Economists' Presentation at Legislative Briefing

Eugene Tian Department of Business, Economic Development & Tourism

to the

Current Hawaii Economic Conditions

Committee on Ways and Means and

Committee on Finance

December 18, 2013

Historical Economic Growth and Projections

Indicator

Annual average growth, %

30 years, 1982 - 2012 20 years, 1992 -2012

Real GDP 2.1 1.0

Real personal income 2.2 1.7

Honolulu inflation rate 3.2 2.4

Wage and salary jobs

1.3 0.5

Unemployment rate 1/

4.5 4.7

Visitor arrivals 2.1 1.0

Real visitor expenditures 2/

1.4 0.1

1/ Average of 30 years, 1982 – 2012. 2/ Deflated by Honolulu CPI.

A historical review of Hawaii’s Economic Growth

CY 2012 to 2014 (Annual % Change)

Source: Department of Business, Economic Development & Tourism.

Actual CY 2012

Forecast CY 2013

Forecast CY 2014

Total Population 1.0% 1.0% 1.0%

Visitor Arrivals 10.0% 2.9% 2.7%

Visitor Expenditures 18.1% 3.0% 4.2%

Honolulu CPI-U 2.4% 1.7% 2.1%

Personal Income 3.7% 4.0% 5.5%

Real Personal Income 1.9% 2.3% 3.3%

Total Non-Ag Wage and Salary Jobs 1.9% 1.3% 1.8%

Key Economic Indicators

Unemployment Rate (actual rate)

Construction Completed

Real GDP

5.8% 4.6% 4.2%

20.0% 15.8% 15.0%

1.6% 2.4% 2.8%

Hawaii Business Cycles

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

1980 1984 1988 1992 1996 2000 2004 2008 2012

Real GDP growth, 1980 to 2012 (% change from previous year)

Hawaii’s economy is influenced by the US and Japan, Hawaii’s economic

growth is expected to be higher than those of U.S. and Japan in 2014

Source: US Bureau of Economic Analysis, Japan Ministry of Internal Affairs and

Communications

Hawaii

Japan

United States

Hawaii Real GDP Growth

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

10 years avg=2.3%

4 years Avg = 1.9%

11 years, avg=3.8%

0

5

10

15

20

25

30

0

2

4

6

8

10

12

0

1

2

3

4

5

6

7

8

0

0.5

1

1.5

2

2.5

3

3.5

Construction activity was the cause for 1993-1999 economic downturn

Real retailing tax base Real services tax base

Real contracting tax base Real hotel tax base

$B

$B $B

$B

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

Residential

Commercial & Industrial

Additionas & Alterations

Residential construction leads the way in business cycle and the last 2 expansion periods were about 8 years

8,404

10,983

6,464

5,406 5,818

2,380

0

2,000

4,000

6,000

8,000

10,000

12,000

1960-1970 1970-1980 1980-1990 1990-2000 2000-2010 2011-2012

Planned housing units now is only 41% of what they were during 2000s

(average annual planned units, building permits approved)

Source: State of Hawaii Data Book

Year Increase in residential housing units

# of persons per unit

2001 4,529 2.63

2002 4,426 2.63

2003 5,503 2.63

2004 6,867 2.64

2005 8,588 2.63

2006 9,278 2.62

2007 6,906 2.59

2008 6,389 2.59

2009 3,697 2.60

2010 2,107 2.62

2011 2,546 2.64

2012 1,861 2.66

Avg. = 2.62

There is currently a short supply in residential housing units

Short supply = populaton/2.62 - existing housing units

= 1,392,313/2.62 – 524,343 = 7,000 units Source: DBEDT

Annual residential housing units needed

= population change/2.62

= 15,000/2.62

= 5,700

Annual demand for residential housing units is abut 5,700

1230 1132 1355 1460 1704

1967 1867 2438 2347

5786 5492

6440 6719

10620

7567

0

2,000

4,000

6,000

8,000

10,000

12,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Individual vacation units for visitor use

More housing units are converted into visitor use in recent years

Personal Income And Labor Market Conditions

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Hawai‘i United States

(6.0)%

(4.0)%

(2.0)%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013


$25.0

$30.0

$35.0

$40.0

$45.0

$50.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013


500,000

520,000

540,000

560,000

580,000

600,000

620,000

640,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Stable and Diversified Economy

The employment sector in Hawai’i continues to improve

(1) As of 2Q 2013. Source: Hawai’i Dept. of Labor & Industrial Relations; U.S. Dept. of Commerce, Bureau of Economic Analysis; U.S. Dept. of

Labor , Bureau of Labor Statistics.

Wage and Employment Metrics

Non-Ag Wage and Salary Jobs

Unemployment Rate, Not Seas. Adj.

Per Capita Income ($000)

Quarterly Personal Income Growth(1) (Compared to Same Period in Previous Year)

Oct. 2013 = 7.0%

Oct. 2013 = 4.7%

15

Source: BLS, Employment, Hours, and Earnings – National(Current Employment Statistics - CES) <http://www.bls.gov/data/>

In the United States, other than Federal and State governments, all

industries gained jobs during the 1st 11 months of 2013 (change in jobs from same period in prior year, in 1,000 jobs)

-200 -100 0 100 200 300 400 500 600 700

Federal gov't

State gov't

Information

Accommodation

Local gov't

Educational services

Mining and logging

Other services

Entertainment

Manufacturing

Transp. Warehouse & Util.

Wholesale trade

Financial activities

Construction

Retail trade

Food services

Health care

Prof. services

-1,040

-400

-350

-320

-90

20

200

370

470

620

880

890

1,050

1,460

1,540

2,740

(1,500) (1,000) (500) - 500 1,000 1,500 2,000 2,500 3,000

Federal Government

State and Local Government

Retail Trade

Educational Services

Manufacturing

Information

Financial Activities

Wholesale Trade

Arts, Entertainment & Recreation

Accommodation

Transp., Warehousing, Util.

Professional & Business Services

Health Care & Social Assistance

Food Services & Drinking Places

Other Services

Nat. Resources, Mining, Constr.

During the 1st 10 months of 2013, Hawaii gained 8,000 jobs

Real Estate Market

Honolulu Home Prices Have Been Higher & More Stable Than Other Major Vacation Destinations

Median Single Family Home Prices: FY 2006 – 2013 Q3

($ T

ho

usa

nd

s)

Source: www.realtor.org, National Association of Realtors [for Honolulu from 2012Q3] and Honolulu Board of Realtors

19

630

565 580 570 583

615 620 627 638 626

660 663

317

155 126 123 122 122 131 138 146 155

172 182

371

206 186 187 185 182

207 208 213 223 251 252

270

155 126 128 128 125 136 135 138 147

161 168

602

323

379 370 358 360 372 394 405 412

469 485

$0

$100

$200

$300

$400

$500

$600

$700 2

00

6

20

07

Q1

20

08

Q2

20

08

Q3

20

08

Q4

20

08

Q1

20

09

Q2

20

09

Q3

20

09

Q4

20

09

Q1

20

10

Q2

20

10

Q3

20

10

Q4

20

10

Q1

20

11

Q2

20

11

Q3

20

11

Q4

20

11

Q1

20

12

Q2

20

12

Q3

20

12

Q4

20

12

Q1

20

13

Q2

20

13

Q3

20

13

Honolulu Las Vegas Miami Orlando San Diego

Island

Single Family Homes Condo Homes

Closed sales Median price Closed sales Median price

Honolulu 5.7% 3.2% 13.9% 4.8%

Maui 6.0% 14.0% 10.0% 6.0%

Hawaii 19.5% 17.1% 11.4% 4.1%

Kauai 7.7% 16.9% 12.0% 2.4%

Source: Property Profiles Incorporated, and Honolulu Board of Realtors

Real estate markets are booming on all the islands (% change during 11 months of 2013)

Tourism

Visitor Accommodation Statistics

Average Room Rates

Room Inventory

Occupancy Rates

Revenue Per Available Room

Source: Smith Travel Research, Hospitality Advisors LLC and Hawaii Tourism Authority.

