Bank of Hawaii: Economy to stay sluggish into '09

Faced with slumping home sales, fewer visitors and sticker shock at the pumps and the grocery store, Hawaii’s economy will remain in a rut for the rest of the year, according to a new economic forecast by Bank of Hawaii.

Inflation hit 4.9 percent for the first half of the year and is expected to remain flat at 4.7 percent for the rest of 2008 due to high food, household utilities and gas prices

The bank’s chief economist, Paul Brewbaker, forecasted further declines in personal income, visitor arrivals and employment for 2008.

Job growth, which grew slightly in the first quarter, slowed to 0.3 percent and is expected to remain at 0.6 percent in 2009.

Inflation-adjusted income growth will be relatively unchanged at 0.2 percent. The state’s unemployment is expected to rise through 2009, he said.

The visitor industry, hurting from Aloha Airlines and ATA’s bankruptcies, is expected to fall 6 percent. The airlines’ woes contributed to a 12.5 drop in North American arrivals during the first half of this year.

Visitor arrivals will rebound 3.8 percent in 2009, according to the report.

The real estate and construction industries inevitably felt ripple effects from the credit crunch on the Mainland.

Construction will see a 6 percent drop in projects this year and another 3.2 percent drop next year.

Hawaii’s residential real estate business has been resilient and prices have held up well compared to the Mainland, Brewbaker said.

But he warns that Hawaii’s residential real-estate valuations could be at risk and could follow a pattern of decreasing home prices in California.

“California prices move down so fast. They risk sucking Hawaii down into the hole,” he said. “The capital tends to flow from the higher markets to the lower markets, and Hawaii might be in a position to be caught in the downdraft.”

Full Report: Hawaii Economic Trends August 2008