exceed $5.4 billion (12 mos. to 9/13)? 1600 ? Lehman 1400 1200 Tohoku 1000 SARS ERTF 9/11 Refund lag U.S. recessions shaded 800 2000 2005 2010 2015 Slide copyright 2013 Sources: Hawaii Department of Taxation, Hawaii Department of Business, Economic Development and Tourism, Bureau of Labor Statistics; seasonal adjustment and deflation by TZ Economics 42
  • 96. Quarterly, million 2012$ (s.a., log scale) Constant-dollar Hawaii general fund revenues actually have declined for 5 quarters recently (1 outlier) 1600 Lehman 1400 1200 Tohoku 1000 SARS ERTF 9/11 Refund lag U.S. recessions shaded 800 2000 2005 2010 2015 Slide copyright 2013 Sources: Hawaii Department of Taxation, Hawaii Department of Business, Economic Development and Tourism, Bureau of Labor Statistics; seasonal adjustment and deflation by TZ Economics 43
  • 97. Outline 1. Halfway into the current economic expansion 2. Housing 3. Construction 4. Macroeconomic outlook U.S. real GDP growth forecast: 2% going to 3% (Hawaii too) Private sector growth despite fiscal drag, now from federal government Oil-driven inflation shocks were temporary; tighter labor markets coming Normalization of monetary policy will raise interest rates—more drag General fund revenues exceed forecast, boom and bust; position for latter Slide copyright 2013 44
  • 98. Mahalo! Slides available from: Paul H. Brewbaker, Ph.D. Principal, TZ Economics 606 Ululani St. Kailua, Hawaii 96734-4430 paulbrewbaker@tzeconomics.com Appendix: Phillips Curves, etc. Slide copyright 2013 Slide copyright 2013 45
  • 99. Mahalo! Slides available from: Paul H. Brewbaker, Ph.D. Principal, TZ Economics 606 Ululani St. Kailua, Hawaii 96734-4430 paulbrewbaker@tzeconomics.com Slide copyright 2013 46
  • 100. Appendix 1: NABE September 2013 forecast [This slide intentionally left blank] Slide copyright 2013 47
  • 101. U.S. real GDP growth forecasts (September 2013): actual third quarter growth closer to high end 8 High 5 Percent 4 Low 5 0 Actual NABE (Sep 2013) -4 U.S. recession shaded -8 05 06 07 08 09 10 11 12 13 14 Slide copyright 2013 Source: National Association for Business Economics, NABE Panelists Forecast a Gradual Acceleration in Economic Expansion (September 9, 2013) 48
  • 102. Appendix 2: Tourism has not grown since 1990 [This slide intentionally left blank] Slide copyright 2013 49
  • 103. Tourism dilemma—higher volumes, lower receipts; binding constraint: 75k rooms (2012) vs. 73k (1992) 80 8 Thousand rooms Million visitors 18 70 7 60 6 14 50 5 12 40 4 30 3 Billion 2012$ 16 10 8 6 20 2 4 10 1 2 0 0 DBEDT forecast Actual data 0 1950 1975 2000 Tourist accommodations 1950 1975 2000 Tourist arrivals 1950 1975 2000 Real tourism receipts Slide copyright 2013 Sources: Hawaii Tourism Authority, Hawaii DBEDT (annual visitor plant inventory surveys, monthly visitor arrivals and expenditure estimates, November visitor expenditure forecasts), Bureau of Labor Statistics (Honolulu consumer price index); deflation calculations by TZE 50
  • 104. Older Hawaii tourism forecast (fall 2009): nobody believed it possible but visitor arrivals grew Quarterly in thousands, s.a., log scale 2000 1900 1800 1700 Acceleration over next four quarters is expected to substantially rebuild arrivals volumes as lift is restored Aloha Airlines shutdown 1600 1500 SARS Actual Forecast 1400 9/11 1300 00 02 04 06 08 10 12 14 Slide copyright 2013 Source: Hawaii Tourism Authority, Hawaii DBEDT; seasonal adjustment and fall 2009 forecast by TZE (image modified slightly in 2013 to highlight Aloha Airlines shutdown instead of collapse of Lehman Brothers six months later) 51
  • 105. 2011 forecasts too low, 2012 too high (especially mine): failing to identify lodging capacity constraint P Monthly in thousands, s.a. (log scale) 800 T TZE forecast U.S. recession shaded 750 DBEDT/UHERO 2012 700 650 Aloha shutdown DBEDT/UHERO forecast 2011 600 Lift 550 Tohoku Actual TZE forecast 2012 DBEDT/UHERO 2011 DBEDT/UHERO 500 05 06 07 08 09 10 11 12 13 14 15 Slide copyright 2013 Source: Data through September 2013 from HTA, Hawaii DBEDT; forecasts from DBEDT and UHERO); seasonal adjustment (Census X-12 ARIMA filter) and forecast from trend components of tax revenue model for January 2013 HIPA conference by TZE 52
