4th Quarter 2008

       Based on lower forecasts for the U.S. and key international economies in the coming months, the Department of Business, Economic Development & Tourism (DBEDT) is forecasting virtually no growth in Hawaii's economy through most of 2009. Assuming national growth turns positive around midyear 2009, Hawaii's economy should begin seeing some improvement later in that year and modest growth in 2010.

       The outlook for Hawaii's economy depends to a large extent on growth of the U.S. economy and key international economies, especially Japan. In response to a stream of weaker-than-expected economic data in recent months, continued problems in the financial market, and a potential global economic recession, the consensus forecast for U.S. economic growth has become decidedly more negative over the past month. According to the November 2008 Blue Chip Economic Consensus Forecasts, real U.S. GDP growth will manage 1.4 percent for 2008 as a whole. However, the forecast for 2009 real US GDP was reduced nearly a full percentage point to negative 0.4 percent for the year. (A 2010 consensus forecast will not be available until early 2009.) A quarterly breakdown of the consensus forecast shows declines in GDP over the next two quarters with a bottoming out and gradual growth beginning in the second quarter of 2009. For Japan, real GDP growth is projected to be only 0.5 percent in 2008 and negative 0.1 percent for 2009.

       Based on data through the third quarter of 2008 and the broader outlook, visitor arrivals are now expected to decline 10.1 percent for 2008, down from a 6.7 percent decrease in the last forecast. Visitor days are expected to decrease 9.7 percent in 2008. The forecast for total current dollar visitor expenditures growth in 2008 is similarly revised downward to negative 9.5 percent.

       For 2009, visitor arrivals and visitor days are now projected to decline 1.9 percent and 1.7 percent, respectively, while visitor expenditures are forecast to increase 0.7 percent from 2008.

       Based on slower job growth in the third quarter, total wage and salary jobs are now expected to show no growth for 2008 as a whole compared with 2007. The 2009 forecast for jobs now expects a decline of 0.2 percent.

       Real personal income growth is estimated to be negative 0.2 percent in 2008, down from the 0.4 percent growth forecast previously. That decline will likely continue into 2009, with a 0.4 percent real decline.

       The Honolulu Consumer Price Index (CPI) is expected to show an increase of 4.2 percent for 2008. However, the slower economy and especially lower fuel prices should cut the rate of inflation considerably in 2009, with the CPI advancing by only 2.6 percent.

       Major indicators of construction activity for the first nine months of 2008 suggest slower construction activity in Hawaii for the rest of 2008 and into 2009. Despite decreases in total value of new private building authorizations in the first nine months of 2008, permit levels still remain relatively high compared to historical levels. In addition, the continuing military privatization project and prospects for increasing State construction expenditures in the next few years will cushion the decrease in private activity.

       Overall, Hawaii's real GDP is projected to grow 0.3 percent in 2008, down 1.6 percentage point from the previous forecast. GDP is not expected to show growth in 2009.

       Assuming the U.S. recovery begins by midyear 2009 and that Hawaii's economy responds accordingly, 2010 should be a modest recovery year for the state. Visitor arrivals would be expected to show some positive growth (1.4 percent) and this will help the economy create a few new jobs (0.5 percent increase) and show positive real GDP growth (1.1 percent).

       That gradual recovery would be expected to continue into 2011 although probably not at a vigorous rate. Job growth would be expected to reach around 0.8 percent for 2011, based on about the same increase in visitor arrivals. Hawaii’s GDP growth in 2011 would be expected to reach a modest 1.6 percent.