PO‘IPU — The Hawaiian Islands are still below pre-recession levels in most areas, but two economists say Kaua‘i is slightly ahead of other island counties in a bumpy and slow recovery.
Kaua‘i’s leading indicator — job levels — were up this year but faced a recent downturn, while government construction projects continue to be planned and tourism gains are stronger than expected.
“The overall bottom line for Kaua‘i this year is one of measured optimism, at least compared to the other Neighbor Islands,” said Dr. Leroy Laney, First Hawaiian Bank economics adviser and professor of economics and finance at Hawai‘i Pacific University. “That may not be saying much given the anemic and very slow pace of recovery that is happening practically everywhere nowadays — in Hawai‘i as well as elsewhere — but it could be worse.”
Laney was a co-keynote speaker at the 37th annual First Hawaiian Bank Business Outlook Forum on Thursday hosted by the Kaua‘i Chamber of Commerce at the Grand Hyatt Resort and Spa. He was joined by Dr. Jack Suyderhoud, professor of business economics at Shidler College of Business, University of Hawai‘i Manoa.
In his presentation, Suyderhoud distinguished debt and deficit “hawks and doves.” He said hawks want to reduce debt immediately to avoid risks of higher taxes and reduced consumer spending, while doves are more willing to take on debt as a way to bolster the recovery.
Suyderhoud said he expects debt reduction to stabilize short-term expectations. However, if capital markets perceive that government is not reducing structural deficits, any resulting ratings downgrade could bring a second dip.
“I’m deeply hopeful that will not be the case,” Suyderhoud said. “How we handle debt reduction and rebalancing the economy in the next few months will tell us a lot about our long-term prospects.”
The return of a double-dip recession is a concern, he said, but job growth trends show the economy could return to 2007 levels in about two years.
With consumer spending remaining weak, he said it would not drive the economy out of this recession. He added that monetary policy options are exhausted, and he does not expect to see fiscal stimulus packages in 2012.
“The only really good news is that our weak dollar and good economic growth in foreign markets has resulted in a strong rebound in U.S. exports from the collapse of 2008-09,” Suyderhoud said. “Hawai‘i’s tourism sector will benefit from this. However, a weak dollar, while good for exports, raises our cost of living as imports — especially energy and commodities — and further weakens confidence in our financial assets and markets.”
Dr. Laney spoke of his work this past summer collecting data and interviewing residents for insights on the local economy. He said the report offers a depth and richness that raw data does not reveal.
Job growth turned positive in late 2010 and early 2011, and although slumping over summer, Laney said the data does not reveal the strong or weak sectors, and reflects that low-wage earners that are reduced to working one of several jobs as employed.
Kaua‘i has the strongest job growth among all island counties, except O‘ahu, even though it lost the most during the recession, he said.
“The much smaller size of the Kaua‘i economy often distorts percentage change numbers, but nonetheless the growth numbers still put Kaua‘i in first place ahead of its Neighbor Island counterparts,” he added.
The leading edge of the recovery is the visitor industry, and Laney said it has turned in a better performance than expected after declines in 2009. “But unfortunately, the tourism strength has not yet spread to some other important sectors of the state economy,” Laney said.
Arrivals have been growing and visitor spending is stronger, and Laney attributed the increase to a strong brand image, stable timeshare segment and $1 million in additional marketing funds from the mayor and county council.
Laney said it helps that Alaska Airlines added two more direct flights to Lihu‘e, from San Jose to total three flights per week and four flights from Oakland per week. The strong Canadian market has helped the numbers, he said, and West Jet continues seasonal direct flights from Vancouver.
“Another strong growth area is the conventions, meetings and incentives market, indicating that Kaua‘i may have turned the corner there after the big drop off with the recent recession,” Laney said.
Laney said Kaua‘i has remained a good partner with the film industry to build on its reputation as a prime location for movies and television. In 2010, there was a record four feature films on island, bringing in $41 million in related revenue.
