Hawaii’s recovery years away, report says

updated 6:29 p.m. ET Sept. 25, 2009

HONOLULU - Hawaii's economy is years away from a full recovery, but there are a few positive signs that the state is moving past the recession, University of Hawaii economists said in a quarterly forecast released Friday.

Tourism from Japan rebounded better than expected from the swine flu scare earlier this year, the university's Economic Research Organization found.

Also, average consumer prices in Hawaii will drop instead of rise, and income in the state will fall by less than predicted, the forecast said.

"Japan returned to growth in the second quarter, and it appears likely that the U.S. will post positive growth for the current quarter," the executive summary to the group's report said.

But hotel occupancy rates are still at historically low levels — predicted to average an abysmal 66.1 percent this year — and will remain below 70 percent until the end of 2011, the economists found.

The state's tourism industry will be slow to recover, partly because of cautious consumers on the U.S. mainland, the report said. Also, unemployment will continue to increase and state government's budget woes will continue to be a drag.

"Recovery means a return to growth, not a return to business as usual," the report said.

The economists predicted only a 4.4 percent drop in total visitor arrivals, instead of the 6.8 percent loss they forecasted in their June analysis. That's partly due to the return of tourism by Japanese visitors, as well as the deep discounts hotels are offering to attract business.

Other economic measures are similarly mixed. For example, there was a 3.6 percent decline in jobs in August, and the unemployment rate will likely increase from about 7 percent this summer to more than 8 percent next year, the economists said.

On the other hand, inflation is nearly nonexistent because of low energy prices and stable rents, the economists said. Average consumer prices will drop by a half-percent this year rather than the half-percent rise forecast by the university in June, the report said.

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They also estimate that real income will fall by substantially less than they expected back in June — the result of smaller declines among private businesses, a delay in implementation of state worker furloughs and a stronger-than-expected stock market, which has improved prospects for dividend income.

But the state's budget problems are a big concern, the economists said. After all contract negotiations have ended, every state workers is likely to see a pay cut of some sort, and businesses could face higher unemployment compensation costs.

"As a result, unemployment will remain relatively high for a number of years, income gains will be hard to come by and economic conditions will remain difficult for many families," the report concluded.

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