A steadily improving economic outlook was the take away from First Hawaiian Bank's annual Maui Business Outlook Forum. The event held on Thursday, Sept. 5, drew a capacity crowd to the Maui Beach Hotel in Kahului. As they settled into their seats, Brian Kakihara, the bank's Maui regional manager, introduced the guest speakers.
Giving the overview was Dr. Ken Miller, the bank's chief investment strategist, who spoke on the national economic climate. He was followed by Dr. Jack Suyderhoud, professor of business economics at the University of Hawai'i's Shidler College of Business, who focused on the local scene.
The Big Picture
Brian Kakihara, First Hawaiian Bank’s Maui regional manager
Dr. Miller said the recent recession has dwarfed other post-war declines and that recovery has been disappointingly slow. Growth in gross domestic product (GPD) has averaged about 2 percent--much slower than the normal rebound and the economy still has about two million fewer jobs than in 2008.
"Not withstanding recent weakness due to speculation about the path of future monetary policy, the stock market has performed extremely well in recent years," Miller said. "[It] has more than doubled from the bottom in March 2009, and most indexes have reached new highs."
Factors associated with the improvements include paying down of debt, increases in individual net worth, a housing recovery gaining steam and "loose monetary policy."
In his opinion, the "Fed exit strategy" is the most important near-term risk. But, he continued, "Both the real economy and the stock market owe their resurgence to much more than the Fed policy." Thus, he reasoned that "both should be able to withstand the withdrawal of monetary accommodation," adding, "the long-term U.S. growth outlook remains promising."
Maui Economic Recovery
Closer to home, Dr. Suyderhoud said that reflecting national economic strength, Hawai'i "has entered an economic growth phase of the business cycle. This will help the Maui economy recovery as well."
Suyderhoud led with some impressive data from Maui's visitor industry:
Even though Maui remains highly dependent on tourism from the U.S. West and East Coasts, which accounts for more than three-quarters of the county's tourism, visitor arrivals here are trending upward from the lows of 2008-09, with many months seeing more than 200,000 arrivals. Through June 2013, arrivals are up by 44,000 over the same period last year. International arrivals also show an upward trend.
"Likewise," he said, "for the last 12 months, through June 2013, monthly visitor spending growth has averaged a solid 7.3 percent over the prior year."
Though "the rebound of the last two years has been exceptional," the economist cautioned, "we should not assume that it will last forever. The Maui Visitors Bureau is expecting growth of about 4 to 6 percent in arrivals for all of 2013. They are working hard to extend the Maui brand awareness to new markets, mostly focused on the U.S. Midwest and parts of Asia."
Commercial Development Strong
Suyderhoud observed that strong growth in commercial development here is helping Maui's recovery. He predicted that "the new Safeway center and the planned Target store will help transform Maui retailing. Target construction is expected to start in 2014 with opening in 2015. Other tenants will be attracted to that location."
"Other parts of A&B's Maui Business Park are well under way," he continued, "with the completion of Ho'okele Street and the initial increment of 70 acres of fee-simple commercial lots being sold.
"Likewise, Maui Lani is providing fee-simple commercial space and developing their Village Center on the mauka side of their property," he said. "These spaces are meeting an important need for small businesses that want to own their property, and sales seem to confirm that desire."
The Maui residential real estate market is also showing an upward trend. "Sales have increased for the last four consecutive years for both single-family and condo units," Suyderhoud said. If we extrapolate the current 2013 patterns for the entire year, single-family sales will approach 1,000 units and condominiums 1,300 units. These are figures not seen since 2007."
Suyderhoud cited a recent analysis by Terry Tolman at the Realtors Association of Maui which shows that bank-owned and short sales for single-family homes are down from 45 percent in 2011 to 34 percent in 2012 and about 25 percent in mid-2013 as another positive indicator on the real estate side of the local economy.
The Bad News: Jobs, Housing, Sugar
But even in a brightening picture, there are still some problem areas.
His data showed that "Maui is still 5,000 jobs below the prior peak, and the unemployment is rate is still well above the 3 percent rate before the recession." Although "construction jobs began picking up in the early 2011 and are now about 600 jobs (or 25 percent) above their low point, [they are] still more than 2,000 below the prior peak."
The recovery of housing also looked less promising to him.
"On Maui, residential development is lagging commercial activity. The county's affordable housing and water access requirements appear to remain as obstacles to residential property development," Suyderhoud said. "These obstacles are more difficult to overcome for smaller developers, thus leaving the field to the larger players."
As for sugar, he said, "The price for much of the production is known in advance through the use of forward contracts. Thus, robust 2013 revenues are actually also due to prices in 2012. However, since 2013 sugar prices are down, 2014 is not expected to be as good a revenue year for HC&S even if improving production trends continue."
An interesting economic sidelight concerned the reliability of electricity demand as an economic indicator.
"Traditionally," Suyderhoud said, "one way to gauge the strength of the economy has been the consumption of electricity When the economy is strong, electricity usage is up. However, due to the market penetration of residential and commercial photovoltaic systems, as well as demand-side management, it is harder to infer economic activity from MECO's [Maui Electric Company] sales... Electricity sales dropped from 2008 through the present, even though the number of customers has not declined."
He attributed the change to the increased adoption of photovoltaic systems here.
"In the last few years, the use of these systems has expanded enormously", Suyderhoud said. "A significant amount of MECO's power is now coming from renewable sources that currently supply 20 percent of sales with a goal of 30 percent."