Kaua‘i’s economy is ‘moving sideways’

LIHU‘E — A Kaua‘i County fourth-quarter report released Tuesday reveals a flat economic “recovery,” with the exception of the tourism and construction sectors.

“Kaua‘i’s economy is moving mostly sideways,” said Ken Stokes, an economist with Island Matters, a research firm contracted by the county’s Office of Economic Development to produce Quarterly Economic Outlook reports. “Going forward, there are few signs that the mostly flat trends we are seeing will rebound in the quarters just ahead.”

The report contains the latest indicator data from the first quarter of 2009 to the third quarter of 2011 and forecasts through the first quarter of 2012.

Four key indicators — jobs, income, spending and electricity sales — have “settled back to about the same level they were in 2003 and well below the boom years of 2006-07,” the report states. It should be noted that 2003 was a recessionary year in the U.S.

I’m in that camp of economists that argue spending by others,” Stokes said on Wednesday. “For sustainability, we’re going to need a lot of investment. More solar, more green infrastructure and private investment. A lot of folks are dismayed that green tech isn’t picking up a bigger sector. That’s direct stimulus for us. For the time being, the good news is we’re going sideways.”

He said the untold story of the island is the volume of investment it has been getting.

“It would be nice if we were tracking it,” he said, “but I think we’re getting an up slope curve in that area of clean-tech investment.”

OED Director George Costa said Island Matters’ short-term forecasts are a reliable and effective tool for decision makers as they try to navigate turbulent economic times.

“It’s a big help to be able to anticipate which direction these indicators are headed over the next quarter, even if there is great uncertainty farther out,” Costa said in a county news release.

Even though Stokes said there are few signs of an economic rebound just ahead and Cost spoke of “great uncertainty” in long-term projections for the county, Tuesday’s news release issued by Mayor Bernard Carvalho Jr.’s executive assistant Beth Tokioka was titled “Kaua‘i’s economy shows signs of long-term recovery.”

“(Kaua‘i County’s) spirit of measured optimism prevails despite the very slow pace of recovery practically everywhere nowadays,” states a First Hawaiian Bank Economic Forecast report released Nov. 18.

Jobs

Non-farm employment decreased by 200 jobs last year and an additional drop of 600 is predicted for Q1 of 2012, the Outlook report reveals. Kaua‘i’s employment level remand largely flat for much of this year at 27,600.

Meanwhile, unemployment levels have been increasing slightly over the past year, from 2,600 in Q4 2010 to 2,800 this quarter, the report shows, but has remained flat compared to this time last year. The report predicts the number of unemployed will decrease by 200 to 2,600 during Q1 of 2012.

When job levels and unemployment levels fall in tandem, it sometimes indicates that workers are falling off of the unemployment rolls because they have exhausted their unemployment benefits, not because they have found work. The county news release refers to them as “discouraged workers” who have left the labor force.

The numbers also point to an economic phenomenon taking place throughout the country called a “jobless recovery.” Jobless recoveries may indicate structural changes within the job market. For example, many of the island’s small business owners say they are finding ways to get by with fewer employees, which keeps costs down and profit margins up.

Stokes said national dialog makes it clear that job growth in recent decades has been driven by consumer spending. After years of piling on debt, he said, it’s hard to argue that we need to spend more and build more factories.

 Current economic conditions are further complicated by the fact that salaries are coming down, which means less purchasing power and a trend of fewer people needed in the labor force.

FHB’s report states that while job growth on each of the Neighbor Islands has been lower than on O‘ahu, “Kaua‘i has shown the strongest growth until recently, but also had lost the most — percentage wise — during the recession.”

Public sector construction projects is one of the reasons Kaua‘i’s job growth has been stronger than Neighbor Islands, according to the FHB report. Statewide, job growth has been concentrated in the private sector, while all three public sectors (federal, state and local) have experienced the biggest job reductions.

 The bank’s statewide estimate is 1.3 percent job growth for 2011 and an unemployment rate of 6.2 percent. It forecasts slightly slower job growth for next year at 1.2 percent and a decline in the unemployment rate to 5.5 percent.

Money

 Using withholding taxes as a gauge for income levels, the Economic Outlook report shows Kauaian’s monthly collective wages fell 30 percent from $2.3 million in Q1 2009 to $1.6 million in Q1 of this year. By Q3, income levels rose back up to $2.2 million, but are now expected to recede slightly and remain flat at $2.1 million for the next two quarters.

FHB’s report for the state says inflation-adjusted personal income, which usually corresponds closely to the state’s Gross Domestic Product, will probably not reach much above the 1 percent range in the near future, citing the potential for a double-dip recession spurred on by a weakened global economy and fallout from Europe’s financial crises.

Statewide, FHB estimates an inflation level of 3 percent for 2011 and a 1 percent increase in real personal income growth. For 2012, it forecasts 1.5 percent inflation and a 0.9 percent increase in income.

OED’s report states monthly retail spending, measured in terms of General Excise Tax collections, was $5.5 million for Q3, which is relatively flat compared to last year.

The Outlook report predicts monthly retail spending will fall 18 percent to $4.5 million during Q4, then climb slightly to $4.8 million in Q1 2012.

