Economists Eugene Tian, Paul Brewbaker and Byron Gangnes discussed these presentations before state lawmakers, Dec. 18, 2013, at the Capitol Auditorium.

1. Current Hawaii Economic Conditions
Eugene Tian
Department of Business, Economic Development & Tourism
to the
Committee on Ways and Means
and
Committee on Finance
December 18, 2013

2. Historical Economic
Growth and Projections

3. A historical review of Hawaii’s Economic Growth
Annual average growth, %
Indicator
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.

4. Key Economic Indicators
CY 2012 to 2014 (Annual % Change)
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%
Unemployment Rate (actual rate)
5.8%
4.6%
4.2%
Construction Completed
20.0%
15.8%
15.0%
Real GDP
1.6%
2.4%
2.8%
Source: Department of Business, Economic Development & Tourism.

5. Hawaii Business Cycles

6. 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
10.0%
Real GDP growth, 1980 to 2012 (% change from previous year)
8.0%
6.0%
United States
Hawaii
4.0%
2.0%
0.0%
-2.0%
-4.0%
Japan
-6.0%
-8.0%
1980
1984
1988
1992
1996
2000
2004
2008
2012
Source: US Bureau of Economic Analysis, Japan Ministry of Internal Affairs and
Communications

7. Hawaii Real GDP Growth
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
-2.00%
-4.00%
11 years,
avg=3.8%
10 years
avg=2.3%
4 years
Avg = 1.9%

8. Construction activity was the cause for 1993-1999 economic downturn
$B
30
Real retailing tax base
$B
Real services tax base
12
25
10
20
8
15
6
10
4
5
2
0
0
$B
8
$B
3.5
7
6
5
Real contracting tax base
3
2.5
2
4
3
2
1.5
1
1
0.5
0
0
Real hotel tax base

9. Residential construction leads the way in business cycle and the last 2 expansion
periods were about 8 years
2,500.0
Residential
Commercial & Industrial
Additionas & Alterations
2,000.0
1,500.0
1,000.0
500.0
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
0.0

10. Planned housing units now is only 41% of what they were
during 2000s
(average annual planned units, building permits approved)
12,000
10,983
10,000
8,404
8,000
6,464
6,000
5,406
5,818
4,000
2,380
2,000
0
1960-1970
Source: State of Hawaii Data Book
1970-1980
1980-1990
1990-2000
2000-2010
2011-2012

11. There is currently a short supply in residential housing units
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
Short supply =
Source: DBEDT
populaton/2.62 - existing housing units
= 1,392,313/2.62 – 524,343 = 7,000 units
Avg. =
2.62

12. Annual demand for residential housing units is abut 5,700
Annual residential housing units needed
= population change/2.62
= 15,000/2.62
= 5,700

13. More housing units are converted
into visitor use in recent years
12,000
Individual vacation units for visitor use
10620
10,000
8,000
7567
6440
5786
6,000
6719
5492
4,000
2,000
1230 1132 1355 1460
1704
1967 1867
2438 2347
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

14. Personal Income And Labor
Market Conditions

15. Stable and Diversified Economy
Wage and Employment Metrics
The employment sector in Hawai’i continues to improve
Per Capita Income ($000)
Non-Ag Wage and Salary Jobs
$50.0
640,000
620,000
Hawai‘i
United States
$45.0
600,000
$40.0
580,000
$35.0
560,000
540,000
$30.0
520,000
$25.0
500,000
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
2013
Quarterly Personal Income Growth(1)
(Compared to Same Period in Previous Year)
Unemployment Rate, Not Seas. Adj.
12.0%
10.0%
Hawai‘i
10.0%
United States
Oct. 2013 = 7.0%
Hawai‘i
United States
8.0%
6.0%
8.0%
4.0%
6.0%
4.0%
2.0%
Oct. 2013 = 4.7%
0.0%
(2.0)%
2.0%
(4.0)%
0.0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
(6.0)%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
(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.
15

16. 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)
Prof. services
Health care
Food services
Retail trade
Construction
Financial activities
Wholesale trade
Transp. Warehouse & Util.
Manufacturing
Entertainment
Other services
Mining and logging
Educational services
Local gov't
Accommodation
Information
State gov't
Federal gov't
-200
-100
0
100
200
300
400
500
Source: BLS, Employment, Hours, and Earnings – National(Current Employment Statistics - CES) <http://www.bls.gov/data/>
600
700

17. During the 1st 10 months of 2013, Hawaii gained 8,000 jobs
Nat. Resources, Mining, Constr.
2,740
Other Services
1,540
Food Services & Drinking Places
1,460
Health Care & Social Assistance
1,050
Professional & Business Services
890
Transp., Warehousing, Util.
880
Accommodation
620
Arts, Entertainment & Recreation
470
Wholesale Trade
370
Financial Activities
200
Information
20
Manufacturing
-90
Educational Services
-320
Retail Trade
-350
State and Local Government
Federal Government
-400
-1,040
(1,500)
(1,000)
(500)
-
500
1,000
1,500
2,000
2,500
3,000

18. Real Estate Market

19. Honolulu Home Prices Have Been Higher & More Stable Than Other Major Vacation Destinations
Median Single Family Home Prices: FY 2006 – 2013 Q3
$700
638 626
615 620 627
630
580 570 583
565
$600
660 663
602
469
379 370
372
358 360
371
323
317
$300
251 252
206
$200
186 187 185 182
223
207 208 213
155
155
172 182
161 168
Q1 2013
Q4 2012
Q3 2012
Q2 2012
Q1 2012
Q4 2011
Q3 2011
Q2 2011
San Diego
Q1 2011
Q4 2010
Q3 2010
Q2 2010
Orlando
Q1 2010
Q3 2009
Miami
Q2 2009
Q1 2009
Q4 2008
Las Vegas
Q3 2008
Q2 2008
Q1 2008
2007
Honolulu
147
126 128 128 125 136 135 138
Q4 2009
$100
146 155
126 123 122 122 131 138
Q3 2013
270
$0
485
412
394 405
Q2 2013
$400
2006
($ Thousands)
$500
Source: www.realtor.org, National Association of Realtors [for Honolulu from 2012Q3] and Honolulu Board of Realtors
19

