1. June 15, 2018
Hawai‘i Outlook: Road to Recovery Carl Bonham Hawaii Economic Association Annual Meeting Friday April 26, 2002
PacCorp, April 6, Copyright UHERO 2002.

2. Terror and Recovery September 11 damaged a slowing global economy
June 15, 2018
Terror and Recovery
September 11 damaged a slowing global economy
Short-term impact on Hawaii was large, but outside of tourism damage has been limited
U.S. now clearly on a recovery path; Japan less certain
I’ll talk about:
Hawaii’s experience since September 11
US/Japan prospects
UHERO’s Spring forecast
I’ll start by saying a few words about where were on Sept. 10
Then look at the initial impact
Then turn to brief disc of outlook.
HEA, April 26, 2002
Copyright UHERO 2002.
PacCorp, April 6, Copyright UHERO 2002.

3. June 15, 2018
U.S. Cooling Before 9-11
US economy began to slow appreciably in middle of last year.
Record-setting expansion ended with third quarter output decline.
Weakness has been centered in manufacturing, with hopes that consumers would keep economy growing.
Aggressive Fed interest rate cutting--7 times before Also fiscal help from Bush tax cuts.
NBER Declared Recession started in March.
4th quarter has been revised up to a surprising 1.7% growth.
--big contribs from C (4.14% contrib) and to lesser extent G; I continues to be weakest cat.
But urate rose to 5.7% in March
HEA, April 26, 2002
Copyright UHERO 2002.
PacCorp, April 6, Copyright UHERO 2002.

4. June 15, 2018
Japan Was Falling Fast
Japan’s fragile recovery of 2000 was struck broadside by the slumping global economy. Exports fell 12% in July compared with 2000.
Industrial production off a similar amount
Economy contracted a 4.5% ann. rate in the 4th qtr, for first 3=qtr contraction in nearly a decade. (-0.5% for 2001 as a whole)
Retail sales fell for 10th str. Month in Jan. Nonres Investment is 12% lower than a year ago
Repeated fiscal stimulus has failed to move the economy and monetary policy has been timid.
Signs of life? Bottoming out of IP and slightly lower urate. Low business investories. Will get help from recovering US and Asia.
Nikkei Stock market index is up nearly 20% since early Feb.
HEA, April 26, 2002
Copyright UHERO 2002.
PacCorp, April 6, Copyright UHERO 2002.

5. and Japanese Unemployment was at post-war record levels
HEA, April 26, 2002
Copyright UHERO 2002.

6. But Hawaii Was in Pretty Good Shape
June 15, 2018
But Hawaii Was in Pretty Good Shape
Continued strength in local economic activity resulted in limited slowing in Hawaii economic indicators.
Visitor arrivals fell by 1.5% during the first six months of the year, yet an increase in length of stay held daily census near last year’s levels.
With rising room prices and nearly stable occupancy rates, real (inflation adjusted) hotel revenues grew by over 1% compared with the first half of 2000.
Prior to the September 11 attacks, we were expecting a slight 0.7% decline in overall visitor arrivals for 2001 as a whole.
Real personal income up 3.5% in the first half and jobs growing by 2% through July of 2001.
An optimistic assessment of the global economy, based on expectations of a late year rebound in the US economy driven by falling interest rates, and fiscal stimulus, could have led to a respectable if-not good year for Hawaii businesses and consumers.
2001 figures are pre-9/11 forecasts
HEA, April 26, 2002
Copyright UHERO 2002.
PacCorp, April 6, Copyright UHERO 2002.

7. June 15, 2018
911 and Partial Recovery
HEA, April 26, 2002
Copyright UHERO 2002.
PacCorp, April 6, Copyright UHERO 2002.

8. Outlook Worsened Across the Board
June 15, 2018
Outlook Worsened Across the Board
US Slowdown Deepened
Economy in mild recession; slowed further after attack
Consumer confidence takes a hit, but spending held up
Quick Fed and Federal gov’t action
Japan’s prospects turn dismal
Hoped-for export-led recovery down the tubes
Government unable or unwilling to do much
Hawaii tourism dealt a serious blow
Passenger counts, ocup. rates fell well below 2000
Spillovers to broader economy limited
Koizumi admin has made controlling budget deficits a major priority
HEA, April 26, 2002
Copyright UHERO 2002.
PacCorp, April 6, Copyright UHERO 2002.