(thousands)

(1) (1)

(1)

75.0%

70.5%

64.8%

70.7% 73.2%

76.9% 77.6%

55%

60%

65%

70%

75%

80%

2007 2008 2009 2010 2011 2012 2013*

$200 $202

$177 $174 $190

$204 $227

$0

$50

$100

$150

$200

$250

2007 2008 2009 2010 2011 2012 2013*

$150 $142

$115 $123 $139

$157 $176

$0

$50

$100

$150

$200

2007 2008 2009 2010 2011 2012 2013*

73.2 74.2 75.2 75.0

77.7

74.7

70.0

72.0

74.0

76.0

78.0

80.0

2007 2008 2009 2010 2011 2012

22 * First 9 months of 2013

Visitor Arrivals Over the Last 7 Years (000)1

7,628

6,823 6,517

7,018 7,299

8,029 8,265 8,486

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2007 2008 2009 2010 2011 2012 2013 2014

Visitor Expenditures Over the Last 7 Years ($mm)1

12,811 11,399

9,993 11,066

12,158

14,365 14,790

15,405

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

2007 2008 2009 2010 2011 2012 2013 2014

Source: DBEDT, Smith Travel Research, Hospitality Advisors LLC 1 2013 & 2014 figures are projections

Hawai‘i’s Tourism Industry Continues to Show Remarkable Strength

Diverse and Growing Economy

Region Historical peak

level

2008 Arrivals LTM Arrivals1 % Change

US Mainland 5,173,264 4,452,343 5,019,119 12.7

Japan 2,216,890 1,175,199 1,498,975 27.6

Canada 477,564 459,580 509,588 10.9

China 81,738 54,235 132,579 144.5

Korea 122,902 38,110 175,318 360.0

Taiwan 88,193 11,482 17,217 49.9

Australia 237,808 137,812 290,804 111.0

Europe 231,604 115,172 138,780 20.5

Latin America 22,116 18,896 29,546 56.4

Smaller markets are creating new records while big markets are recovering

Source: Department of Business, Economic Development & Tourism, Hawaii Tourism Authority 1 Last Twelve months from November 2012 to October 2013

25 25 25 25

Visitor Activity

For the First 10 Months of 2013, 62.6% of Hawaii Visitors Were From the U.S. with Japanese Visitors Accounting for 17.8%

US West 40.5%

US East 21.5%

Japan 18.7%

Canada 5.9%

Others 13.9%

US West, 42.4%

US East, 25.9%

Japan, 21.0%

Canada, 3.2% Others,

9.0%

2003 First 10 Months of 2013

Visitors from Canada and other markets are increasing

Source: DBEDT and Hawaii Tourism Authority

2012 2013 2014

USA. 2.2 2.0 2.6

Canada 2.1 1.9 2.5

Japan 1.8 0.7 1.2

S. Korea 2.3 3.1 4.0

Hong Kong 1.7 3.2 4.1

Taiwan 1.3 3.1 4.1

China 7.7 8.0 8.1

United Kingdom -0.1 1.0 1.7

Germany 0.9 0.9 1.4

France 0.1 0.2 1.0

Eurozone -0.4 0.0 0.9

Australia 3.5 2.7 3.1

Brazil 1.5 3.4 4.1

Source: Blue Chip Economic Indicators, December 10, 2013

The economies of Hawaii visitor origin countries will look better in 2014

MMA STATE HONOLULU KAHULUI KONA HILO LIHUE

TOTAL 524,939 465,350 62,609 -10,653 -9,306 16,939

US WEST 154,435 89,760 70,941 -13,735 -9,306 16,775

US EAST 66,075 75,698 -9,623

JAPAN 120,415 120,415

CANADA 159 -4,378 1,291 3,082 164

OTHER

ASIA 68,239 68,239

OCEANIA 115,124 115,124

OTHER 492 492

New Airs seats for 2013*

*1st 10 months of 2013 Source: HTA and OAG

New airseats added in 2013 on scheduled flights

28

-2,000,000

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

State Honolulu Kahului Kona Hilo Lihue

2013

2014

+0.7%

+1.6%

-4.6%

+4.9% -18.3% +3.5%

Air Seats Will Increase by 0.7% in 2014

Business Formation

LLC and LLP Firms Registered in Hawaii

0

2,000

4,000

6,000

8,000

10,000

12,000 Formed Cancelled

Source: Hawaii State Department of Commerce and Consumer Affairs

30

0

200

400

600

800

1,000

1,200

1,400

1,600 2

00

0:1

Q

20

00

:2Q

2

00

0:3

Q

20

00

:4Q

2

00

1:1

Q

20

01

:2Q

2

00

1:3

Q

20

01

:4Q

2

00

2:1

Q

20

02

:2Q

2

00

2:3

Q

20

02

:4Q

2

00

3:1

Q

20

03

:2Q

2

00

3:3

Q

20

03

:4Q

2

00

4:1

Q

20

04

:2Q

2

00

4:3

Q

20

04

:4Q

2

00

5:1

Q

20

05

:2Q

2

00

5:3

Q

20

05

:4Q

2

00

6:1

Q

20

06

:2Q

2

00

6:3

Q

20

06

:4Q

2

00

7:1

Q

20

07

:2Q

2

00

7:3

Q

20

07

:4Q

2

00

8:1

Q

20

08

:2Q

2

00

8:3

Q

20

08

:4Q

2

00

9:1

Q

20

09

:2Q

2

00

9:3

Q

20

09

:4Q

2

01

0:1

Q

20

10

:2Q

2

01

0:3

Q

20

10

:4Q

2

01

1:1

Q

20

11

:2Q

2

01

1:3

Q

20

11

:4Q

2

01

2:1

Q

20

12

:2Q

2

01

2:3

Q

20

12

:4Q

2

01

3:1

Q

20

13

:2Q

2

01

3:3

Q

Hawaii bankruptcy filings has been declining since the 3rd quarter of 2010

All the economic indicators show that Hawaii’s economy

is on a normal growth path

Visitor industry growth will be slowing down due to

capacity limit

Labor market will continue to improve in 2014

Construction industry will be the main driver for

economic growth in 2014, probably a new record year

Personal income will continue to grow at a rate similar to

the national average

Hawaii’s economy will grow at a higher rate than the

nation in 2014

Hawaii’s unemployment rate will still be better than the

nation in 2014

Summary

!Senate Committee on Ways and Means

House Committee on Finance Honolulu, Hawaii

December 18, 2013

Forecast Project

Dr. Byron Gangnes Chair, UH Department of Economics

Senior Research Fellow, UHERO

No Shutdown for Hawaii Growth

UHERO.HAWAII.EDU ©2013December 18, 2013

No Shutdown for Hawaii Economy

US performance in the face of fiscal austerity ‣ Federal damage significant this year ‣ Areas of private sector strength !