  • 106. Appendix 3. State of Hawaii is not saving enough [This slide intentionally left blank] Slide copyright 2013 53
  • 107. 15 10 Sugar (Commodity Bubble) Real income growth rate* (left scale) General Fund cash/exp. (right) Japan Bubble 30 Sub-prime Bubble dot.com 20 Projected 5 10 0 0 -5 -10 1980 1985 1990 1995 2000 2005 2010 2015 State of Hawaii cash balance as percent of General Fund expenditure (%) Hawaii real personal income growth rate (%) State cash balances historically provided deeper “insurance” coverage than during the last cycle 2020 *Lagged one year Slide copyright 2013 Sources: BEA, BLS, Hawaii Tax Review Commission, Hawaii Dept. of B&F (December 17, 2012) (http://budget.hawaii.gov/wp-content/uploads/2012/12/05.State-Receipt-and-Revenue-Plans-FB13-15-PFP.pdf), Hawaii DoTAX (http://www.state.hi.us/tax/cor/2013tpi10-31_with1104_Rpt2Gov.pdf) 54
  • 108. Another fund: unemployment rate falls to 3%, wage base, tax rate revert to “normal”—adequate funding? 10 4 8 Assumed Hawaii unemployment rate (u) (percent) 3 Assumed 6 2 Payroll tax rate (τ) (percent) 4 1 2 0 70 50 75 80 85 90 95 00 05 10 15 20 0 70 800 75 80 85 90 95 00 05 10 Assumed Taxable wage base (w) (thousand 2011$) 40 15 20 Projected 600 30 400 20 200 10 Real unemployment compensation fund (R) (million 2011 $) 0 0 70 75 80 85 90 95 00 05 10 15 20 -200 70 75 80 85 90 95 00 05 10 15 20 Slide copyright 2013 Source: Hawaii DLIR (special correspondence and http://hawaii.gov/labor/reports/annual/2011-4/program/UTF%20FY2011.pdf); deflation by TZE using Honolulu CPI-U; even agressive restoration of funding parameters and a good economy may not rebuild the fund fast enough 55
  • 109. Appendix 4. Homebuilding really is that low [This slide intentionally left blank] Slide copyright 2013 56
  • 110. Neighbor Island quarterly new housing units authorized by building permit: nothing but upside Units, s.a. (log scale) 3200 1600 800 Lehman Brothers 400 200 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Slide copyright 2013 Sources: County building departments, Hawaii DBEDT, quarterly TZE data through third quarter 2013; seasonal adjustment and trend extraction by TZE 57
  • 111. Oahu quarterly new housing units authorized by building permit: growth but fast enough? Units, s.a. (log scale) 3200 Recessions shaded 1600 800 400 200 1980 1985 1990 1995 2000 2005 2010 2015 2020 Slide copyright 2013 Sources: Honolulu City & County Department of Planning and Permitting, Hawaii DBEDT, quarterly TZE data through third quarter 2013; seasonal adjustment and trend extraction by TZE 58
  • 112. Proportion of existing housing stock New housing units as % of housing stock(-1) .10 Oahu Neighbor Isles .08 .06 .04 .02 .00 20 30 40 50 60 70 80 90 00 10 20 Slide copyright 2013 Sources: Robert C. Schmitt Historical Statistics of Hawaii, Hawaii DBEDT (http://dbedt.hawaii.gov/economic/county_report/), Bank of Hawaii Annual Economic Report (various); annual TZE data through 2012 59
  • 113. Appendix 5: Honolulu Phillips Curves [This slide intentionally left blank] Slide copyright 2013 60
  • 114. Honolulu inflation and unemployment since 2007: oil shocks (2008, 2010-11); into “The Zone” 2013 ˆ p 8 1998-2006 2007-2013fh 2006 6 Oil shock (unwound in 2009) 2008 2007 4 2011 Oil shock (unwound in 2012) 2013 2 2009 0 1998 -2 1 2 3 4 5 6 7 u Slide copyright 2013 Source: Bureau of Labor Statistics, U.S. Department of Labor, Hawaii DBEDT and DLIR; data through second half 2012, all calculations by TZE 61
  • 115. Fed inflation goal (2%) defines LR equilibrium; Oahu housing cycle exerts “clockwise” tendency ˆ p 8 1998-2006 2007-2013fh 2006 6 Oil shock (unwound in 2009) 2008 2007 4 2011 Oil shock (unwound in 2012) 2 2009 0 1998 -2 1 2 3 4 5 6 7 u Slide copyright 2013 Source: Bureau of Labor Statistics, U.S. Department of Labor, Hawaii DBEDT and DLIR; data through second half 2012, all calculations by TZE 62