9. Moderate Job Losses Percent Change in Jobs Year over Year
June 15, 2018
Moderate Job Losses
Percent Change in Jobs Year over Year
Jan-Sep 2001 Average
Oct-Dec 2001 Average
Jan-Mar 2002 Average
Total Non-Ag. Jobs
1.2%
-2.0%
-1.2%
Transportation
2.7
-9.4
-11.9
Trade
0.8
-4.5
-3.8
Hotels
2.2
-6.3
-6.7
Construction
0.7
-3.5
0.4
Health
1.6
1.4
2.4
Government
-0.3
1.9
3.8
This masks the fact that a decline in job growth rates had already occurred in most sectors pre 9/11
Job destruction in tourism has not been as severe as we feared –less than half as bad as we expected in hotel sector.
Ex: by Sep, tot non-ag jobs were back to previous Sep. levels
Areas of job growth: health, govt actually added jobs in fourth quarter
Govt: Qtr Qtr1 2002
Tot 1.9% 3.8%
Fed -2.5% -1.1%
Loc %
Stat 4.0% 6.3%
HEA, April 26, 2002
Copyright UHERO 2002.
PacCorp, April 6, Copyright UHERO 2002.

10. Assessing the Forecasting Environment
June 15, 2018
Assessing the Forecasting Environment
Prospects for US, Japanese recoveries will play key role
Econometric modeling captures HI response to external developments
Worst risks are not economic
Evolving instability in Middle East
Uncertainty about oil supplies and prices
Evolving Japanese attitudes toward US travel
Policy uncertainties
When will Fed begin to raise rates?
Van Cam Legislature?
Council to make significant cuts?
How rapid, strong will recovery be?
HEA, April 26, 2002
Copyright UHERO 2002.
PacCorp, April 6, Copyright UHERO 2002.

11. Macro Effects Explain Only Part of Visitor Decline
June 15, 2018
Macro Effects Explain Only Part of Visitor Decline
Here’s what happens when we feed into our model the weaker macro conditions for the US and Japan in the wake of the attacks.
HEA, April 26, 2002
Copyright UHERO 2002.
PacCorp, April 6, Copyright UHERO 2002.

12. June 15, 2018
Post 911 Forecast On Track
Visitor growth:
HEA, April 26, 2002
Copyright UHERO 2002.
PacCorp, April 6, Copyright UHERO 2002.

13. Post-911 Forecast On Track
June 15, 2018
Post-911 Forecast On Track
1st qtr 2002 job growth = -1.3% vs forecast of -1.7%
Real income fell at a 1.4% annual rate in the 4th quarter of 2001, but 2001 as a whole posted 2.3% growth compared with our post 911 forecast of 1.5%.
HEA, April 26, 2002
Copyright UHERO 2002.
PacCorp, April 6, Copyright UHERO 2002.

14. External Assumptions US economic growth will strengthen
June 15, 2018
External Assumptions
US economic growth will strengthen
Will accelerate toward 4% rate early this year as monetary and fiscal stimulus kick in
Interest rate environment will continue to support spending, but the best refi opportunities are past
Japan growth will not resume until late in the year
Will not touch 2% growth until 2003
Yen will remain in range for next two years
Further improvement in security environment supports continued tourism recovery
RGDP expanded 1.7% in 4th qtr.
Consumer spending rose 0.6% in Feb, 0.5% in Jan.
HEA, April 26, 2002
Copyright UHERO 2002.
PacCorp, April 6, Copyright UHERO 2002.

15. Consumers Say Economy has Turned the Corner
HEA, April 26, 2002
Copyright UHERO 2002.

16. Interest Rates Won’t Stay Low Forever
HEA, April 26, 2002
Copyright UHERO 2002.

17. UHERO Forecast Highlights
Visitor arrivals fell more than 9% last year
Japan travel weakness means only 3% growth in 2002
Mainland and Japan drive 6%+ growth in 2003
Job recovery has begun
Job growth will approach 2% by year’s end
Will take several years for full recovery in tourism sector
Unemployment has already peaked
Hawaii will emerge from its mild recession early this year
A return to moderate growth by mid-year
HEA, April 26, 2002
Copyright UHERO 2002.