20. Real estate markets are booming on all the islands
(% change during 11 months of 2013)
Single Family Homes
Island
Closed sales
Median price
Condo Homes
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

21. Tourism

22. Visitor Accommodation Statistics
Occupancy Rates
Average Room Rates
80%
75%
76.9% 77.6%
75.0%
70.7%
70.5%
73.2%
$200
70%
$202
$177
$174
$190
$204
$227
$100
$50
60%
55%
(1)
$0
(1)
2007 2008 2009 2010 2011 2012 2013*
2007 2008 2009 2010 2011 2012 2013*
Room Inventory
Revenue Per Available Room
(thousands)
$200
$150
$200
$150
64.8%
65%
$250
$150
$157
$142
$115 $123
$176
80.0
$139
77.7
78.0
$100
76.0
$50
74.0
(1)
$0
2007 2008 2009 2010 2011 2012 2013*
74.2
75.2
75.0
2008
2009
2010
74.7
73.2
72.0
70.0
2007
2011
2012
Source: Smith Travel Research, Hospitality Advisors LLC and Hawaii Tourism Authority.
* First 9 months of 2013
22

23. Diverse and Growing Economy
Hawai‘i’s Tourism Industry Continues to Show Remarkable Strength
Visitor Arrivals Over the Last 7 Years (000)1
9,000
8,000
8,265
8,486
8,029
7,628
6,823
7,000
Visitor Expenditures Over the Last 7 Years ($mm)1
7,018
$18,000
14,790
$16,000
7,299
$14,000
6,517
6,000
$6,000
2,000
$4,000
1,000
12,158
$8,000
3,000
11,399
$10,000
4,000
12,811
$12,000
5,000
15,405
14,365
$2,000
9,993
11,066
$0
0
2007
2008
2009
2010
2011
2012
Source: DBEDT, Smith Travel Research, Hospitality Advisors LLC
1 2013 & 2014 figures are projections
2013
2014
2007
2008
2009
2010
2011
2012
2013
2014

24. Smaller markets are creating new records while big markets are recovering
Region
Historical peak
level
2008 Arrivals
LTM Arrivals1
US Mainland
5,173,264
4,452,343
5,019,119
Japan
2,216,890
1,175,199
1,498,975
477,564
459,580
509,588
China
81,738
54,235
132,579
Korea
122,902
38,110
175,318
Taiwan
88,193
11,482
17,217
Australia
237,808
137,812
290,804
Europe
231,604
115,172
138,780
22,116
18,896
29,546
Canada
Latin America
Source: Department of Business, Economic Development & Tourism, Hawaii Tourism Authority
1
Last Twelve months from November 2012 to October 2013
% Change
12.7
27.6
10.9
144.5
360.0
49.9
111.0
20.5
56.4

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%
 Visitors from Canada and other markets are increasing
2003
Canada,
3.2%
First 10 Months of 2013
Others,
9.0%
Canada
5.9%
Others
13.9%
US West,
42.4%
Japan,
21.0%
US West
40.5%
Japan
18.7%
US East,
25.9%
US East
21.5%
Source: DBEDT and Hawaii Tourism Authority
25
25

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

27. New Airs seats for 2013*
New airseats added in 2013 on scheduled flights
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
120,415
120,415
159
-4,378
68,239
68,239
115,124
115,124
492
492
JAPAN
CANADA
OTHER
ASIA
OCEANIA
OTHER
*1st 10 months of 2013
Source: HTA and OAG
1,291
3,082
164

28. Air Seats Will Increase by 0.7% in 2014
12,000,000
2013
+0.7%
2014
10,000,000
+1.6%
8,000,000
6,000,000
4,000,000
-4.6%
2,000,000
+4.9%
-18.3%
+3.5%
0
State
Honolulu
Kahului
Kona
Hilo
Lihue
-2,000,000
28

29. Business Formation

30. LLC and LLP Firms Registered in Hawaii
12,000
Formed
Cancelled
10,000
8,000
6,000
4,000
2,000
0
Source: Hawaii State Department of Commerce and Consumer Affairs
30

31. 0
2000:1Q
2000:2Q
2000:3Q
2000:4Q
2001:1Q
2001:2Q
2001:3Q
2001:4Q
2002:1Q
2002:2Q
2002:3Q
2002:4Q
2003:1Q
2003:2Q
2003:3Q
2003:4Q
2004:1Q
2004:2Q
2004:3Q
2004:4Q
2005:1Q
2005:2Q
2005:3Q
2005:4Q
2006:1Q
2006:2Q
2006:3Q
2006:4Q
2007:1Q
2007:2Q
2007:3Q
2007:4Q
2008:1Q
2008:2Q
2008:3Q
2008:4Q
2009:1Q
2009:2Q
2009:3Q
2009:4Q
2010:1Q
2010:2Q
2010:3Q
2010:4Q
2011:1Q
2011:2Q
2011:3Q
2011:4Q
2012:1Q
2012:2Q
2012:3Q
2012:4Q
2013:1Q
2013:2Q
2013:3Q
Hawaii bankruptcy filings has been declining since the 3rd quarter of 2010
1,600
1,400
1,200
1,000
800
600
400
200