Prospects for the US and the Asia-Pacific region ‣ What’s on tap? ‣ What are the concerns? !

Hawaii conditions and outlook ‣ Is there room for more tourism? ‣ Construction boom developing !


Source: Goldman Sachs via calculatedriskblog.com

Excessive austerity, even before shutdown


Budget turmoil took toll on confidenceGallup Daily: U.S. Economic Confidence Index

Source: Gallup, http://www.gallup.com/poll/151550/gallup-daily-economic-confidence-index.aspx

-50

-43

-36

-29

-21

-14

-7

0

01/3-

5/201

3

02/1-

4/201

3

03/4-

6/201

3

04/3-

5/201

3

05/2-

4/201

3

05/31

-06/2

/2013

06/29

-07/1

/2013

07/30

-08/1

/2013

08/28

-30/2

013

09/26

-28/2

013

10/25

-27/2

013

11/24

-26/2

013

http://www.gallup.com/poll/151550/gallup-daily-economic-confidence-index.aspx


No surprise that consumer spending is weak

-‐5

-‐3

0

3

5

-‐40

-‐20

0

20

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

-‐10

-‐5

0

5

10

Consumer Spending

Government Spending

Residential Investment

Percent

1.4%

13%


The US and Asia-Pacific Forecast

2013 has turned out to be another weak year ‣ Slow US and Europe hit exports ‣ China’s lower growth path !

Picture appears to have stabilized ‣ Europe has exited recession ‣ US growth expected to firm !

Big risks are policy related ‣ Are we out of fiscal woods? ‣ Backend of Abenomics

‣ How will Fed manage tapering?

0%

2%

4%

6%

8%

10%

Apr-89

Apr-97

Apr-14

Oct-

15

Consumption Tax Rate

Japan fiscal contraction in the pipeline


-2

0

2

4

6

-4

-2

0

2

4

6

8

10

12

2010 2011 2012 2013 2014 2015

China JapanUnited States

Growth of Real GDPPercent

Stronger US, but Japan at risk


Oahu Room Revenue and Occupancy Rates

Not much headroom for Hawaii tourism

$%

* Source: Hospitality Advisors & UHERO

50

70

90

110

130

150

170

190

210

230

250

60

63

66

69

72

75

78

81

84

87

90

1998

q1

1999

q1

2000

q1

2001

q1

2002

q1

2003

q1

2004

q1

2005

q1

2006

q1

2007

q1

2008

q1

2009

q1

2010

q1

2011

q1

2012

q1

2013

q1

Occupancy Rate Room Rate


-30%-25%-20%-15%-10%-5%0%5%

10%15%20%25%30%

1/1/10

7/1/10

1/1/11

7/1/11

1/1/12

7/1/12

1/1/13

7/1/13

In Yen

In Dollars

Year-on-year growth in per-person, per-day spending

This year’s slowing: Lower Japanese spending


-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

1/1/12

3/1/12

5/1/12

7/1/12

9/1/12

11/1/

12

1/1/13

3/1/13

5/1/13

7/1/13

9/1/13

Oahu NBI

This year’s slowing: Neighbor Islands faring better

Year-on-year growth in US visitor days


Arrivals growth slowdown

1,200

1,400

1,600

1,800

2,000

2,200

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

History 13Q4 Forecast Updated Forecast

Statewide Visitor ArrivalsThou. (SA)

* Source: Hawaii Tourism AuthoritySeasonal Adjusted—UHERO

December 18, 2013

0

433

867

1,300

1,733

2,167

2,600

0

250

500

750

1,000

1,250

1,500

1993Q41996Q4

1999Q42002Q4

2005Q42008Q4

2011Q4

Oahu Sales (left)Oahu Inventory (right)Source: Prudential Locations

Don’t bet against the cycle

UHERO.HAWAII.EDU ©2013

Oahu Single Family Sales and Inventory

December 18, 2013

0

113

225

338

450

563

675

788

900

1997

Q4

1999

Q4

2001

Q4

2003

Q4

2005

Q4

2007

Q4

2009

Q4

2011

Q4

2013

Q4

2015

Q4

Affordable Mortgage SF Resale Price

Thou. $ (SA)



Oahu Home Price Dynamics

December 18, 2013

0

600

1,200

1,800

2,400

3,000

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Private ResidentialNon-Residential Bldg Permits

Mil. 12$



Real Building Permits—Statewide


ConstructionOther ServicesFood Services

Health CareProf. Services

TransportationAccommodationWholesale TradePublic Education

Local Gov.Finance & Ins.

InformationManufacturing

Retail TradeState Gov.

Federal Gov.

-1,200 -600 0 600 1,200 1,800 2,400 3,000

2012 2013 YTD

Growth leaders changing

Change in State Job Counts

Source: DLIR


-8

-6

-4

-2

0

2

4

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Non-Farm jobsReal Income

Hawaii Job and Income ForecastsPercent

Expansion expected to gain speed


No Shutdown for Hawaii Economy

The environment for growth is improving ‣ The worst of the federal drag is behind us ‣ Private sector conditions will strengthen ‣ Improving confidence and labor market gains ‣ Housing and construction

‣ Apart from Japanese worries, Asia-Pacific will strengthen !

Hawaii’s expansion will continue ‣ Tourism upside is limited ‣ But the construction upswing has staying power ‣ Moderate economic gains will continue to spread !


Mahalo

MidMid--cycle hiccups? Hawaiicycle hiccups? Hawaii’’s economic s economic expansion risks losing momentumexpansion risks losing momentum

Copyright 2013Copyright 2013Paul H. Brewbaker, Ph.D.Paul H. Brewbaker, Ph.D.

slides prepared for a joint informational briefing of theslides prepared for a joint informational briefing of the

Senate Committee on Ways and Means Senate Committee on Ways and Means House Committee on Finance House Committee on Finance

Hawaii State Capitol AuditoriumHawaii State Capitol Auditoriumbyby Paul H. Brewbaker, Ph.D.Paul H. Brewbaker, Ph.D.

