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Terror and Recovery

Hawai‘i Outlook: Fallout from Sept. 11 and Recovery Prospects Presentation for Credit Rating Agencies Honolulu Convention Center Wednesday, January 23, 2002. Terror and Recovery. September 11 caused wide-spread damage to an already-slowing global economy

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Terror and Recovery

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  1. Hawai‘i Outlook: Fallout from Sept. 11 and Recovery ProspectsPresentation for Credit Rating AgenciesHonolulu Convention CenterWednesday, January 23, 2002

  2. Terror and Recovery • September 11 caused wide-spread damage to an already-slowing global economy • Hawaii effects large because of reliance on air travel and tourism • Relative strength prior to attacks provides support • Many unknowns make forecasting difficult • I’ll talk about a preliminary UHERO assessment and forecasts for the next two years • These results are in part excerpted from a November report to DBEDT. http://www2.hawaii.edu/~UHERO

  3. U.S. Cooling Before 9-11 http://www2.hawaii.edu/~UHERO

  4. Japan Was Falling Fast http://www2.hawaii.edu/~UHERO

  5. and Japanese Unemployment was at post-war record levels http://www2.hawaii.edu/~UHERO

  6. But Hawaii Was in Pretty Good Shape 2001 figures are pre-9/11 forecasts http://www2.hawaii.edu/~UHERO

  7. Then the World Changed http://www2.hawaii.edu/~UHERO

  8. US Enters Recession Disruptions pushed economy over edge to recession Consumer confidence takes a hit, but spending holds up Quick Fed and some Federal gov’t action Japan’s prospects turn even worse Hoped-for export-led recovery down the tubes Government unable or unwilling to do much Hawaii tourism hammered Passenger counts, ocup. rates fell well below 2000 Spillovers to broader economy limited Outlook Worsened Across the Board http://www2.hawaii.edu/~UHERO

  9. Hawaii Jobs Destroyed Fast http://www2.hawaii.edu/~UHERO

  10. Job Market Situation At Year End Percent Change in Jobs over 2000 http://www2.hawaii.edu/~UHERO

  11. Assessing the Forecasting Environment • Prospects for US, Japanese recoveries will play key role • Econometric modeling captures HI response to external developments • But worst risks aren’t economic • Prospects for War on Terrorism • Evolving attitudes toward vacations and air travel • Policy uncertainties • How much more from Feds? • Chances of significant State Legislative action • Spillovers and unrelated bad luck • Dengue fever scare over? http://www2.hawaii.edu/~UHERO

  12. Macro Effects Explain Only Part of Visitor Decline http://www2.hawaii.edu/~UHERO

  13. The Gulf War As Guide? http://www2.hawaii.edu/~UHERO

  14. External Assumptions • US economy will resume growth this quarter • Accelerates toward 3+% rates by year end as monetary (and some fiscal) stimulus kick in • Interest rate environment will continue to support spending • Japan growth will not resume until late in the year • Will not touch 2% growth until 2003 • Yen will remain about 120 for next several years • Further improvement in security environment supports continued tourism recovery http://www2.hawaii.edu/~UHERO

  15. UHERO Forecast Highlights • Visitor arrivals fell 8-9% last year • Japan travel weakness means only 2% growth in 2002 • Mainland drives 7.4% growth in 2003 • Job losses for state will top 14,000 • More than 6,000 in hotels • Only slow job recovery • Unemployment will rise to 5.6% • Hawaii has entered a moderate recession • Real income will fall 1.5% before beginning recovery next year http://www2.hawaii.edu/~UHERO

  16. Westbound Arrival Recovery Continues http://www2.hawaii.edu/~UHERO

  17. Eastbound Visitors Will Take Much Longer http://www2.hawaii.edu/~UHERO

  18. Tourism Job Losses Will Persist http://www2.hawaii.edu/~UHERO

  19. Overall Job Losses Will Be Less Severe http://www2.hawaii.edu/~UHERO

  20. A Moderate Recession in Real Income http://www2.hawaii.edu/~UHERO

  21. Unemployment Rate will Rise http://www2.hawaii.edu/~UHERO

  22. Inflation Will Cool http://www2.hawaii.edu/~UHERO

  23. Risks and Mitigating Factors • Risks of Further Fallout • Bankruptcy risks for Japanese-dependent retail firms • Slower pickup in global economy • Factors supporting growth • Federal and state tax cuts • Income creation from home refinancing and sales • Renovation tax incentives http://www2.hawaii.edu/~UHERO

  24. The Numbers http://www2.hawaii.edu/~UHERO

  25. http://www2.hawaii.edu/~UHERO

  26. High-Low Scenarios http://www2.hawaii.edu/~UHERO

  27. High-Low Scenarios http://www2.hawaii.edu/~UHERO

  28. High-Low Scenarios http://www2.hawaii.edu/~UHERO

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