State of Hawaii (USA)

Map of Hawaii Economic Environment

The year 2001 was expected to be a year of recovery for the State of Hawaii. Instead it was a year of decline and recession. Even with the deterioration of the dot com industry on the U.S. mainland and the continued weak economy of Japan, Hawaii's economic indicators slowed only moderately during the first half of the year. Although visitor arrivals declined 1.0 percent for the first eight months of 2001, visitors stayed longer, raising the daily visitor population almost one percent above the same period in 2000. Other indicators posted moderate growth: personal income rose 4.7 percent in the first half of 2001; the state’s general fund revenues increased 5.2 percent; and total job count grew 1.7 percent for the first eight months of the year. In addition, between January and August 2001, there were 9,400 more jobs and unemployment was down 0.1 of a percentage point to 4.5 percent compared to the same period in 2000.

Then came September 11. The terrorist attacks on the World Trade Center and Pentagon hit Hawaii's No. 1 industry – tourism – hard. As Hawaii's most important source of economic activity, tourism industry revenues typically exceed $10 billion and one-third of Hawaii's people depend on it for income. However, due to the State's dependence on air travel, visitors to Hawaii showed an overall decline of 34.0 percent in September 2001 compared to a year before, followed by a 30.3 percent decline in October, and a 20.0 percent decline in November. Preliminary estimates show that overall visitor arrivals were down 9 percent to 6.3 million from 2000 to 2001, with visitor expenditures down 8.2 percent.

The international visitor count, which includes Japanese visitors who bring in about a quarter of Hawaii's tourism dollars, was down 44 percent in September from a year before, down 50 percent in October, down 55 percent in November, and down 50 percent in December.

Domestic arrivals, on the other hand, declined by 28 percent in September, 19 percent in October, about 20 percent in November, and 25 percent in December compared with the year before. This extreme drop in tourism has led to hundreds of layoffs from such companies as Hawaiian Airlines, Aloha Airlines, and Atlantis Adventures. American Classic Voyages, the operator of two cruise ships in Hawaii, went bankrupt, leaving 1,100 people without work. Forecasters expect a slow recovery, with Hawaii's tourism counts not returning to pre-September 11 levels until the third quarter of 2002. Growth in U.S. arrivals is not expected until 2003 and Japanese visitors until 2004.

Hawaii's retail industry, which typically employs 20 percent of the work force, has also been struggling since September 11 due to its dependence on tourism. By December 2001, several retailers had already closed or filed for bankruptcy protection, and local bankruptcy attorneys expect 2002 to be a record year for retail failures. Especially concerned are the retailers and retail centers such as DFS Hawaii, McInerny, Aloha Tower Marketplace, and Royal Hawaiian Shopping Center, which depend on high-spending Japanese visitors. Analysts note, however, that discounters should still be able to attract spend-thrift shoppers, while entertainment and restaurants will also survive because they offer distractions from uncertainty and hardship. Stores that are not dependent on the Japanese should also fair generally well. Although a recovery is not expected until the first quarter of 2003, several national retailers such as Best Buy, Costco, Home Depot, and even Kmart are still going ahead with plans to open additional stores in Hawaii.

Last year (2001) turned out to be the second year in a row that Hawaii's agricultural industry remained soft. According to the Department of Labor and Industrial Relations, 700 fewer people were employed in the industry in November 2001 as were in November 2000. Farm revenue for 2001 is expected to be flat, due to bad seasons for several of the larger crops such as coffee, bananas, and macadamia nuts. Coffee fared the worst, as both prices and production were down. Two coffee operations were sold in 2001, and Amfac's large Maui operation closed. Pineapple and sugarcane, Hawaii's historically dominant crops, which accounted for $101 million and $63 million, respectively, in 2000, both did well in 2001. Seed crops, the State's third largest agricultural commodity (worth $35 million in 2000), and cut flowers/nursery products (worth $83 million in 2000 both grew in 2001 and are expected to continue growing in 2002. Overall, diversified agriculture (which includes all crops and livestock other than sugar and pineapple) expanded to $357 million or 69 percent of total farming revenue in 2000, but saw closures in 2001 when Dole Food Co. shut down most of its diversified operations and put 40 employees out of work.

The local construction industry, which finally grew in 2000 after a decade-long downturn, continued to grow throughout 2001 despite the State's economic decline. Construction spending rose to $2.5 billion in 2001 and is projected to rise to over $2.6 billion in 2002 as government security issues bring new projects in. Other construction projects scheduled to start in 2002 include the development of a Kahului hotel (valued at $15 to $20 million), the expansion of Chaminade University's campus ($40 million), building of a Burlington Coat Factory ($15 million), and renovations of the Kona Surf Hotel ($49 million). Residential developments are another strong sector. Although construction spending is expected to continue to rise, the number of construction jobs has remained flat over the past couple of years at about 23,700.

Hawaii's high-tech industry has yet to take off. While the U.S. mainland has already seen a boom and bust, Hawaii's technology industry is still tiny, fragmented, and playing fifth fiddle in the tourism-dominated economy. Industry backers, however, hope that a breakthrough will come soon as more companies and investors take advantage of improved tax incentives targeted towards high tech companies. Since September 11, several Hawaii high-tech startups – Viata, HotU, Hoana Technologies, Hawaii Biotech, and AssistGuide – have received a combined total of $10 million in venture financing. While this may seem low compared to the hundreds of millions of dollars that were invested around Silicon Valley a few years ago, under current circumstances, this is a fair amount. Defense contractors such as Trex, Orincon, Oceanit, and Science & Technology International have also landed multi-million dollar contracts as the military rushes to develop practical applications for new defense technologies. On the down side, a few of Hawaii's past high-tech stars have suffered along with the rest of them. Adtech, a provider of telecommunications test equipment, laid off 45 workers; online translation firm WorldPoint went bankrupt, leaving 120 without jobs; nonprofit educational software developers Ohana Foundation closed and laid off about 90 workers; Pihana Pacific, a data center network, laid off 22 workers; HighSpeed Communications closed its Honolulu wireless communications office; and contractor Axean Pacific reduced staff.

By the end of 2001, Hawaii was in a moderate recession. In October 2001, the State's unemployment rate jumped to 5.2 percent from 4.5 percent in September, as 4,500 people filed unemployment claims. In the fourth quarter of 2001 combined, almost twice as many Hawaii residents filed for unemployment (approximately 50,000) as did in the same period a year earlier, raising Hawaii's unemployment rate to about 6 percent by the end of 2001. Forecasters expect the job count to drop in 2002, with a gradual recovery in 2003 and 2004. Personal income is expected to shrink for several quarters, and State forecasters predict that the real Gross State Product for Hawaii will rise only 0.6 percent in 2002. Hawaii's recovery really depends on the economic recovery of the U.S. mainland and Japan, whose residents provide the State with visitors and spending. While the U.S. economy is already showing small signs of improvement, Japan's recovery appears to be months away.