32. Summary
 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

33. For ecast Pr oj ect
No Shutdown for
Hawaii Growth
Dr. Byron Gangnes
Chair, UH Department of Economics
Senior Research Fellow, UHERO
!
S e n a t e C o mmit t e e o n W a y s a n d M e a n s
Ho u s e C o mmit t e e o n Fin a n c e
Ho n o lu lu , Ha wa ii
D ec emb er 1 8 , 2 0 1 3

34. 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
!
D ec emb er 1 8 , 2 0 1 3
U HE RO. HAW AI I . E D U © 2 0 1 3

35. Excessive austerity, even before shutdown
Source: Goldman Sachs via calculatedriskblog.com
D ec emb er 1 8 , 2 0 1 3
U HE RO. HAW AI I . E D U © 2 0 1 3

36. Budget turmoil took toll on confidence
Gallup Daily: U.S. Economic Confidence Index
0
-7
-14
-21
-29
-36
-43
D ec emb er 1 8 , 2 0 1 3
U HE RO. HAW AI I . E D U © 2 0 1 3
13
/2
4
-2
6/
20
13
Source: Gallup, http://www.gallup.com/poll/151550/gallup-daily-economic-confidence-index.aspx
11
10
/2
5
-2
7/
20
13
8/
20
-2
/2
6
09
08
/2
8
-3
0/
20
13
13
8/
1/
20
-0
13
07
/3
0
7/
1/
20
-0
13
/2
9
06
05
/3
1
-0
6/
2/
20
3
/2
-
4/
20
1
3
05
/3
-
5/
20
1
3
04
03
/4
-
6/
20
1
3
4/
20
1
/1
-
02
01
/3
-
5/
20
1
3
-50

37. No surprise that consumer spending is weak
Percent
10
Government Spending
5
0
-­‐5
-­‐10
5
1.4%
3
0
-­‐3
Consumer Spending
-­‐5
13%
20
0
-­‐20
Residential Investment
-­‐40
01 002 003 004 005 006 007 008 009 010 011 012 013
20
2
2
2
2
2
2
2
2
2
2
2
2
D ec emb er 1 8 , 2 0 1 3
U HE RO. HAW AI I . E D U © 2 0 1 3

38. The US and Asia-Pacific Forecast
2013 has turned out to be another weak year
‣ Slow US and Europe hit exports
Japan fiscal contraction in the pipeline
‣ China’s lower growth path
D ec emb er 1 8 , 2 0 1 3
4%
2%
Ap
O r-1
ct 4
-1
5
r-9
0%
7
Consumption Tax Rate
Ap
Big risks are policy related
‣ Are we out of fiscal woods?
‣ Backend of Abenomics
‣ How will Fed manage tapering?
6%
9
!
8%
r-8
Picture appears to have stabilized
‣ Europe has exited recession
‣ US growth expected to firm
10%
Ap
!
U HE RO. HAW AI I . E D U © 2 0 1 3

39. Stronger US, but Japan at risk
Growth of Real GDP
Percent
12
China
United States
10
6
Japan
8
4
6
4
2
2
0
0
-2
-4
2010
D ec emb er 1 8 , 2 0 1 3
2011
2012
2013
2014
U HE RO. HAW AI I . E D U © 2 0 1 3
2015
-2

40. Not much headroom for Hawaii tourism
Oahu Room Revenue and Occupancy Rates
90%
Occupancy Rate
87
$ 250
Room Rate
230
60
50
13
20
12
20
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
20
99
19
98
19
* Source: Hospitality Advisors & UHERO
D ec emb er 1 8 , 2 0 1 3
q1
70
q1
63
q1
90
q1
66
q1
110
q1
69
q1
130
q1
72
q1
150
q1
75
q1
170
q1
78
q1
190
q1
81
q1
210
q1
84
U HE RO. HAW AI I . E D U © 2 0 1 3

41. This year’s slowing: Lower Japanese spending
Year-on-year growth in per-person, per-day spending
In Yen
D ec emb er 1 8 , 2 0 1 3
7/
1/
13
1/
1/
13
7/
1/
12
1/
1/
12
7/
1/
11
1/
1/
11
In Dollars
7/
1/
10
1/
1/
10
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
U HE RO. HAW AI I . E D U © 2 0 1 3

42. This year’s slowing: Neighbor Islands faring better
Year-on-year growth in US visitor days
20%
15%
10%
5%
0%
-5%
-10%
Oahu
NBI
-15%
D ec emb er 1 8 , 2 0 1 3
U HE RO. HAW AI I . E D U © 2 0 1 3
9/
1/
13
7/
1/
13
5/
1/
13
3/
1/
13
1/
1/
13
11
/1
/1
2
9/
1/
12
7/
1/
12
5/
1/
12
3/
1/
12
1/
1/
12
-20%

43. Arrivals growth slowdown
Statewide Visitor Arrivals
Thou. (SA)
2,200
2,000
1,800
1,600
1,400
* Source: Hawaii Tourism Authority
Seasonal Adjusted—UHERO
D ec emb er 1 8 , 2 0 1 3
U HE RO. HAW AI I . E D U © 2 0 1 3
15
20
14
20
13
20
12
20
11
20
10
20
09
20
08
Updated Forecast
20
07
20
06
20
05
20
04
20
03
13Q4 Forecast
20
02
20
20
00
20
19
99
1,200
01
History

44. Don’t bet against the cycle
Oahu Single Family Sales and Inventory
1,500
2,600
1,250
2,167
1,000
1,733
750
1,300
500
867
250
433
Oahu Sales (left)
Oahu Inventory (right)
Source: Prudential Locations
0
19
93
Q
19
4
D ec emb er 1 8 , 2 0 1 3
96
Q4
19
99
Q4
20
02
Q4
20
05
Q4
20
08
Q4
20
11
Q4
U HE RO. HAW AI I . E D U © 2 0 1 3
0