FHB’s internal data on credit card spending at the bank’s top merchant customers shows a year-over-year change from -4.2 percent in 2009 to 10.2 percent in Q1 of 2010, but fell back to 8 percent during Q2 and to 7.5 percent during Q3. FHB reports the recovery in credit card spending is attributable to a tourism rebound rather than local spending.

Energy

Although local gasoline prices increased about 25 percent between Q3 2010 and 2011, the impact on demand was marginal. The county’s report indicates average monthly gasoline sales on Kaua‘i dipped slightly from 2.5 to 2.4 million gallons YOY. The report predicts Q4 sales will remain flat at 2.4 million gallons, which is a 71 percent increase over the same quarter last year, and Q1 2012 sales will surge to 2.7 million gallons, a two-year high not seen since Q3 2009. 

 “The flattening trend in electricity demand is potentially good news,” the release states. “After a modest uptick in demand earlier this year, the trend is turning down again, and Q4 should see demand 10 percent below the peak in 2008 and just 2 percent above the baseline 2003 levels.”

 YOY Q3 electricity sales have fizzled from 39 gigawatts in 2009 to 37.9 GW in 2010 and 37.3 GW in 2010. Conversely, November residential electricity rates over the same period have climbed from 33 cents per kilowatt hour in 2009 to 36 cents in 2010 and 40 cents in 2011.

The Outlook report forecasts a Q4 reduction in electricity use to 35.5 GW and a continued decline in Q1 2010 to the 2009 level of 34.5 GW.

Real estate

 “Home sales and building permits are still trending down sharply, although inflation-adjusted sales inched up in Q3 and should hold steady through Q4,” the county release states. “Construction activity fell to virtually zero in Q3 and may stay there through Q1 2012.”

Kaua‘i’s quarterly sales volume decreased during Q3 to $21.5 million after climbing to $41.8 million in Q4 2009, the Outlook report indicates; however, sales are only down slightly from Q3 2010’s level of $21.6 million. The report predicts Q4 sales volume will continue to fall to $20.1 million and Q1 2012 will dip to a two-year low of $16.3 million.  

The FHB report shows YOY through September, gains in sales of single-family homes on Kaua‘i climbed 38 percent in 2010 and tapered off to 7 percent in 2011. Condo sales increased 48 percent last year but fell back to -9 percent this year. Median prices for single-family homes are climbing, up 3 percent in 2010 and 20 percent in 2011.

However, condominium prices are falling, down 12 percent in 2010 and 26 percent in 2011.

It is impossible to read much into Kaua‘i’s real estate numbers due to the transaction mix and sample size, according to FHB, but it’s clear that “a significant portion of the transactions are foreclosures and short sales, putting downward pressure on prices.”

It also noted that number of Realtors on Kaua‘i has dropped almost 40 percent from the peak, according to the Kaua‘i Association of Realtors.   

 FHB’s Economic Forecast shows growth in construction permits as a quarter-over-quarter percentage has steadily increased from a low of about -80 percent during Q1 2010 to about 25 percent during Q3 of this year. There is a “smattering” of private residential construction; however, some are seeing a lull on the horizon, the report states.

The county’s report, on the other hand, indicates the value of Kaua‘i’s monthly building permits continues to slump, down 92 percent from its two-year peak of $48.5 million in Q1 2009 to $3.8 million during Q3 2011. Levels are expected to drop down to $0.48 million during Q1 2012.

Tourism

Tourism appears to be the one universal bright spot in Kaua‘i’s economy.

“The only part of our post-recession period that looks more like recovery is the visitor sector,” Stokes said.

The island’s YOY 3Q average daily visitor counts have increased steadily from 19,400 in 2009 to 21,100 in 2010 and 21,800 in 2011. The Outlook report predicts levels will reach a two-year high of 22,900 during Q1 2012.

Visitor spending has increased 18 percent since Q3 2009, from $147.25 per person per day to $174.15. Spending is expected to continue to climb to a two-year high of $192.05 next quarter, then roll back to $185.75 in Q1 2012.

Visitors’ average length of stay remained steady at 7.3 days last quarter, up from the two-year low of 6.5 days during Q3 2009. The Outlook report forecasts an increase to 7.9 days for Q1 2012.

 The average monthly number of direct-flight passengers to the island continues to climb, up 24 percent from 36,300 in Q3 2009 to a two-year high this quarter of 44,900; however the report predicts levels will slip back by 14 percent to 38,800 during Q1 2012.

FHB’s report states “the snapback in Kaua‘i’s tourism has been strong” and has led Kaua‘i’s economy, with visitor numbers easily topping other islands and the state as a whole. It attributes the gains to strong brand image and a stable time-share segment.

While significant increases in tourism levels surely help infuse money into the local economy, it doesn’t appear to stimulate job creation, according to Stokes.

“There is no correlation between visitor levels and hotel employment levels,” he said. “The surprise for Kaua‘i is our visitor number have come back strong, but we haven’t seen that uptick in jobs.”

 The Quarterly Economic Outlook report is available on OED’s webpage at www.kauai.gov/oed/statisticsandforecasting.

• Vanessa Van Voorhis, staff writer, can be reached at 245-3681 (ext. 251) or by emailing vvanvoorhis@thegardenisland.com.