TZ Economics, Kailua, HawaiiTZ Economics, Kailua, Hawaii

December 18, 2013December 18, 2013

11

Slide copyright 2013

Outline and prefaceOutline and preface

PrefacePreface--three key pointsthree key points:

•• Tourism share 15Tourism share 15--20% of value20% of value--added (GDP)added (GDP)——what happens really matterswhat happens really matters

•• Government share 25%: 10% military, 6% civilian, 9% state and lGovernment share 25%: 10% military, 6% civilian, 9% state and localocal

•• Average duration of postAverage duration of post--1982 U.S. economic expansion is 8 years; this is year 51982 U.S. economic expansion is 8 years; this is year 5

22


State and local8.9%

Federal military9.6%

Federal civilian5.8%

Private industry75.6%

Non-tourism85.2%

Tourism14.8%

Hawaii economic valueHawaii economic value--added (GDP) sharesadded (GDP) sharesin tourism and military: in tourism and military: combinedcombined approx. 25%approx. 25%

2010 Tourism vs. Non-tourism

Source for underlying data: Bureau of Economic Analysis, U.S. Department of Commerce, Hawaii DBEDT, Hawaii Tourism Authority; all calculations by TZE

See also:James Mak, 2005. “Tourism demand and output in the U.S. Tourism Satellite Accounts: 1998-2003,” Journal of Travel Research, 44 (1), pp. 4-5Eugene Tian, James Mak, and PingSun Leung, “The direct and indirect contributions of tourism to regional GDP: Hawaii,“ UHERO Working Paper

No. 2011-5 (July 28, 2011) (http://www.uhero.hawaii.edu/assets/WP_2011-5.pdf) DBEDT State of Hawaii Data Book (http://hawaii.gov/dbedt/info/economic/databook/2010-individual/07/073410.xls) James Hosek, Aviva Litovitz, Adam C. Resnick, 2011 “How Much Does Military Spending Add to Hawaii’s Economy?” Rand Corporation Technical

Report TR-996 (http://www.rand.org/pubs/technical_reports/TR996.html); note that this report incorrectly doubles the military share of Hawaii GDP to inflate its “association” with other industries using input-output multipliers, which is like doubling everything.

2010 Military vs.

Non-military

33


in months Mean Median Max Mean Median Max

1857-1928 25.5 22 46 20.5 18 65 *1929-1982 46.2 39 106 ** 13.8 11 43 †

1983-2010 95.0 92 120 ● 11.3 8 18 ∆

*The Panic (Oct. 1873 - Mar. 1879)†The Great Depression (Aug. 1929 - Mar. 1933)**Camelot (Feb. 1961 - Dec. 1969)●dot.com (Mar. 1991 - Mar. 2001)∆The Great Recession (Dec. 2007 - Jun. 2009)

Expansions Contractions

Duration of economic expansions and contractionsfrom NBER troughs to peaks and back again

U.S. economic expansions, contractions: U.S. economic expansions, contractions: odds are this expansion is half overodds are this expansion is half over

Source: National Bureau of Economic Research

44


1. Tourism

2. Housing

3. Construction

4. Macroeconomic outlook

OutlineOutline

55


Hawaii tourism was Hawaii tourism was decliningdeclining during 2013during 2013

[This slide intentionally left blank]

66


450

500

550

600

650

700

750

04 05 06 07 08 09 10 11 12 13 14

SeasonallySeasonally--adjusted statewide visitor arrivals adjusted statewide visitor arrivals declined since late last year: demand or supply?declined since late last year: demand or supply?M

onth

ly in

thou

sand

s, s

.a. (

log

scal

e)

Source: Raw monthly data through October 2013 from HTA, Hawaii DBEDT; seasonal adjustment using Census X-12 ARIMA filter by TZE

U.S. recessionshaded

Aloha shutdown

Tohoku

P T

Lift

Down is the new up(just like after mid-2005)

H1N1-A

77


4.5

5.0

5.5

6.0

6.5

04 05 06 07 08 09 10 11 12 13 14

Statewide total visitor days (Statewide total visitor days (s.as.a.): growth stalled.): growth stalledM

onth

ly in

milli

ons,

.s.a

. (lo

g sc

ale)

Source: Raw monthly data through October 2013 from HTA, Hawaii DBEDT; seasonal adjustment using Census X-12 ARIMA filter by TZE


Aloha shutdown

Tohoku

P T

Lift

H1N1-A

88


650

700

750

800

850

900

950

04 05 06 07 08 09 10 11 12 13 14

Total seats to Hawaii through October 2013 (Total seats to Hawaii through October 2013 (s.as.a.): .): after two pushes (2010, 2012) capacity flattenedafter two pushes (2010, 2012) capacity flattened

No Aloha

U.S. recession shaded

Tohoku

Mon

thly

in th

ousa

nds,

s.a

. (lo

g sc

ale)

Source: Data through October 2013 from HTA, Hawaii DBEDT; seasonal adjustment by TZE

P T

99


2.0

2.5

3.0

3.5

4.0

4.5

2002 2004 2006 2008 2010 2012

Real Hawaii visitor expenditure (Real Hawaii visitor expenditure (s.as.a.) through 2013Q3.) through 2013Q3

Sources: Hawaii Tourism Authority, Hawaii DBEDT, Bureau of Labor Statistics; deflation calculations by TZE

Mon

thly

in b

illion

201

2$, s

.a. (

log

scal

e) U.S. recessions shaded Aloha shutdown

9/11

SARS

Tohoku

H1N1-A

1010


Relationship between hotel occupancy rate and real Relationship between hotel occupancy rate and real hotel room rate appreciation getting hotel room rate appreciation getting ““steepersteeper””

-15

-10

-5

0

5

10

15

60 65 70 75 80 85

1978-1999

2000-2008

20092009--20132013

Sources: Raw data from PKF Hawaii and Joseph Toy, Hospitality Advisors LLC; UHERO; deflation, vacancy rates, and regressions by TZE

*Each tourism cycle, for a given rise in hotel occupancy, real room rates appreciate fasterthan before because new accommodation supply is constrained by regulatory barriers

Occupancy rate (%)

Rea

l roo

m ra

te a

ppre

ciai

ton

(%)

1111


0.5

1.0

1.5

2.0

2.5

3.0

1950 1960 1970 1980 1990 2000 2010

Visitor days growing faster than capacity (more Visitor days growing faster than capacity (more highlyhighly--utilized): past 2.5 visitors/room utilized): past 2.5 visitors/room ““sold outsold out””

Visi

tors

/ un

it

E

E estimated based on January-October 2013 data

Sources: Hawaii Visitors Bureau, Hawaii Tourism, Authority Hawaii DBEDT; visitors/unit is calculated by dividing total visitor days by the previous year’s visitor plant inventory, and dividing the resulting ratio by 365.25 (days/year), data are annual except for 2013 estimate (10-mos. data).

1212


Musical chairs? Recent visitor arrivals (Musical chairs? Recent visitor arrivals (s.as.a.) losing .) losing ground ground exceptexcept in in ““other foreignother foreign”” categorycategory——new Asianew Asia

40

80

160

320

640

2000 2005 2010 2015

JapanOtherCanada

800

900

1000

1100

1200

1300

1400

1500

2000 2005 2010 2015

U.S. domestic

Quarterly in thousands, s.a. (log scales)

Sources: Underlying data from Hawaii Tourism Authority, Hawaii DBEDT, data seasonally-adjusted and posted by UHERO (http://uhero.prognoz.com/TableR.aspx).

U.S.