45. Don’t bet against the cycle
Oahu Home Price Dynamics
Thou. $ (SA)
900
788
675
563
450
338
225
Affordable Mortgage
SF Resale Price
113
D ec emb er 1 8 , 2 0 1 3
U HE RO. HAW AI I . E D U © 2 0 1 3
4
20
15
Q
4
20
13
Q
4
20
11
Q
4
20
09
Q
4
20
07
Q
4
20
05
Q
4
20
03
Q
4
20
01
Q
4
Q
99
19
19
97
Q
4
0

46. Don’t bet against the cycle
3,000
Real Building Permits—Statewide
Mil. 12$
2,400
1,800
1,200
600
D ec emb er 1 8 , 2 0 1 3
U HE RO. HAW AI I . E D U © 2 0 1 3
16
20
14
20
12
20
10
20
08
20
06
20
04
20
02
20
00
20
98
19
96
19
19
92
19
90
19
88
19
86
19
84
19
19
82
0
94
Private Residential
Non-Residential Bldg Permits

47. Growth leaders changing
Change in State Job Counts
Construction
Other Services
Food Services
Health Care
Prof. Services
Transportation
Accommodation
Wholesale Trade
Public Education
Local Gov.
Finance & Ins.
Information
Manufacturing
Retail Trade
State Gov.
Federal Gov.
Source: DLIR
-1,200
D ec emb er 1 8 , 2 0 1 3
2012
-600
0
600
1,200
1,800
2013 YTD
2,400
U HE RO. HAW AI I . E D U © 2 0 1 3
3,000

48. Expansion expected to gain speed
Hawaii Job and Income Forecasts
4
Percent
2
0
-2
-4
-6
-8
Non-Farm jobs
Real Income
2005
2006
D ec emb er 1 8 , 2 0 1 3
2007
2008
2009
2010
2011
2012
2013
U HE RO. HAW AI I . E D U © 2 0 1 3
2014
2015

49. 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
!
D ec emb er 1 8 , 2 0 1 3
U HE RO. HAW AI I . E D U © 2 0 1 3

50. Mahalo
D ec emb er 1 8 , 2 0 1 3
U HE RO. HAW AI I . E D U © 2 0 1 3

51. Mahalo
D ec emb er 1 8 , 2 0 1 3
U HE RO. HAW AI I . E D U © 2 0 1 3

52. Mahalo
D ec emb er 1 8 , 2 0 1 3
U HE RO. HAW AI I . E D U © 2 0 1 3

53. Mid-cycle hiccups? Hawaii’s economic
expansion risks losing momentum
slides prepared for a joint informational briefing of the
Senate Committee on Ways and Means
House Committee on Finance
Hawaii State Capitol Auditorium
by Paul H. Brewbaker, Ph.D.
TZ Economics, Kailua, Hawaii
December 18, 2013
Copyright 2013
Paul H. Brewbaker, Ph.D.

54. Outline and preface
Preface-three key points:
points
• Tourism share 15-20% of value-added (GDP)—what happens really matters
• Government share 25%: 10% military, 6% civilian, 9% state and local
• Average duration of post-1982 U.S. economic expansion is 8 years; this is year 5
Slide copyright 2013
1

55. Hawaii economic value-added (GDP) shares
in tourism and military: combined approx. 25%
State and local
8.9%
Tourism
14.8%
Federal military
9.6%
Federal civilian
5.8%
2010
Tourism vs.
Non-tourism
Non-tourism
85.2%
2010
Military vs.
Non-military
Private industry
75.6%
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. 4-5
Eugene 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.
Slide copyright 2013
Source for underlying data: Bureau of Economic Analysis, U.S. Department of Commerce, Hawaii DBEDT, Hawaii Tourism Authority; all
calculations by TZE
2

56. U.S. economic expansions, contractions:
odds are this expansion is half over
Duration of economic expansions and contractions
from NBER troughs to peaks and back again
Expansions
in months
Mean
Contractions
Median
Max
1857-1928
1929-1982
25.5
46.2
22
39
46
106
1983-2010
95.0
92
120
Mean
**
●
Median
20.5
13.8
18
11
11.3
Max
8
65 *
†
43
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)
†
Slide copyright 2013
Source: National Bureau of Economic Research
3

57. Outline
1. Tourism
2. Housing
3. Construction
4. Macroeconomic outlook
Slide copyright 2013
4

58. Hawaii tourism was declining during 2013
[This slide intentionally left blank]
Slide copyright 2013
5

59. Seasonally-adjusted statewide visitor arrivals
declined since late last year: demand or supply?
P
Monthly in thousands, s.a. (log scale)
750
T
U.S. recession
shaded
700
Down is the new up
(just like after mid-2005)
650
Aloha
shutdown
600
Lift
Tohoku
550
500
H1N1-A
450
04
05
06
07
08
09
10
11
12
13
14
Slide copyright 2013
Source: Raw monthly data through October 2013 from HTA, Hawaii DBEDT; seasonal adjustment using Census X-12 ARIMA filter by TZE
6

60. Statewide total visitor days (s.a.): growth stalled
P
Monthly in millions, .s.a. (log scale)
6.5
T
U.S. recession
shaded
6.0
Aloha
shutdown
5.5
Lift
Tohoku
5.0
H1N1-A
4.5
04
05
06
07
08
09
10
11
12
13
14
Slide copyright 2013
Source: Raw monthly data through October 2013 from HTA, Hawaii DBEDT; seasonal adjustment using Census X-12 ARIMA filter by TZE
7