18. U.S. Arrivals Continue Strong Recovery
June 15, 2018
U.S. Arrivals Continue Strong Recovery
Domestic arrivals have recovered to just a few % pts under 2000 levels:
2002Q1 est –1.6% below 2001Q1.
Continuation of this trend will bring us back to previous peak by ??.
Key assms: (1) continued stabil of the mil/sec situation,
(2) Rebound un US ec continues with fairly robust growth because of supportive US mon and fiscal pols
HEA, April 26, 2002
Copyright UHERO 2002.
PacCorp, April 6, Copyright UHERO 2002.

19. Japanese Visitors Will Take Much Longer
June 15, 2018
Japanese Visitors Will Take Much Longer
Recent recovery has been just in line with fall forecasts: 2002Q1 est –25%
We project a continued slow recovery path that still leaves EB vis 10%?? below pre-attack forecasts at end of 2002.
HEA, April 26, 2002
Copyright UHERO 2002.
PacCorp, April 6, Copyright UHERO 2002.

20. Overall Job Creation Resumes
June 15, 2018
Overall Job Creation Resumes
non-agricultural employment will fall by "only"14,100 payroll jobs (about 2.5%) because modest continuing growth in some sectors will offset losses in others.
(Actual fall in jobs Sep->Dec was 15k)
Actual yr-on-yr 4th qtr drop 1.5%
Jobs will return to pre-attack levels by the beginning of 2003, but at these levels will be about 4% lower than we had forecast prior to attacks.
Note pre-attack forecast line in this fig.
HEA, April 26, 2002
Copyright UHERO 2002.
PacCorp, April 6, Copyright UHERO 2002.

21. Only a Mild Recession in Real Income
June 15, 2018
Only a Mild Recession in Real Income
Hawaii income growth was strong in the first half of this year. Falling jobs, wages and other income will create a moderate recession, but areas of relative strength (contracting) will help cushion losses. By late next year, strengthening U.S. and finally Japanese economies will lead to robust recovery.
HEA, April 26, 2002
Copyright UHERO 2002.
PacCorp, April 6, Copyright UHERO 2002.

22. Unemployment Backs Off
June 15, 2018
Unemployment Backs Off
Nov 01 unemployment was 5.7%, Dec. 5.4%, and 4th qtr 5.5%.
HEA, April 26, 2002
Copyright UHERO 2002.
PacCorp, April 6, Copyright UHERO 2002.

23. Moderate Inflation Will Return
HEA, April 26, 2002
Copyright UHERO 2002.

24. Risks and Mitigating Factors
Risks of Further Fallout
Bankruptcy risks for Japanese-dependent retail firms
Slower pickup in US, Japan, global economies
Middle East Tension and Oil Price spikes
Factors supporting growth
Monetary Policy
Federal and state tax cuts
Income creation from home refinancing and sales
Renovation tax incentives
HEA, April 26, 2002
Copyright UHERO 2002.

25. The Numbers 2000 2001 2002 2003 Real Personal Income (%) 2.3 0.5 2.1
June 15, 2018
The Numbers
2000
2001
2002
2003
Real Personal Income (%)
2.3
0.5
2.1
Non Agriculture Jobs (%)
3.1
0.4
-0.3
1.9
Unemployment Rate (%)
4.3
4.6
4.5
Inflation Rate, Honolulu (%)
1.8
1.2
1.0
Tourism Details (000’s)
Total Visitors
6948.6
6313.7
6503.1
6920.0
% Change
3.5
-9.1
3.0
6.4
Japanese Visitors
18570
1508.6
1512.1
1694.0
1.7
-18.8
0.2
12.0
U.S. Visitors
4180.2
4008.9
4181.7
4329.7
6.9
-4.1
HEA, April 26, 2002
Copyright UHERO 2002.
PacCorp, April 6, Copyright UHERO 2002.

26. June 15, 2018
Hawai‘i Outlook: Road to Recovery Carl Bonham Hawaii Economic Association Annual Meeting Friday April 26, 2002
PacCorp, April 6, Copyright UHERO 2002.

27. The Numbers http://www2.hawaii.edu/~uhero Copyright UHERO 2002.
June 15, 2018
The Numbers
HEA, April 26, 2002
Copyright UHERO 2002.
PacCorp, April 6, Copyright UHERO 2002.