JapanOther

Canada

U.S. recessions shaded

9/11 Aloha

1313


1.1. TourismTourismTourism leadership in Tourism leadership in ““first halffirst half”” now impaired by capacity constraintnow impaired by capacity constraintNo more rooms No more rooms ⇒⇒ higher room rates at faster rates of increasehigher room rates at faster rates of increaseHigher lodging expense reduces: (a) stay length; (b) nonHigher lodging expense reduces: (a) stay length; (b) non--lodging lodging outlay/visitor; and (c) total real (inflationoutlay/visitor; and (c) total real (inflation--adjusted) tourism export receiptsadjusted) tourism export receiptsLoss of momentum in U.S., Japan, Canada arrivals: probably not Loss of momentum in U.S., Japan, Canada arrivals: probably not ““demanddemand””

2. Housing

3. Construction


OutlineOutline

1414


Housing trends: cyclical recovery hindered by Housing trends: cyclical recovery hindered by slowslow--moving regulatory processmoving regulatory process


1515


The (Mike) Sklarz Curve: Oahu home price The (Mike) Sklarz Curve: Oahu home price appreciation, lagged inventory remaining 1994appreciation, lagged inventory remaining 1994--20132013

-20

-10

0

10

20

30

0 4 8 12 16 20 24

Single-familyCondominium

Months of MLS inventory remaining (-5)

Hom

e pr

ice

appr

ecia

tion

(%)

Source: Honolulu Board of Realtors; seasonal adjustment, regressions on logs of months of inventory remaining by TZE; see Norm Miller and Mike Sklarz, “A Note on Leading Indicators of House Price Trends,” Journal of Real Estate Research 1:1 (Fall 1986) pp. 99-109

( )[ ]5ln618.13474.28ˆ: −−= tt mpSF

( )[ ]5ln529.13830.28ˆ: −−= tt mpCO

@3 months of inventory remaining, prediction is 10-15% appreciation before next summer

1616


100

200

400

800

1995 2000 2005 2010 2015

Single-familyCondominium

+2 years:$450k

+2 years: $850k

Source: Honolulu Board of Realtors (raw data through September 2013); seasonal adjustment using Census X-12 ARIMA filter by TZE

Thou

sand

dol

lars

, s.a

. (lo

g sc

ale)

Recessions shaded

Monthly Oahu median existing home sales pricesMonthly Oahu median existing home sales prices

1717


200

400

800

1995 2000 2005 2010 2015

SF Bay AreaOrange Co., CAMauiKauaiKona side

California, Neighbor Island existing singleCalifornia, Neighbor Island existing single--family family home median sales prices: strong cohome median sales prices: strong co--movementmovement

Sources: Hawaii Information Service, Realtors Association of Maui, National Association of Realtors; seasonal adjustment by TZE


Qua

rterly

in th

ousa

nd $

, s.a

. (lo

g sc

ale)

CrossCross--correlation correlation 90% and up90% and up

1818


100

1000

75 80 85 90 95 00 05 10 15 20 25

OahuAnaheim, Santa Ana (Orange Co., CA)San Francisco, Oakland, Fremont (Bay Area, CA)

320

32


Sources: Honolulu Board of Realtors, National Association of Realtors. Prudential Locations, UHERO; seasonal adjustment by TZE; regression estimate of the natural logarithm of Oahu median home prices on a constant and time trend, 1980Q1-2013Q2

$1.25 million by 2025@ c. 4.8%

Thou

sand

dol

lars

, s.a

. (lo

g sc

ale)

Median singleMedian single--family existing home sales prices: family existing home sales prices: replicating the replicating the lastlast (early(early--2000s) price acceleration2000s) price acceleration

1919


0.4

0.8

1.6

3.2

6.4

80 85 90 95 00 05 10 15 20

Existing home salesNew units authorized

Hawaii existing home sales outpace new residential Hawaii existing home sales outpace new residential units permitted (especially slow Neighbor Isle recovery)units permitted (especially slow Neighbor Isle recovery)

U.S. recessions shadedThou

sand

uni

ts/q

uarte

r, s.

a. (l

og s

cale

)

Source: Prudential Locations, UHERO, County Building Departments, Hawaii DBEDT and TZ Economics; seasonal adjustment, trend extraction by TZE, housing unit authorization data through third quarter 2013, existing home sales through second quarter 2013

2020


0

2

4

6

8

10

12

14

20 30 40 50 60 70 80 90 00 10 20

OahuNeighbor Isles

Thou

sand

new

uni

ts/a

nnum

WWIIWWII

Sources: Robert C. Schmitt Historical Statistics of Hawaii, Hawaii DBEDT (http://dbedt.hawaii.gov/economic/county_report/), Bank of Hawaii Annual Economic Report (various); annual TZE data through 2012

Annual new housing units authorized by building permitAnnual new housing units authorized by building permit

2121


-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

1930s 1950s 1970s 1990s 2010-12-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

1930s 1950s 1970s 1990s 2010-12

Sources: Robert C. Schmitt Historical Statistics of Hawaii, Hawaii DBEDT (http://dbedt.hawaii.gov/economic/county_report/), Bank ofHawaii Annual Economic Report (various), annual TZE data through 2012

o

oMilitary downsizing (BRAC) PProjection to 2020 with Koa Ridge, Ho’opili, Kakaako; assumes housing cycle tapers after 2017 (next slide)

Hawaii now: population growth > housing formationHawaii now: population growth > housing formation

Oahu Neighbor Islands

P

2000s “boom”

2000s “boom”

Housing growth Housing growth rate (%) (rate (%) (ΔΔKKtt/K/Ktt--11))

Housing growth Housing growth rate (%) (rate (%) (ΔΔKKtt/K/Ktt--11))

Population Population growth rate (%)growth rate (%)

Population Population growth rate (%)growth rate (%)

2222


1.0

2.0

4.0

8.0

80 85 90 95 00 05 10 15 20

Actual/projectedTrend/cycle

Projection assumes that existing home sales prices rise 15% annually 2014-2017 to approximately $1 million (SF), $530k (condo), long-term Treasury bond yields rise to 4% by 2015, production of 5,500 high-rise condominium units in Kakaako is completed but absorption reduces notional annual production amounts at Koa Ridge (300 units) and Ho’opili (500 units) by one-third in 2017 and two-thirds in 2018 at the end of a U.S. economic expansion of average duration for the post-1970s era (eight years)

Thou

sand

new

uni

ts, s

.a.

(lo

g sc

ale)

ProjectedProjected

Oahu annual new housing units authorized by Oahu annual new housing units authorized by building permit actual and projected for 20building permit actual and projected for 20--teensteens

You are You are herehere

Sources: County building departments, Hawaii DBEDT, TZE database; trend extraction by TZE

2323


1. Tourism

2.2. HousingHousingTight inventory: model predicts10Tight inventory: model predicts10--15 percent appreciation in 201415 percent appreciation in 2014Housing market fundamentals improving, demand outstripping supplHousing market fundamentals improving, demand outstripping supplyyUpswing will face headwinds: eroding affordability, rising inteUpswing will face headwinds: eroding affordability, rising interest ratesrest ratesProduction constraints limit homebuilding to Production constraints limit homebuilding to less thanless than population growthpopulation growth(Regulatory, geographic constraints (Regulatory, geographic constraints amplifyamplify valuation cycle in housing)valuation cycle in housing)

3. Construction


OutlineOutline

2424


Construction: head fakeConstruction: head fake——PV panels PV panels are not are not buildingsbuildings