61. Total seats to Hawaii through October 2013 (s.a.):
after two pushes (2010, 2012) capacity flattened
P
Monthly in thousands, s.a. (log scale)
950
T
U.S. recession shaded
900
850
800
No Aloha
Tohoku
750
700
650
04
05
06
07
08
09
10
11
12
13
14
Slide copyright 2013
Source: Data through October 2013 from HTA, Hawaii DBEDT; seasonal adjustment by TZE
8

62. Monthly in billion 2012$, s.a. (log scale)
Real Hawaii visitor expenditure (s.a.) through 2013Q3
4.5
U.S. recessions shaded
4.0
Aloha
shutdown
3.5
SARS
3.0
Tohoku
2.5
9/11
H1N1-A
2.0
2002
2004
2006
2008
2010
2012
Slide copyright 2013
Sources: Hawaii Tourism Authority, Hawaii DBEDT, Bureau of Labor Statistics; deflation calculations by TZE
9

63. Relationship between hotel occupancy rate and real
hotel room rate appreciation getting “steeper”
Real room rate appreciaiton (%)
15
2009-2013
10
2000-2008
5
1978-1999
0
*Each tourism cycle, for
a given rise in hotel
occupancy, real room
rates appreciate faster
than before because
new accommodation
supply is constrained
by regulatory barriers
-5
-10
-15
60
65
70
75
80
85
Occupancy rate (%)
Slide copyright 2013
Sources: Raw data from PKF Hawaii and Joseph Toy, Hospitality Advisors LLC; UHERO; deflation, vacancy rates, and regressions by TZE
10

64. Visitor days growing faster than capacity (more
highly-utilized): past 2.5 visitors/room “sold out”
3.0
E
Visitors / unit
2.5
2.0
1.5
1.0
0.5
1950
1960
1970
1980
1990
2000
2010
E estimated based on January-October 2013 data
Slide copyright 2013
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).
11

65. Musical chairs? Recent visitor arrivals (s.a.) losing
ground except in “other foreign” category—new Asia
Quarterly in thousands, s.a. (log scales)
640
1500
1400
Japan
Other
Canada
U.S. recessions shaded
1300
Japan
Other
320
1200
1100
9/11
U.S.
Aloha
160
1000
Canada
900
80
U.S. domestic
800
2000
2005
2010
2015
40
2000
2005
2010
2015
Slide copyright 2013
Sources: Underlying data from Hawaii Tourism Authority, Hawaii DBEDT, data seasonally-adjusted and posted by UHERO
(http://uhero.prognoz.com/TableR.aspx).
12

66. Outline
1. Tourism
Tourism leadership in “first half” now impaired by capacity constraint
No more rooms ⇒ higher room rates at faster rates of increase
Higher lodging expense reduces: (a) stay length; (b) non-lodging
outlay/visitor; and (c) total real (inflation-adjusted) tourism export receipts
Loss of momentum in U.S., Japan, Canada arrivals: probably not “demand”
2. Housing
3. Construction
4. Macroeconomic outlook
Slide copyright 2013
13

67. Housing trends: cyclical recovery hindered by
slow-moving regulatory process
[This slide intentionally left blank]
Slide copyright 2013
14

68. Home price appreciation (%)
The (Mike) Sklarz Curve: Oahu home price
appreciation, lagged inventory remaining 1994-2013
Single-family
Condominium
30
ˆ
SF : pt = 28.474 − 13.618[ln(mt −5 )]
ˆ
CO : pt = 28.830 − 13.529[ln(mt −5 )]
20
@3 months of inventory
remaining, prediction is
10-15% appreciation
before next summer
10
0
-10
-20
0
4
8
12
16
20
24
Months of MLS inventory remaining (-5)
Slide copyright 2013
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
15

69. Monthly Oahu median existing home sales prices
Thousand dollars, s.a. (log scale)
800
+2 years: $850k
Single-family
Condominium
Recessions shaded
+2 years:$450k
400
200
100
1995
2000
2005
2010
2015
Slide copyright 2013
Source: Honolulu Board of Realtors (raw data through September 2013); seasonal adjustment using Census X-12 ARIMA filter by TZE
16

70. California, Neighbor Island existing single-family
home median sales prices: strong co-movement
Quarterly in thousand $, s.a. (log scale)
800
U.S. recessions shaded
Cross-correlation
90% and up
400
SF Bay Area
Orange Co., CA
Maui
Kauai
Kona side
200
1995
2000
2005
2010
2015
Slide copyright 2013
Sources: Hawaii Information Service, Realtors Association of Maui, National Association of Realtors; seasonal adjustment by TZE
17

71. Median single-family existing home sales prices:
replicating the last (early-2000s) price acceleration
$1.25 million by 2025
@ c. 4.8%
Thousand dollars, s.a. (log scale)
1000
U.S. recessions shaded
320
100
Oahu
Anaheim, Santa Ana (Orange Co., CA)
San Francisco, Oakland, Fremont (Bay Area, CA)
32
75
80
85
90
95
00
05
10
15
20
25
Slide copyright 2013
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
18

72. Thousand units/quarter, s.a. (log scale)
Hawaii existing home sales outpace new residential
units permitted (especially slow Neighbor Isle recovery)
6.4
3.2
Existing home sales
New units authorized
1.6
0.8
U.S. recessions shaded
0.4
80
85
90
95
00
05
10
15
20
Slide copyright 2013
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
19

73. Annual new housing units authorized by building permit
14
Thousand new units/annum
12
Oahu
Neighbor Isles
10
8
6
WWII
4
2
0
20
30
40
50
60
70
80
90
00
10
20
Slide copyright 2013
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
20

