Editor’s note: This is the first in a periodic series about the economic recovery on Kaua‘i. The next part will focus on unemployment. PO‘IPU — “We opened 2009 by learning how to survive the economic storm,” said Randall Francisco, president
Editor’s note: This is the first in a periodic series about the economic recovery on Kaua‘i. The next part will focus on unemployment.
PO‘IPU — “We opened 2009 by learning how to survive the economic storm,” said Randall Francisco, president of the Kaua‘i Chamber of Commerce, Tuesday night. “We’re still here, and now we’re going to stick it out.”
Francisco was heading the Kaua‘i Chamber of Commerce quarterly meeting that featured the First Hawaiian Bank’s 35th annual Kaua‘i County Business Outlook Forum presented by Dr. Jack Suyderhoud, a professor at the University of Hawai‘i at Manoa Shidler College of Business, and Dr. Leroy Laney, a professor of economics and finance at Hawai‘i Pacific University and the First Hawaiian Bank economic adviser.
Both speakers agreed that the recovery from the economic downturn will not happen overnight, nor will it be an easy one.
“Kaua‘i County and the other Neighbor Islands have been affected by the current downturn to a significantly greater extent than O‘ahu,” Laney said, addressing an audience that topped the 300 mark at the Grand Hyatt Kaua‘i Resort and Spa.
Laney attributed the greater impact of the downturn to less economic diversification and the greater role of tourism on the Neighbor Islands.
Suyderhoud said the road to recovery is not fast or easy. He likened the global outlook to the recovery as a long tunnel, slow train, with glimmers of hope.
“The United States consumed more than we produced, invested more than we saved, and ran government deficits,” Suyderhoud said, in explaining why the economic situation started. “Asian economies facilitated this by running large trade surpluses with the United States, accumulating dollar reserves, and lending these reserves back to us. In this arrangement, the American consumer became the engine that pulled the global economy.”
Hit and miss
In 2008, this all came unglued as American consumers, not yet fully recovered from the 2001 recession after 9/11 and the wars in Iraq and Afghanistan, completely lost confidence.
Under pressure from falling home prices, shrinking investment wealth, higher energy costs, job losses and higher unemployment, consumer sentiment dropped to historic lows.
The $168 billion tax-rebate package enacted in early 2008 did not get consumers to open their wallets, the speakers said.
“While personal income was boosted by the rebates, spending continued to decline as consumers used the rebates for savings and debt reduction,” Suyderhoud said.
The decline in consumer spending accompanied by reduced business investment and investment in housing resulted in the U.S. Gross Domestic Product shrinking by 6.5 percent in the last quarter of 2008. The GDP brightened to 5.5 percent in the first quarter of 2009.
“On the bright side, inflation, highly feared a year ago, has been squashed, for now,” Suyderhoud said.
Response by lawmakers has been historic.
“The Fed dropped overnight interest rate targets to 0 percent in late 2008, exhausting that policy tool,” Suyderhoud said. “In addition, the Fed adopted ‘quantitative easing’ by purchasing both troubled assets (such as commercial paper and AIG and Bear Stearns) and long-term government bonds to bring down mortgage interest rates.”
Suyderhoud forecasts negative reap GDP for the second half of 2009 with a return to tepid growth by mid-2010.
Unemployment will reach and remain at double-digit levels through 2010, and inflation, due to the continued economic weakness, is expected to climb modestly to two percent by the end of 2010.
In spite of record federal government borrowing, loose monetary policy will ensure that interest rates remain relatively low, even with the increase that comes with the improving economy, the speakers said.
Tourism uncertainties
“The question on everyone’s mind is ‘How long before better times return?” Laney said. “Recovery will be gradual and will depend critically on the return of healthy tourism, especially for an economy like Kaua‘i’s. That, in turn, will depend on the return of better times to the Mainland economy, especially the West Coast.”
Tourism continues to suffer on Kaua‘i more than the other islands, Laney said of the major trends in Kaua‘i’s economy. The construction slump has slowed or halted work on several projects in Po‘ipu and elsewhere, and the real estate market has seen significant declines in both sales and prices.
“Rates of decline in Hawai‘i tourism became milder this year following the first quarter, because that quarter was being compared to a healthier growth in the first quarter of 2008,” Laney said. “But there will still be a contraction in visitor arrivals for 2009 as a whole.”
This is based on the national recession continuing to linger, and Hawai‘i tourism is not likely to see a genuine recovery until the U.S. national economy regains sustained strength.
“Long-distance leisure travel to places like Hawai‘i is among the first things eliminated from a typical household budget in the current situation, and it may be among the last things restored,” he said. “An added uncertainty in 2009 has come from the recent swine flu outbreak with Japanese visitors especially skittish.”
Laney said mild recovery in arrivals may occur next year, but it could be anemic by historical standards.
The upswing
But all is not doom and gloom, Laney said. Timeshare visitor numbers are holding up well; the Pacific Missile Range Facility at Mana continues to supply high-salary jobs; federal stimulus money could help fund government construction projects; and Safeway will anchor a planned new shopping center to open in 2010.
“Kaua‘i’s (tourism) numbers would look a good bit worse were it not for the timeshare component, which, as always, has held up better,” Laney said. “Though timeshare rentals are down, owners are still coming.”
He noted the initiative of the Kaua‘i government in devoting $1 million of public funds to marketing the island, half of the money aimed at wholesalers and online travel agents with the remainder targeting the kama‘aina market, military, West Coast and Canadian markets.
Among the other events in the Kaua‘i visitor plant, Laney noted that Princeville Hotel will re-open in October as Hawai‘i’s first St. Regis property.
A 50th anniversary celebration of the movie “South Pacific” is also planned.
Also in Princeville, the renovated Makai Golf Course will reopen soon and the Princeville Shopping Center has been refreshed with a new tenant mix.
The Princeville Ocean Villas, the new Westin time-share development, has been running full, partially due to the closing of the Princeville Hotel for renovations, he said.
Other area developments include the Koa Kea Hotel, formerly the Po‘ipu Beach Hotel, opened as an upscale boutique property; the Kaua‘i Marriott started a $50 million renovation, and work at Kaua‘i Lagoons and Ritz Carlton Residences ceased, another fallout of the financial turmoil, Laney said.
