Kaua‘i’s economy coming up from bottom

PO‘IPU – Economic recovery for Kaua‘i is “imminent,” with

tourism leading the way for a potential rebound, say Hawai‘i

economists.    

“Kaua‘i’s tourism economy is definitely showing signs of life

after a disastrous performance last year,” said Dr. Leroy Laney,

professor of economics and finance at Hawai‘i Pacific University

and consultant to First Hawaiian Bank.

Editor’s note: This article is the first in a series that will closely examine Kaua‘i’s economy and core issues, including tourism, employment, agriculture, construction, residential and commercial real estate.

PO‘IPU – Economic recovery for Kaua‘i is “imminent,” with tourism leading the way for a potential rebound, say Hawai‘i economists.    

“Kaua‘i’s tourism economy is definitely showing signs of life after a disastrous performance last year,” said Dr. Leroy Laney, professor of economics and finance at Hawai‘i Pacific University and consultant to First Hawaiian Bank.

He was  and keynote speaker at FHB’s 36th Annual Kaua‘i County Business Outlook Forum hosted by the Kaua‘i Chamber of Commerce on Sept. 22 at the Grand Hyatt Kaua‘i Resort & Spa.

“Those gains are not hard to achieve. But we are coming up from that bottom,” said Laney.

Growth in tourism is being primarily attributed to a greater number of visitor arrivals to the island and an increase in visitor spending. Lihu‘e Airport now has more nonstop flights than ever before. Alaska Airlines added flights from Oakland and San Jose direct last March. In December, WestJet, a Canadian air service will resume its flights. 

During September, 21,721 passengers traveled to Kaua‘i. That’s a 19.3 percent increase compared pared to the same month last year.

Contributing to increases spending are three Hollywood movies filmed in Kaua‘i over the during this year: “Decedents” starring George Clooney, “Just go With it” starring Jennifer Aniston and Adam Sandler, and Disney’s “Pirates of the Caribbean: On Stranger Tides” starring Johnny Depp.  

Travel+Leisure Magazine recently ranked Kaua‘i the world’s second best island to visit, beating out Maui, which ranked eighth, and the Big Island, which ranked 10th. Additionally, six new restaurants have opened this year: Tapas and Merriman’s in Kuku‘iula Village, Red Salt at Koa Kea Hotel, Kaua‘i Grill  and The Tavern in Princeville, and 22 North, formerly Gaylord’s Restaurant.

 We’re thankful for an increase in visitor arrivals,” Director of the Office of Economic Development George Costa said. “But don’t expect it to be like the heydays of a few years ago. We have a few up ticks and everyone gets excited. Think positive though.”

 Job losses continue

 Overall, negative job growth is running worse in Kaua‘i than the rest of state, reports indicate. Although the rate of jobs lost in the economy is no longer in free fall, the number of jobs that comprise Kaua‘i’s economy continue to decline.

A few job categories are beginning to grow: Retail, hotels and accommodations, restaurants and anything related to tourism.

“Retail is one of the stronger categories,” Laney said.

Federal job levels are also increasing, while state government employment is still declining. 

The state’s seasonally adjusted unemployment rate remained at 6.4 percent for the month of August. Dr. Jack Suyderhoud, professor of business economics at University of Hawai‘i and keynote speaker on the global economy said employment is always a lagging indicator during recession recovery.”

While Hawai‘i’s unemployment has been lower than the rest of the country, it’s important to note that the numbers are limited in what they reflect. It does not represent those people who have dropped out of the labor force and often doesn’t include those who are not receiving unemployment benefits .

“Actual unemployment could be as high as 17 percent when you factor in the discouraged and other types of unemployed,” Suyderhoud said.

Construction still depressed

“On the residential side, little single-family and no multifamily construction is happening now,” Laney said. However, public sector construction, such as road and bridge work and wastewater projects, have helped “fill the gap for the private side.

“Kaua‘i County has currently received almost $14 million from the America Recovery and Investment Act (ARRA) of 2009,” he said. “That is helping to fund some of these things. ARRA grants have trickled in slower than many first expected, but they help wen they do come.”

His “Economic Forecast: Kaua‘i Edition 2010 – 2011” says there is a 70 percent occupancy level anticipated for Kuku‘iula Village retail. Koloa Landing at Poipu Beach and golf course is expected to be completed soon, and developers hope the new community will attract more homebuyers and retailers.

 “Koga in Kaua‘i has been busy with the golf club house,” said Andy Ragasa, manager of Koga Engineering and Construction, which is handling the project. “The target opening date is December of this year.

“The developer stopped the project almost to a standstill for a little while,” he said. “A&B Properties decided to go forward. Now, we’ll soon have all the originally designed golf course, spa and fitness center. In spite of the downturn, we’ve been fortunate that we haven’t felt it as much as the rest of the state.”  

Real estate sales up

“Like other islands, Kaua‘i has seen an increase in sales in 2010,” Laney said. “Another sign of recovery in real estate is much smaller drops in median prices in 2010 than last year.”

Year to date, there has been a 72 percent increase in the number of homes sold over 2009 levels, which experienced a 8 percent decline from 2008. Condo sales have increased 66 percent since last year. However, median prices of homes and condos continue to decline, -2 percent and -10 percent respectively.

“The numbers were boosted by recent tax incentives, and they also include short sales and foreclosures,” Laney said. “But realtors benefit from the commissions nonetheless.”

Recession recovery?

What’s different about this big economic cycle is it will be a slower process of recovery both locally and nationally, Suyderhoud said. Nobody is expecting it to return to the days of the economic boom; however, in order to have a full recovery, the economy must return to the high levels of the previous cycle.

“The problem is that this economic condition has been 15 years in the making,” Suyderhoud said. “We have relied too much on credit. The recession was a slow down in spending, which makes up two-thirds of our economy. Until our balance sheet is reconstructed, we will continue to have problems. We must stop borrowing and repay debt.”

Double-dip recession possible

Although we are no longer officially in a recession, many continue to feel the pain of a lagging economy. That’s because slow GDP growth of 2 percent coupled with continued job losses will feel like a recession to most people, Suyderhoud said.

Recovery from the recession is “imminent,” but a double-dip recession is still possible.

“There is a lot of legitimate concern about a double dip because of a premature withdrawal of stimulus,” he said. “Some groups want stimulus to continue. Other groups say it’s time to stop. I’m in the second group.”

Double dip recession means returning to negative growth, and with such a such a shallow, “L-shaped” recovery underway, it’s still quite possible, Laney said.

Sound advice

President of the Chamber of Commerce Randy Francisco’s advice to local business is to “continue to do what they have been doing over the past few years: Manage costs, watch cash flow, continue to focus on customer service and customer loyalty, and continue to embrace technology.”

Francisco also recommends social networking as method of advertising and marketing, as well as making respect and aloha part of their business philosophy. “After all, Hawai‘i is our host culture and why our brand identity is both special and unique.”

Suyderhoud said, “We need to have greater savings, and we need to have a more long-term fiscal policy.”

FHB sponsors the economic forecast reports for each island as a community service. Bank representative Susan Kam said, “They are helpful tools for business that can be used for planning and budgeting for the coming year.” All FHB Business Outlook reports are available online at fhb.com.