74. Hawaii now: population growth > housing formation
10.0
8.0
10.0
Housing growth
rate (%) (ΔKt/Kt-1)
8.0
6.0
Housing growth
rate (%) (ΔKt/Kt-1)
6.0
4.0
4.0
2000s “boom”
2.0
o
2000s “boom”
P
2.0
0.0
0.0
Population
growth rate (%)
-2.0
Population
growth rate (%)
-2.0
-4.0
-4.0
1930s
1950s
1970s
Oahu
oMilitary
downsizing (BRAC)
PProjection
1990s
2010-12
1930s
1950s
1970s
1990s
2010-12
Neighbor Islands
to 2020 with Koa Ridge, Ho’opili, Kakaako; assumes housing cycle tapers after 2017 (next slide)
Slide copyright 2013
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
21

75. Oahu annual new housing units authorized by
building permit actual and projected for 20-teens
Actual/projected
Trend/cycle
Thousand new units, s.a.
(log scale)
8.0
4.0
2.0
You are
here
1.0
Projected
80
85
90
95
00
05
10
15
20
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)
Slide copyright 2013
Sources: County building departments, Hawaii DBEDT, TZE database; trend extraction by TZE
22

76. Outline
1. Tourism
2. Housing
Tight inventory: model predicts10-15 percent appreciation in 2014
Housing market fundamentals improving, demand outstripping supply
Upswing will face headwinds: eroding affordability, rising interest rates
Production constraints limit homebuilding to less than population growth
(Regulatory, geographic constraints amplify valuation cycle in housing)
3. Construction
4. Macroeconomic outlook
Slide copyright 2013
23

77. Construction: head fake—PV panels are not buildings
[This slide intentionally left blank]
Slide copyright 2013
24

78. Recent growth of Hawaii real private building permits
dominated by equipment* (PV), not new structures
1000
1000
New private building permits
Additions and alterations
(includes equipment installation)
100
10
100
All data monthly in millions of 2012$, log scales
85
90
95
00
05
10
10
15
85
90
95
00
05
10
15
*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
Slide copyright 2013
Sources: County building departments, Hawaii DBEDT, U.S. Bureau of the Census; seasonal adjustment, deflation and trend-cycle extraction
by TZ Economics
25

79. Construction receipts and jobs correlate, but buying
PV or a diesel generator is equipment investment
Thousand jobs, s.a. (log scale)
40
400
200
20
106 2012$, s.a. (log scale)
800
Contracting receipts* (right scale)
Construction jobs (NAICS) (left scale)
Construction jobs (SIC) (left scale)
10
U.S. recessions shaded
1980
1985
1990
1995
2000
2005
2010
2015
*Excludes military housing privatization which was tax-exempt
Slide copyright 2013
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
26

80. Construction jobs not keeping up with spending
c. $640 million/month
Thousand jobs, s.a. (log scale)
600
40
400
36
32
106 2012$, s.a. (log scale)
800
28
Contracting* (right scale)
200
Jobs (left scale)
24
U.S. recessions shaded
20
90
95
00
05
10
15
*Excludes military housing privatization which was tax-free
Slide copyright 2013
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
27

81. Real new residential building permits: lagging
Million 2012 dollars, s.a. (log scale)
320
160
Not even
near
halfway
back
80
40
20
1980
1985
1990
1995
2000
2005
2010
2015
Slide copyright 2013
Sources: County building departments, Hawaii DBEDT, U.S. Bureau of the Census; seasonal adjustment, deflation and trend extraction by TZE
monthly data through August 2013
28

82. Million 2012 dollars, s.a. (log scale)
Real new commercial building permits: lagging worse
100
10
1980
1985
1990
1995
2000
2005
2010
2015
Slide copyright 2013
Sources: County building departments, Hawaii DBEDT, U.S. Bureau of the Census; seasonal adjustment, deflation and trend extraction by TZE
monthly data through August 2013
29

83. Quarterly, 106 2012$, s.a. (log scale)
Quarterly real government construction contracts to
mid-2013: signs of life or deferred maintenance?
“Catch a
Wave”
“Uncle
John”
400
“Choo-choo?”
200
100
65
70
75
80
85
90
95
00
05
10
15
Slide copyright 2013
Sources: Bank of Hawaii (discontinued), Hawaii DBEDT, U.S. Bureau of the Census; seasonal adjustment, deflation and trend extraction by TZE
quarterly data through second quarter 2013, combined federal, state and county government construction commitments
30

84. Annual real government construction
in Hawaii, through 2012
“Catch a
Wave”
“Uncle
John”
6
5
1600
4
3
800
2
1
400
1960
1970
1980
1990
2000
2010
Federal, state, county contracts*
(Million 2012 dollars)
0
1960
1970
1980
1990
2000
2010
Totals relative to Hawaii output
(percent of GDP)
*Excludes military housing privatization which is not public, duh
Slide copyright 2013
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
31

85. Outline
1. Halfway into the current economic expansion
2. Housing
3. Construction
Recovery is partly a head fake: PV panels are equipment, not buildings*
Construction of new buildings recovering less quickly; commercial not at all
Homebuilding mired in acronymphobia (LUC, DPP, HCDA, HHFDC, DHHL…)
After rising, public construction as % of GDP still less than fifty years ago
4. Macroeconomic outlook
*As in “building permit,” the noun, not the verb
Slide copyright 2013
32

86. Macroeconomic outlook: growth with challenges
[This slide intentionally left blank]
Slide copyright 2013
33

87. U.S. real GDP growth forecasts (December 2013):
October federal shutdown masked strong third quarter
8
High 5
Percent
4
Low 5
0
Actual
NABE (Dec 2013)
-4
U.S. recession shaded
-8
05
06
07
08
09
10
11
12
13
14
Slide copyright 2013
Source: National Association for Business Economics, NABE Forecasters Expect Uptick in Growth with Healthier Labor Market in 2014 (December 9,
2013)
34