2525


Recent growth of Hawaii real private building permits Recent growth of Hawaii real private building permits dominated by dominated by equipmentequipment* (PV), not new structures* (PV), not new structures

10

100

1000

85 90 95 00 05 10 1510

100

1000

85 90 95 00 05 10 15

Additions and alterations Additions and alterations (includes equipment installation)(includes equipment installation)

New private building permitsNew private building permits

All data monthly in millions of 2012$, log scalesAll data monthly in millions of 2012$, log scales

*Building permits are required for installation of photovoltaic equipment, but investment (gross capital formation) customarily distinguishes structures from equipment and software—buying a diesel generator for hurricane preparedness may be a good idea but it’s not building (the verb) a building (the noun), nor is the installation of rooftop photovoltaic panels

Sources: County building departments, Hawaii DBEDT, U.S. Bureau of the Census; seasonal adjustment, deflation and trend-cycle extraction by TZ Economics

2626


10

20

40

200

400

800

1980 1985 1990 1995 2000 2005 2010 2015

Contracting receipts* (right scale)Construction jobs (NAICS) (left scale)Construction jobs (SIC) (left scale)

Construction receipts and jobs correlate, but buying Construction receipts and jobs correlate, but buying PV or a diesel generator is PV or a diesel generator is equipmentequipment investmentinvestment

Thou

sand

jobs

, s.a

. (lo

g sc

ale)

1062012$, s.a. (log scale)


*Excludes military housing privatization which was tax-exempt

Sources: Hawaii Department of Taxation, Hawaii DLIR and DBEDT, U.S. Bureau of the Census; seasonal adjustment, deflation and trend extraction by TZE, tax base data through May 2013, payroll employment data through August 2013

2727


20

24

28

32

36

40

200

400

600

800

90 95 00 05 10 15

Contracting* (right scale)Jobs (left scale)

Construction jobs not keeping up with spendingConstruction jobs not keeping up with spendingTh

ousa

nd jo

bs, s

.a. (

log

scal

e)10

62012$, s.a. (log scale)


*Excludes military housing privatization which was tax-free

c. $640 million/month

Sources: Hawaii Department of Taxation, Hawaii DLIR and DBEDT, U.S. Bureau of the Census; seasonal adjustment, deflation and trend extraction by TZE, tax base data through May 2013, payroll employment data through August 2013

2828


Real new residential building permits: laggingReal new residential building permits: laggingM

illion

201

2 do

llars

, s.a

. (lo

g sc

ale)

20

40

80

160

320

1980 1985 1990 1995 2000 2005 2010 2015

Sources: County building departments, Hawaii DBEDT, U.S. Bureau of the Census; seasonal adjustment, deflation and trend extraction by TZEmonthly data through August 2013

Not even near halfway back

2929


Real new commercial building permits: lagging worseReal new commercial building permits: lagging worseM

illion

201

2 do

llars

, s.a

. (lo

g sc

ale)

10

100

1980 1985 1990 1995 2000 2005 2010 2015

Sources: County building departments, Hawaii DBEDT, U.S. Bureau of the Census; seasonal adjustment, deflation and trend extraction by TZEmonthly data through August 2013

3030


Quarterly real government construction contracts to Quarterly real government construction contracts to midmid--2013: signs of life or deferred maintenance?2013: signs of life or deferred maintenance?

100

200

400

65 70 75 80 85 90 95 00 05 10 15

Sources: Bank of Hawaii (discontinued), Hawaii DBEDT, U.S. Bureau of the Census; seasonal adjustment, deflation and trend extraction by TZEquarterly data through second quarter 2013, combined federal, state and county government construction commitments

Qua

rterly

, 106

2012

$, s

.a. (

log

scal

e)

“Catch a Wave”

“Uncle John”

“Choo-choo?”

3131


Annual real government construction Annual real government construction in Hawaii, through 2012in Hawaii, through 2012

400

800

1600

1960 1970 1980 1990 2000 20100

1

2

3

4

5

6

1960 1970 1980 1990 2000 2010

Federal, state, county contracts*(Million 2012 dollars)

Totals relative to Hawaii output(percent of GDP)

“Catch a Wave”

“Uncle John”

*Excludes military housing privatization which is not public, duh

Sources: Bank of Hawaii (discontinued), Hawaii DBEDT, U.S. Bureau of the Census, BEA; seasonal adjustment, deflation and trend extraction by TZE, quarterly data through second quarter 2013, combined federal, state and county government construction commitments

3232


OutlineOutline

1. Halfway into the current economic expansion

2. Housing

3.3. ConstructionConstructionRecovery isRecovery is partly a head fake: PV panels are partly a head fake: PV panels are equipmentequipment, not buildings*, not buildings*Construction of new Construction of new buildingsbuildings recovering less quickly; commercial not at allrecovering less quickly; commercial not at allHomebuilding mired in Homebuilding mired in acronymphobiaacronymphobia (LUC, DPP, HCDA, HHFDC, DHHL(LUC, DPP, HCDA, HHFDC, DHHL……))AfterAfter rising, public construction as % of GDP still rising, public construction as % of GDP still less thanless than fifty years agofifty years ago


*As in “building permit,” the noun, not the verb

3333


Macroeconomic outlook: growth with challengesMacroeconomic outlook: growth with challenges


3434


-8

-4

0

4

8

05 06 07 08 09 10 11 12 13 14

ActualNABE (Dec 2013)

U.S. real GDP growth forecasts (December 2013):U.S. real GDP growth forecasts (December 2013):October federal shutdown masked strong third quarterOctober federal shutdown masked strong third quarter


High 5

Low 5

Source: National Association for Business Economics, NABE Forecasters Expect Uptick in Growth with Healthier Labor Market in 2014 (December 9, 2013)

Per

cent

3535


Composition of U.S. real GDP since 2010: Composition of U.S. real GDP since 2010: consumptionconsumption--, investment, investment--, and export, and export--led growthled growth

-12

-8

-4

0

4

8

2005 2006 2007 2008 2009 2010 2011 2012 2013

ConsumptionCapital formationGovernmentNet exportsInventory change

Source: Bureau of Economic Analysis, U.S. Department of Commerce

Per

cent


3636


Compound annual growth of real U.S. GDP government Compound annual growth of real U.S. GDP government components highlight shifting sources of fiscal dragcomponents highlight shifting sources of fiscal drag

Source: Bureau of Economic Analysis, U.S. Department of Commerce

Expansion to-date

First 2 years 09Q2-11Q2

Second 2 years 11Q2-13Q3

GDP 2.3 2.25 2.36

Government -1.5 -1.5 -1.4

Federal -1.1 1.1 -3.0National defense -2.1 0.8 -4.5Nondefense 0.7 1.8 -0.3

State and local -1.7 -3.3 -0.3

Hawaii math: 0.25 of economy (public sector) is growing −1.5% per annum0.75 of economy (private sector) is growing +3.5%Overall economy grows 2.25%

3737


Hawaii quarterly real personal income growth (Hawaii quarterly real personal income growth (pukapuka))and contemporaneous Honolulu inflation rates (line)and contemporaneous Honolulu inflation rates (line)


22--3% growth expectation 3% growth expectation (e.g. DBEDT, UHERO)(e.g. DBEDT, UHERO)

Source: Bureau of Economic Analysis, U.S. Department of Commerce, Bureau of Labor Statistics, U.S. Department of Labor; Honolulu CPI-U is interpolated from semiannual data

Per

cent

Real personal income growth rates

Federal government sequestration

-2

0

2

4

6

04 05 06 07 08 09 10 11 12 13 14

HNL CPI-U inflationHawaii real PI growthCPI inflation

3838


0

4

8

12

2000 2005 2010 2015

U.S. averageNeighbor IslesOahu

Hawaii and U.S. unemployment Hawaii and U.S. unemployment rates(s.arates(s.a.): .): Fed threshold, 6.5%, before shortFed threshold, 6.5%, before short--term rates riseterm rates rise

Per

cent

Source: Bureau of Labor Statistics, U.S. Department of Labor, Hawaii DLIR and DBEDT; seasonal adjustment of Hawaii data by TZE; Hawaii data through August 2013, U.S. data include September 2013 (delayed) estimate.

