Economic downturn to continue

A recent economic forecast for Kaua‘i County expects further slowing due to turmoil in the visitor industry — conditions that will persist through 2010.

The report is prepared annually by the University of Hawai‘i Economic Research Organization for the county’s Office of Economic Development. But this year hasn’t played out like others.

The swift shutdown of both ATA and Aloha airlines, the departure of two of three NCL cruise ships from Hawaiian waters, and rising oil prices have collectively taken a toll on visitor numbers in 2008.

Given the barrage of major events, it’s been a challenge doing forecasts this spring and this summer, conceded economist Byron Gangnes, one of the report’s three authors. For this reason the study’s scope was expanded to look deeper into how Kaua‘i will fare over the next two years.

“This is not a forecast for a deep downturn,” Gangnes said, however, “Kaua‘i is looking at a period where there’s not any growth for a few years.”

One of the biggest indicators of economic health on Kaua‘i is visitor numbers, and net losses are expected for 2008. Arrivals growth will be down more than 11 percent and visitor days will fall 4 percent, states the report.

As a result of the visitor pullback, a 2 percent drop in wholesale and retail trade jobs is anticipated over the next two years. Transportation and utilities jobs will drop by 4 percent. Jobs in finance, real estate, education, professional services, government and insurance will be flat or down.

Construction job growth is expected to slow in 2009 by 4 percent following an extended period of robust growth. Health care professions are the only area expected to show job gains.

Given the broad slowing of employment and general economic conditions, the report forecasts real income growth of three-tenths of a percent this year, with no growth in 2009 and only moderate recovery in 2010.

Inflation, heavily influenced by the rising price of oil, is expected to remain at 5 percent this year, on par with last. Should oil prices retreat and the housing component soften, inflation will retreat quickly to 2.2 percent in 2009.

So, you ask, what’s the bottom line? How worried should I be?

According to Gangnes, Kaua‘i’s economy is going to contract and remain flat for a few years. But as economic forecasts go, this is a shallow, albeit lengthy, downturn.

“I don’t expect things to fall apart,” he said, “but I don’t expect them to rapidly bounce back.”

This isn’t good news, but it’s also not as bad as it sounds, Gangnes said.

Construction is slowing, but still in the red, unlike many other states. Unemployment is rising, but it’s low compared to national numbers. And Hawai‘i hasn’t seen the kind of monthly payroll declines experienced on the Mainland.

In addition, Kaua‘i has fared slightly better than the state as a whole.

“This is an economy that goes into the slowdown in a strong position,” Gangnes said.

While the subtext of the report reveals some optimism, Gangnes says the wild cards — for Kaua‘i they include airline industry stability, oil prices, the Mainland economy and on-island construction — will play a huge role in how long the local economy stagnates.

“There’s more possibility for negative developments than positive,” Gangnes said.

Beth Tokioka, executive director of the Office of Economic Development, said Kaua‘i businesses are not yet feeling the full effect of a slowdown.

“I expect the summer to not be a good indicator of what’s going on,” Tokioka said, explaining that many summer visitors booked their travel long before some of this year’s most significant economic events. Fall and winter should offer a more realistic picture of what’s going on in our visitor industry, she said.

With Kaua‘i’s economy hinging on factors such as oil prices and the airline industry’s solvency, Tokioka said it can be frustrating to simply wait and see what happens. She said the biggest difference for the local economy could come in the form of cheaper energy and transportation costs — something that’s largely out of the hands of local government.

“Not being able to make an impact on that is kind of frustrating,” Tokioka said.

But the county isn’t sitting idly by, waiting for the worst. Tokioka has been in talks with the business community on what can be done. Some ideas include partnering local restaurateurs and hotels with Kaua‘i farmers to negate rising food costs by growing more produce on-island.

“It’s time to sit down with the business community and get creative and see what we can do,” Tokioka said.

Gangnes agreed it’s not a time for businesses to panic.

“Step back, take a deep breath, and let’s see how things play out,” he said.

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