88. Composition of U.S. real GDP since 2010:
consumption-, investment-, and export-led growth
8
Percent
4
0
-4
Consumption
Capital formation
Government
Net exports
Inventory change
U.S. recession shaded
-8
-12
2005
2006
2007
2008
2009
2010
2011
2012
2013
Slide copyright 2013
Source: Bureau of Economic Analysis, U.S. Department of Commerce
35

89. Compound annual growth of real U.S. GDP government
components highlight shifting sources of fiscal drag
Expansion
to-date
First 2 years
09Q2-11Q2
Second 2 years
11Q2-13Q3
2.3
2.25
2.36
Government
-1.5
-1.5
-1.4
Federal
National defense
Nondefense
State and local
-1.1
-2.1
0.7
-1.7
1.1
0.8
1.8
-3.3
-3.0
-4.5
-0.3
-0.3
GDP
Hawaii math: 0.25 of economy (public sector) is growing −1.5% per annum
0.75 of economy (private sector) is growing +3.5%
Overall economy grows 2.25%
Slide copyright 2013
Source: Bureau of Economic Analysis, U.S. Department of Commerce
36

90. Hawaii quarterly real personal income growth (puka)
and contemporaneous Honolulu inflation rates (line)
HNL CPI-U inflation
Hawaii real PI growth
6
CPI inflation
4
0
Percent
2
2-3% growth expectation
(e.g. DBEDT, UHERO)
Real personal income
growth rates
Federal government sequestration
U.S. recession shaded
-2
04
05
06
07
08
09
10
11
12
13
14
Slide copyright 2013
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
37

91. Hawaii and U.S. unemployment rates(s.a.):
Fed threshold, 6.5%, before short-term rates rise
12
U.S. average
Neighbor Isles
Oahu
Percent
8
6.5%
Neighbor Isles
4
Oahu
U.S. recessions shaded
0
2000
2005
2010
2015
Slide copyright 2013
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.
38

92. Distributions of FOMC participant’s forecasts for
the fed funds target rate and weighted averages
2013
2014
2016
2015
Longer-run
5
Percent
4
3.93%
3
2.26%
2
1.25%
1
0.40%
0.25%
0
0
5
10
15 0
5
10
15 0
5
10
15 0
5
10
15 0
5
10
15
Number of observations (FOMC participants, total = 17)
Slide copyright 2013
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)
39

93. Treasury constant-maturity yields (term structure)
and fed funds rate trajectory implied by the FOMC
U.S. recessions shaded
9/11
10-year U.S.
Treasury Note yield
Lehman
Percent
6
“Longer-run (4%)”
4
2
Sept. 2013 FOMC fed
funds rate forecast
Effective fed
funds rate
0
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
Slide copyright 2013
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)
40

94. Hawaii Council on Revenues multi-year forecasts for
nominal General Fund revenue growth since FY1999
20
Actual
Percent change
15
Forecasts
10
5
0
-5
-10
U.S. recessions shaded
-15
2000
2005
2010
2015
2020
Fiscal years
Slide copyright 2013
Source: Hawaii Department of Taxation (http://www.state.hi.us/tax/a9_1cor.htm)
41

95. Quarterly, million 2012$ (s.a., log scale)
The $6.4 billion dollar question: will real General
Fund revenue exceed $5.4 billion (12 mos. to 9/13)?
1600
?
Lehman
1400
1200
Tohoku
1000
SARS
ERTF
9/11
Refund lag
U.S. recessions shaded
800
2000
2005
2010
2015
Slide copyright 2013
Sources:
Hawaii Department of Taxation, Hawaii Department of Business, Economic Development and Tourism, Bureau of Labor Statistics;
seasonal adjustment and deflation by TZ Economics
42

96. Quarterly, million 2012$ (s.a., log scale)
Constant-dollar Hawaii general fund revenues actually
have declined for 5 quarters recently (1 outlier)
1600
Lehman
1400
1200
Tohoku
1000
SARS
ERTF
9/11
Refund lag
U.S. recessions shaded
800
2000
2005
2010
2015
Slide copyright 2013
Sources:
Hawaii Department of Taxation, Hawaii Department of Business, Economic Development and Tourism, Bureau of Labor Statistics;
seasonal adjustment and deflation by TZ Economics
43

97. Outline
1. Halfway into the current economic expansion
2. Housing
3. Construction
4. Macroeconomic outlook
U.S. real GDP growth forecast: 2% going to 3% (Hawaii too)
Private sector growth despite fiscal drag, now from federal government
Oil-driven inflation shocks were temporary; tighter labor markets coming
Normalization of monetary policy will raise interest rates—more drag
General fund revenues exceed forecast, boom and bust; position for latter
Slide copyright 2013
44

98. Mahalo!
Slides available from:
Paul H. Brewbaker, Ph.D.
Principal, TZ Economics
606 Ululani St.
Kailua, Hawaii 96734-4430
paulbrewbaker@tzeconomics.com
Appendix: Phillips Curves, etc.
Slide copyright 2013
Slide copyright 2013
45

99. Mahalo!
Slides available from:
Paul H. Brewbaker, Ph.D.
Principal, TZ Economics
606 Ululani St.
Kailua, Hawaii 96734-4430
paulbrewbaker@tzeconomics.com
Slide copyright 2013
46