6.5%

Neighbor Isles

Oahu


3939


0 5 10 15 0 5 10 15 0 5 10 15 0 5 10 150 5 10 150 5 10 150 5 10 15 0 5 10 150 5 10 15 0 5 10 150 5 10 15 0 5 10 150 5 10 150 5 10 150 5 10 15

Distributions of FOMC participantDistributions of FOMC participant’’s forecasts for s forecasts for the fed funds target rate and weighted averagesthe fed funds target rate and weighted averages

2013 2014 2015 Longer-run

Perc

ent

Number of observations (FOMC participants, total = 17)

0.25% 0.40%

2.26%

3.93%

2016

1.25%

5

4

3

2

1

0

Source: Advance release of Figure 2 Overview of FOMC participants’ assessments of appropriate monetary policy to be released with September17-18, 2013 FOMC minutes (released September 18, 2013) (http://www.federalreserve.gov/monetarypolicy/fomcprojtabl20130918.htm)

4040


0

2

4

6

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Treasury constantTreasury constant--maturity yields (term structure) maturity yields (term structure) and fed funds rate trajectory implied by the FOMCand fed funds rate trajectory implied by the FOMC

“Longer-run (4%)”

Sept. 2013 FOMC fed funds rate forecast


Per

cent

Source: H.15 and advance release of Figure 2 Overview of FOMC participants’ assessments of appropriate monetary policy to be released with Sept. 17-18, 2013 FOMC minutes (released September 18, 2013) (http://www.federalreserve.gov/monetarypolicy/fomcprojtabl20130918.htm)

9/11 Lehman10-year U.S. Treasury Note yield

Effective fed funds rate

4141


Hawaii Council on Revenues multiHawaii Council on Revenues multi--year forecasts for year forecasts for nominal General Fund revenue growth since FY1999nominal General Fund revenue growth since FY1999


Per

cent

cha

nge

Source: Hawaii Department of Taxation (http://www.state.hi.us/tax/a9_1cor.htm)

Actual

Forecasts

Fiscal years

-15

-10

-5

0

5

10

15

20

2000 2005 2010 2015 2020

4242


800

1000

1200

1400

1600

2000 2005 2010 2015

The $6.4 billion dollar question: will real General The $6.4 billion dollar question: will real General Fund revenue exceed $5.4 billion (12 mos. to 9/13)?Fund revenue exceed $5.4 billion (12 mos. to 9/13)?

Qua

rterly

, milli

on 2

012$

(s.a

., lo

g sc

ale)


9/11

Lehman

Tohoku

Refund lag

ERTF

??

SARS

Sources: Hawaii Department of Taxation, Hawaii Department of Business, Economic Development and Tourism, Bureau of Labor Statistics; seasonal adjustment and deflation by TZ Economics

4343


800

1000

1200

1400

1600

2000 2005 2010 2015

ConstantConstant--dollar Hawaii general fund revenues actually dollar Hawaii general fund revenues actually have declined for 5 quarters recently (1 outlier)have declined for 5 quarters recently (1 outlier)

Qua

rterly

, milli

on 2

012$

(s.a

., lo

g sc

ale)

Sources: Hawaii Department of Taxation, Hawaii Department of Business, Economic Development and Tourism, Bureau of Labor Statistics; seasonal adjustment and deflation by TZ Economics

Lehman

SARS

Tohoku

Refund lag

ERTF


9/11

4444


1. Halfway into the current economic expansion

2. Housing

3. Construction

4.4. Macroeconomic outlookMacroeconomic outlookU.S. real GDP growth forecast: 2% going to 3% (Hawaii too)U.S. real GDP growth forecast: 2% going to 3% (Hawaii too)Private sector growth despite fiscal drag, now from federal govePrivate sector growth despite fiscal drag, now from federal governmentrnmentOilOil--driven inflation shocks were temporary; tighter labor markets codriven inflation shocks were temporary; tighter labor markets comingmingNormalization of monetary policy will raise interest ratesNormalization of monetary policy will raise interest rates——more dragmore dragGeneral fund revenues exceed forecast, boom General fund revenues exceed forecast, boom andand bust; position for latterbust; position for latter

OutlineOutline

4545


MahaloMahalo!!Slides available from:Slides available from:

Paul H. Brewbaker, Ph.D.Paul H. Brewbaker, Ph.D.Principal, TZ EconomicsPrincipal, TZ Economics606 606 UlulaniUlulani St.St.Kailua, Hawaii 96734Kailua, Hawaii [email protected]@tzeconomics.com


Appendix: Phillips Curves, etc.Appendix: Phillips Curves, etc.

4646


MahaloMahalo!!

Slides available from:Slides available from:

Paul H. Brewbaker, Ph.D.Paul H. Brewbaker, Ph.D.Principal, TZ EconomicsPrincipal, TZ Economics606 606 UlulaniUlulani St.St.Kailua, Hawaii 96734Kailua, Hawaii [email protected]@tzeconomics.com

4747


Appendix 1: NABE September 2013 forecastAppendix 1: NABE September 2013 forecast


4848


-8

-4

0

4

8

05 06 07 08 09 10 11 12 13 14

ActualNABE (Sep 2013)

U.S. real GDP growth forecasts (September 2013):U.S. real GDP growth forecasts (September 2013):actual third quarter growth closer to high endactual third quarter growth closer to high end


High 5

Low 5

Source: National Association for Business Economics, NABE Panelists Forecast a Gradual Acceleration in Economic Expansion (September 9, 2013)

Per

cent

4949


Appendix 2: Tourism hasAppendix 2: Tourism has notnot grown since 1990grown since 1990


5050


0

1

2

3

4

5

6

7

8

1950 1975 20000

2

4

6

8

10

12

14

16

18

1950 1975 2000

DBEDT forecastActual data

Tourism dilemmaTourism dilemma——higher volumes, higher volumes, lowerlower receipts; receipts; binding constraint: 75k rooms (2012) vs. 73k (1992)binding constraint: 75k rooms (2012) vs. 73k (1992)

Billion 2012$Million visitors

Sources: Hawaii Tourism Authority, Hawaii DBEDT (annual visitor plant inventory surveys, monthly visitor arrivals and expenditure estimates, November visitor expenditure forecasts), Bureau of Labor Statistics (Honolulu consumer price index); deflation calculations by TZE

