Brewbaker says economy is in great shape

y PAUL C. CURTISTGI Business Editor

KALAPAKI BEACH – The Mainland, Hawai’i and Kaua’i economies are on such a roll,

Bank of Hawai’i Economist Paul Brewbaker said, that businesses shouldn’t even

be thinking about stashing away savings for the inevitable cyclical

downturn.

That downturn isn’t even in the extended forecast, Brewbaker said

during a Kaua’i Chamber of Commerce breakfast meeting with nearly 40 business

leaders at the Kaua’i Lagoons restaurant.

Saving for a rainy day, he

continued, “is not really a looming issue,” Brewbaker said.

“The answer is

productivity,” he said, using Bankoh’s recent down-sizing from 4,000 to 3,000

employees as an example.

Productivity improvements, especially with the

technological advancements being made in most industries and businesses, will

allow businesses to stay competitive even if revenues level off or decrease, he

said.

Sometimes, firms react instinctively to downturns by cutting back not

only on staff or hiring, but on investment in new buildings, equipment and

other business infrastructure, he added.

The problem with that, he said, is

that new buildings and equipment usually “imbed” new technologies in them that

can help businesses better cope with flat or down sales figures.

Now that

the economy is bustling, investment in infrastructure is happening, but

investment in new people is usually the last step a business will take.

The

costs in hiring a new person are up-front, with wages, benefits, and the

learning curve of time associated with when that new person will finally become

a producing asset for a company, he said.

Finding qualified, talented

workers, as reported on these pages previously, is difficult in the current

tight labor market. And it’s only getting tighter, which is a good problem to

have, he reasons, because that means the economy is strong.

Brewbaker, who

along with other economists is predicting a strong remainder of this year as

well as a booming 2001, painted the picture of a tightening labor market for a

few reasons.

“The labor supply’s not growing,” as people aren’t moving into

the state from the Mainland because of the hot economy there, the numbers of

people in their 20s in the state is much lower than it was 20 years ago, and

there are less working women today, he said.

The labor market is as tight

here as it is on the Mainland, he commented. But, as a result of Hawai’i’s

bustling economy, he expects these trends to reverse, as more people move to

the state.

There is a net out-migration of U.S. citizens, mainly because of

the down-swing of the military in the state, and a net in-migration of foreign

nationals, which amounts to a wash there, he said.

While the tight labor

market when combined with the state’s affordable housing shortage might spell

trouble, Brewbaker remains optimistic that, with the technological advances of

the past several years, businesses can increase productivity without

necessarily increasing payroll numbers.

We should always have that problem

of the economy growing too fast, he said. While Brewbaker is predicting

something in the neighborhood of 3 percent overall growth in the state economy

this year, the state Department of Business, Economic Development and Tourism

sees even stronger growth for the rest of this year, closer to 3.5 percent, he

continued.

The state is already predicting record visitor arrival numbers

this year, with hotel occupancy, hotel revenues, construction, retail sales,

and essentially every other sector showing increases, he said.

Construction

on Kaua’i, usually a sure indicator of a continuing strong economy, is surging

again. For the years 1996 to 1998, annual average construction permit value was

around $100 million on this island.

Last year, it was $140 million, the

highest figure since Hurricane ‘Iniki. For the first quarter of this year,

there was $32 million worth of construction permits issued, putting the island

on pace to possibly do even better than 1999, he said.

As far as the

overall state economy is concerned, two of the best five quarters ever recorded

were the fourth quarter of last year and the first quarter of 2000, he

said.

In the past several years, economists like Brewbaker have had to

adjust upward their growth forecasts, and have still seen their predictions be

too low for the sizzling island economy.

And there’s more where that came

from, as the country, state and island may all have to adjust upward

predictions for sustainable, non-inflationary growth rates, he said.

As an

example, Brewbaker is close to winning a plate-lunch bet with state Sen.

Whitney T. Anderson (R-25th District) about when the state’s unemployment rate

will match the national rate.

Brewbaker bet it would take around a year

from January of this year for the two rates to meet, and Anderson doubted it.

Currently, statewide unemployment is around 4.2 percent or 4.3 percent (down

from around 6.5 percent as recently as a year ago), while the national rate is

around 4.1 percent, he commented.

Even what is appearing on the horizon as

at least the final breaths of Amfac Sugar Kaua’i’s Eastside operations can’t

dampen his enthusiasm for the island economy.

“The last ones to go are

always the leeward ones,” he said of plantations on the sunny west sides of the

islands. “Kaua’i’s been through it.”

The issue is what comes next on the

lands. The faster you start figuring out what to do with the lands, the better,

he said.

Other uses for the land can be found, probably not in agriculture,

he continued. “The problem’s getting there. But, we sorta knew it was

coming.”

The 1990s have been about a transition out of sugar in the state,

he noted. Still, 1999 marked the highest income ever recorded from agriculture

in the state.

But back to the booming economy for awhile.

“The state’s

raking in the dough, from the hotels, anyway,” he said of an estimated $140

million in transient accommodations tax (TAT, or hotel room tax)

revenues.

“It’s an insanely huge number,” he said of TAT revenues. And the

counties are upset, because tax revenues generated on each island are ending up

in the general fund and not necessarily going equally back to the counties

where they were generated, he said.

While the counties clamor for funding

for various improvements, public workers have gotten fat raises over the last

several years, including 7 percent increases for several consecutive years for

firefighters.

“It’s politics. It has nothing to do with what makes

sense.”

Bankoh does a regular poll of business optimism in the state, and

the mark in February of this year was the highest level of sunny weather since

1990, he continued.

While the increases in personal wealth in the Mainland

western states initially translated into land acquisitions in the islands, now

insurance companies, pension funds and other entities empowered by that

newfound wealth are looking to erect hotels, office buildings and other

structures in the state, he said.

Brewbaker finds state figures showing

visitor spending down hard to believe, when hotel occupancy, hotel revenues,

average room rates, retail spending, and other figures all pointing

skyward.

One University of Hawai’i at Manoa tourism industry management

school official said the retail sales growth can be attributed to resident

buying habits in the green economy, but Brewbaker doesn’t buy that.

“How

can the total have gone down” when all the indicators keep going up? he

asked.

Responding to a question about the visitor industry, and the

one-island-only visitors all the islands are enjoying at record levels, he said

it’s good for islands to distinguish themselves from one another.

But, in

order to secure more of the lucrative repeat-visitor business, companies as

well as islands must re-invent themselves, so they’ll have new activities, new

things to draw those important repeat visitors to the island and business again

and again, he said.

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