The construction sector is weaker with much of the building coming from public sector projects, such as the continued widening of Kaumuali’i Highway in Lihu‘e and the completed Bryan Baptiste Memorial Bridge in Wailua. He noted that hotels used lull time to reinvest and renovate properties.
He said residential construction includes units in Grove Farm’s Pikake subdivision, Po‘ipu Beach Estates, an agricultural subdivision on the North Shore, A&B’s Kukui‘ula on the South Shore, and the Kukui‘ula golf course and clubhouse. Wyndham completed the first phase of an 85-unit project Koloa Landing in Po‘ipu. Future construction projects include a super-Safeway at Hokulei Village.
He said planned state CIP projects will bring most of the work in the near future with Port Allen harbor repair, the Kapa‘a School library, airport improvements and another $46 million for Kaumuali‘i Highway construction.
The 78-acre sale of Ahukini Makai land adjacent to the Lihu‘e Airport will be used for airport expansion and a centralized rental car facility. Laney said it could trigger a $75 million in infrastructure and commercial or industrial construction.
Laney said real estate and construction trends are linked and that state data shows single-family units are leveling off but are still rising for condos. Median prices for single family units is flat or falling for condos.
“It is impossible to read much into these numbers, however, due to the transactions mix and small sample size,” he said.
The recession has impacted transactions, foreclosures and short sales, and this puts downward pressure on prices, said Laney. He noted there are more local-market foreclosures than with offshore-owned second homes.
“Real estate prices cannot show a significant upswing until that inventory is worked down,” he said. “As another indicator, the Kaua‘i Association of Realtors reported this year that the number of Realtors on the island has dropped almost 40 percent from the peak.”
Laney said the commercial side appears to have a slow, upward trend. Transactions have increased, however, there is not enough activity to show a pattern. He was positive about stronger retail activity as an indicator for the local economy.
A former Naval officer, Laney said the impact of the Navy’s Pacific Missile Range Facility on the West Side is significant to the Kaua‘i economy, and particularly for the island’s small but growing high-tech industry. He said firms such as Trex Hawai‘i Advanced Materials Group and Oceanit Laboratories would not exist on the island without the PMRF.
The PMRF as an employer is also important, he said, with more than 900 and a payroll of $50 million. Congress passed a $68-million bill to authorize an Aegis Ashore Test Facility at PMRF, and Laney said this solidifies the mission and will lead to an expansion of electrical power infrastructure.
“That expansion itself will cause big injections into the Kaua‘i economy, even if it stretches over a number of years,” he said.
The agricultural sector includes five parent seed corn operations on the island: Pioneer Hi-Bred, Syngenta, Dow Agrosciences, Monsanto and BASF. Laney said the seed corn industry continues to expand as Kaua‘i is an ideal climate for research and its relative isolation.
“Kaua‘i continues to produce the largest share of the state’s coffee,” Laney said. Kaua‘i Coffee Company, largest coffee plantation in the United States, was recently purchased by Massimo Zannetti, USA, a $2-billion-per-year roasting company with American brands, including Chock Full ‘O Nuts, Hills Brothers, Chase and Sanborn, and MJB.
On the energy front, Laney said hydroelectric power is a renewable energy source that is more possible on Kaua‘i with its rivers. Wind power is less likely because of the bird issues.
Before the keynotes, the Chamber presented the Mea Ho‘omana‘o award to Dr. Montague Downs of Wilcox Memorial Hospital and Stella Burgess of Kaua‘i’s Grand Hyatt. It was the first time there was a double award.
Dr. Thomas Hemingway accepted the award for Downs, who is recognized for advocacy and fundraising work on behalf of the Kaua‘i Lifeguard Association.
Burgess was praised for her cultural work and as someone who embodies the spirit of Kaua‘i. She said no one wins an award by themselves, then thanked her spouse especially, and said it is all about carrying the aloha spirit and the ‘ohana and going forward together.