Thousand rooms

Tourist accommodationsTourist accommodations Tourist arrivalsTourist arrivals Real tourism receiptsReal tourism receipts

0

10

20

30

40

50

60

70

80

1950 1975 2000

5151


Older Hawaii tourism forecast (fall 2009): nobody Older Hawaii tourism forecast (fall 2009): nobody believed it possible but visitor arrivals grewbelieved it possible but visitor arrivals grew

1300

1400

1500

1600

1700

1800

1900

2000

00 02 04 06 08 10 12 14

ActualForecast

Qua

rterly

in th

ousa

nds,

s.a

., lo

g sc

ale

Source: Hawaii Tourism Authority, Hawaii DBEDT; seasonal adjustment and fall 2009 forecast by TZE (image modified slightly in 2013 to highlight Aloha Airlines shutdown instead of collapse of Lehman Brothers six months later)

9/11

SARS

Aloha Airlines

shutdown

Acceleration over next four quarters is expected to substantially rebuild arrivals volumes as lift is restored

5252


500

550

600

650

700

750

800

05 06 07 08 09 10 11 12 13 14 15

ActualTZE forecast2012 DBEDT/UHERO2011 DBEDT/UHERO

2011 forecasts too low, 2012 too high (especially mine): 2011 forecasts too low, 2012 too high (especially mine): failing to identify lodging capacity constraintfailing to identify lodging capacity constraint

Mon

thly

in th

ousa

nds,

s.a

. (lo

g sc

ale)

Source: Data through September 2013 from HTA, Hawaii DBEDT; forecasts from DBEDT and UHERO); seasonal adjustment (Census X-12 ARIMA filter) and forecast from trend components of tax revenue model for January 2013 HIPA conference by TZE


Aloha shutdown

Tohoku

P T

DBEDT/UHERO 2012

TZE forecast

DBEDT/UHERO forecast 2011

Lift

5353


Appendix 3. State of Hawaii is Appendix 3. State of Hawaii is notnot saving enoughsaving enough


5454


-5

0

5

10

15

-10

0

10

20

30

1980 1985 1990 1995 2000 2005 2010 2015 2020

Real income growth rate* (left scale)General Fund cash/exp. (right)

State cash balances historically provided deeper State cash balances historically provided deeper ““insuranceinsurance”” coverage than during the last cyclecoverage than during the last cycle

Sources: BEA, BLS, Hawaii Tax Review Commission, Hawaii Dept. of B&F (December 17, 2012) (http://budget.hawaii.gov/wp-content/uploads/2012/12/05.-State-Receipt-and-Revenue-Plans-FB13-15-PFP.pdf), Hawaii DoTAX (http://www.state.hi.us/tax/cor/2013tpi10-31_with1104_Rpt2Gov.pdf)

State of H

awaii cash balance as percent of

General Fund expenditure (%

)H

awai

i rea

l per

sona

l inc

ome

grow

th ra

te (%

)

*Lagged one year

Sugar (Commodity Bubble)

Japan Bubble

Sub-primeBubble

dot.com ProjectedProjected

5555


Another fund: unemployment rate falls to 3%, wage Another fund: unemployment rate falls to 3%, wage base, tax rate revert to base, tax rate revert to ““normalnormal””——adequate funding?adequate funding?

0

2

4

6

8

10

70 75 80 85 90 95 00 05 10 15 200

1

2

3

4

70 75 80 85 90 95 00 05 10 15 20

0

10

20

30

40

50

70 75 80 85 90 95 00 05 10 15 20-200

0

200

400

600

800

70 75 80 85 90 95 00 05 10 15 20

Assumed Assumed

Assumed Projected

Hawaii unemployment

rate (u)(percent)

Taxable wage base (w)

(thousand 2011$)

Payroll tax rate (τ) (percent)

Real unemployment compensation fund (R)(million 2011 $)

Source: Hawaii DLIR (special correspondence and http://hawaii.gov/labor/reports/annual/2011-4/program/UTF%20FY2011.pdf); deflation by TZE using Honolulu CPI-U; even agressive restoration of funding parameters and a good economy may not rebuild the fund fast enough

5656


Appendix 4. Homebuilding really is Appendix 4. Homebuilding really is that that lowlow


5757


Neighbor Island quarterly new housing units Neighbor Island quarterly new housing units authorized by building permit: nothing but upsideauthorized by building permit: nothing but upside

Sources: County building departments, Hawaii DBEDT, quarterly TZE data through third quarter 2013; seasonal adjustment and trend extraction by TZE

Uni

ts, s

.a. (

log

scal

e)

200

400

800

1600

3200

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Lehman Brothers

5858


200

400

800

1600

3200

1980 1985 1990 1995 2000 2005 2010 2015 2020

Oahu quarterly new housing units authorized by Oahu quarterly new housing units authorized by building permit: growth but fast enough?building permit: growth but fast enough?

Sources: Honolulu City & County Department of Planning and Permitting, Hawaii DBEDT, quarterly TZE data through third quarter 2013; seasonal adjustment and trend extraction by TZE

Uni

ts, s

.a. (

log

scal

e)

Recessions shaded

5959


.00

.02

.04

.06

.08

.10

20 30 40 50 60 70 80 90 00 10 20

OahuNeighbor Isles

Pro

porti

on o

f exi

stin

g ho

usin

g st

ock

Sources: Robert C. Schmitt Historical Statistics of Hawaii, Hawaii DBEDT (http://dbedt.hawaii.gov/economic/county_report/), Bank of Hawaii Annual Economic Report (various); annual TZE data through 2012

New housing units as % of housing stock(New housing units as % of housing stock(--1)1)

6060


Appendix 5: Honolulu Phillips CurvesAppendix 5: Honolulu Phillips Curves


6161


-2

0

2

4

6

8

1 2 3 4 5 6 7

1998-20062007-2013fh

u

p̂

Honolulu inflation and unemployment since 2007: Honolulu inflation and unemployment since 2007: oil shocks (2008, 2010oil shocks (2008, 2010--11); into 11); into ““The ZoneThe Zone”” 20132013

19981998

20062006

2007200720082008

20092009

Source: Bureau of Labor Statistics, U.S. Department of Labor, Hawaii DBEDT and DLIR; data through second half 2012, all calculations by TZE

20112011Oil shock (unwound in 2012)

Oil shock (unwound in 2009)

20132013

6262


-2

0

2

4

6

8

1 2 3 4 5 6 7

1998-20062007-2013fh

u

p̂

Fed inflation goal (2%) defines LR equilibrium;Fed inflation goal (2%) defines LR equilibrium;Oahu housing cycle exerts Oahu housing cycle exerts ““clockwiseclockwise”” tendencytendency

19981998

20062006

2007200720082008

20092009

Source: Bureau of Labor Statistics, U.S. Department of Labor, Hawaii DBEDT and DLIR; data through second half 2012, all calculations by TZE

20112011Oil shock (unwound in 2012)

Oil shock (unwound in 2009)

Economists' Presentation at Legislative Briefing

News & Politics

Transcript of Economists' Presentation at Legislative Briefing