100. Appendix 1: NABE September 2013 forecast
[This slide intentionally left blank]
Slide copyright 2013
47

101. U.S. real GDP growth forecasts (September 2013):
actual third quarter growth closer to high end
8
High 5
Percent
4
Low 5
0
Actual
NABE (Sep 2013)
-4
U.S. recession shaded
-8
05
06
07
08
09
10
11
12
13
14
Slide copyright 2013
Source: National Association for Business Economics, NABE Panelists Forecast a Gradual Acceleration in Economic Expansion (September 9, 2013)
48

102. Appendix 2: Tourism has not grown since 1990
[This slide intentionally left blank]
Slide copyright 2013
49

103. Tourism dilemma—higher volumes, lower receipts;
binding constraint: 75k rooms (2012) vs. 73k (1992)
80
8
Thousand rooms
Million visitors
18
70
7
60
6
14
50
5
12
40
4
30
3
Billion 2012$
16
10
8
6
20
2
4
10
1
2
0
0
DBEDT forecast
Actual data
0
1950
1975
2000
Tourist accommodations
1950
1975
2000
Tourist arrivals
1950
1975
2000
Real tourism receipts
Slide copyright 2013
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
50

104. Older Hawaii tourism forecast (fall 2009): nobody
believed it possible but visitor arrivals grew
Quarterly in thousands, s.a., log scale
2000
1900
1800
1700
Acceleration over next four
quarters is expected to
substantially rebuild arrivals
volumes as lift is restored
Aloha
Airlines
shutdown
1600
1500
SARS
Actual
Forecast
1400
9/11
1300
00
02
04
06
08
10
12
14
Slide copyright 2013
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)
51

105. 2011 forecasts too low, 2012 too high (especially mine):
failing to identify lodging capacity constraint
P
Monthly in thousands, s.a. (log scale)
800
T
TZE forecast
U.S. recession
shaded
750
DBEDT/UHERO 2012
700
650
Aloha
shutdown
DBEDT/UHERO forecast 2011
600
Lift
550
Tohoku
Actual
TZE forecast
2012 DBEDT/UHERO
2011 DBEDT/UHERO
500
05
06
07
08
09
10
11
12
13
14
15
Slide copyright 2013
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
52

106. Appendix 3. State of Hawaii is not saving enough
[This slide intentionally left blank]
Slide copyright 2013
53

107. 15
10
Sugar
(Commodity
Bubble)
Real income growth rate* (left scale)
General Fund cash/exp. (right)
Japan
Bubble
30
Sub-prime
Bubble
dot.com
20
Projected
5
10
0
0
-5
-10
1980
1985
1990
1995
2000
2005
2010
2015
State of Hawaii cash balance as percent of
General Fund expenditure (%)
Hawaii real personal income growth rate (%)
State cash balances historically provided deeper
“insurance” coverage than during the last cycle
2020
*Lagged one year
Slide copyright 2013
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)
54

108. Another fund: unemployment rate falls to 3%, wage
base, tax rate revert to “normal”—adequate funding?
10
4
8
Assumed
Hawaii
unemployment
rate (u)
(percent)
3
Assumed
6
2
Payroll
tax rate (τ)
(percent)
4
1
2
0
70
50
75
80
85
90
95
00
05
10
15
20
0
70
800
75
80
85
90
95
00
05
10
Assumed
Taxable wage
base (w)
(thousand
2011$)
40
15
20
Projected
600
30
400
20
200
10
Real
unemployment
compensation
fund (R)
(million 2011 $)
0
0
70
75
80
85
90
95
00
05
10
15
20
-200
70
75
80
85
90
95
00
05
10
15
20
Slide copyright 2013
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
55

109. Appendix 4. Homebuilding really is that low
[This slide intentionally left blank]
Slide copyright 2013
56

110. Neighbor Island quarterly new housing units
authorized by building permit: nothing but upside
Units, s.a. (log scale)
3200
1600
800
Lehman
Brothers
400
200
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
Slide copyright 2013
Sources: County building departments, Hawaii DBEDT, quarterly TZE data through third quarter 2013; seasonal adjustment and trend extraction by
TZE
57

111. Oahu quarterly new housing units authorized by
building permit: growth but fast enough?
Units, s.a. (log scale)
3200
Recessions shaded
1600
800
400
200
1980
1985
1990
1995
2000
2005
2010
2015
2020
Slide copyright 2013
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
58

112. Proportion of existing housing stock
New housing units as % of housing stock(-1)
.10
Oahu
Neighbor Isles
.08
.06
.04
.02
.00
20
30
40
50
60
70
80
90
00
10
20
Slide copyright 2013
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
59

113. Appendix 5: Honolulu Phillips Curves
[This slide intentionally left blank]
Slide copyright 2013
60

114. Honolulu inflation and unemployment since 2007:
oil shocks (2008, 2010-11); into “The Zone” 2013
ˆ
p
8
1998-2006
2007-2013fh
2006
6
Oil shock (unwound in 2009)
2008
2007
4
2011
Oil shock
(unwound in 2012)
2013
2
2009
0
1998
-2
1
2
3
4
5
6
7
u
Slide copyright 2013
Source: Bureau of Labor Statistics, U.S. Department of Labor, Hawaii DBEDT and DLIR; data through second half 2012, all calculations by TZE
61

115. Fed inflation goal (2%) defines LR equilibrium;
Oahu housing cycle exerts “clockwise” tendency
ˆ
p
8
1998-2006
2007-2013fh
2006
6
Oil shock (unwound in 2009)
2008
2007
4
2011
Oil shock
(unwound in 2012)
2
2009
0
1998
-2
1
2
3
4
5
6
7
u
Slide copyright 2013
Source: Bureau of Labor Statistics, U.S. Department of Labor, Hawaii DBEDT and DLIR; data through second half 2012, all calculations by TZE
62