Economic Analysis Of Hawaii Essay, Research Paper
Economic Analysis of Hawaii
Hawaii, with an area of 28,313 sq. km (10,932 sq. mi.), is the 43rd largest
state in the U.S.; 6.9% of the land is owned by the federal government. It
consists mainly of the Hawaiian Islands, eight main islands and 124 islets,
reefs, and shoals. The major islands in order of size are Hawaii, Maui, Oahu,
Kauai, Molokai, Lanai, Nihau, and Kahoolawe. Population growth has increased
by 80,000 persons over the past five years. Demographics show a large number
of Hispanic origin: Asian Hispanics are the most populated with white Hispanic
and Asian non-Hispanic following. Hawaii’s economy has been long dominated by
plantation agriculture and military spending. As agriculture has declined in
importance, the economy has diversified to encompass a large tourist business
and a growing manufacturing industry.
Hawaii’s economy has changed drastically since statehood. In 1958, defense,
sugar, and pineapple were the primary economic activities, accounting for 40%
of Gross State Product (GSP). In contrast, visitor-related expenditures stood
at just over 4% of Hawaii’s GSP prior to statehood. Today the positions are
reversed; sugar and pineapple constitute about 1% of GSP, defense accounts for
just under 11%, while visitor-related spending comes close to 24% of Hawaii’s
The movement toward a service- and trade-based economy becomes even more
apparent when considering the distribution of Hawaii’s jobs across sectors.
The share of the economy’s jobs accounted for by manufacturing and agriculture
have declined steadily since 1959 and each currently makes up less than 4% of
total jobs in the economy. At the same time, the shares of jobs in wholesale
and retail trade and in services have risen, standing at about 23% and 28%,
Since 1991, Hawaii’s economy has suffered from rising rates of unemployment .
This stands in marked contrast to the period 1980 to 1993, when the state
enjoyed very low unemployment rates relative to the nation as a whole. But by
1994 the recession had raised Hawaii’s unemployment rate to the national
average (6.1%) for the first time in 15 years. In 1995, the state’s
unemployment rate improved slightly in the first eleven months of the year to
5.4 percent, a 0.6 percentage point decline from the first eleven months of
1994. Despite the lower unemployment rate, the total number of wage and salary
jobs declined by 0.6 percent during the first eleven months of 1995. This was
due in part to a fall in part-time jobs which are often held by persons who
also have primary jobs elsewhere in the economy. The number of construction
jobs declined by more than 7
percent in the same period. Other industries–namely, manufacturing,
transportation, communications/utilities, and finance, insurance, and real
estateexperienced declines in the number of jobs as well. Jobs in retail trade
and services, however, increased 2.2 percent and 0.5 percent, respectively,
reflecting an increase in visitor spending since 1994.
Following a dismal first quarter due to the Kobe earthquake, there was steady
growth in the tourism sector in 1995 with increases in the number of visitor
arrivals and hotel room rates. The number of visitor arrivals to the State
increased 3.2 percent during the first eleven months of 1995. The increase in
the value of the Japanese yen vis-a-vis the U.S. dollar during this period
contributed to a rise in eastbound visitors in the second and third quarter of
1995 by 11.8 percent and 15.4 percent, respectively. However, in the first
eleven months of 1995, the number of westbound visitors remained flat.
This year is the 11th year in a row that the U.S. has experienced reduced
spending on national defense. The continued reduction is due to the decline in
superpower tensions and the political disintegration of the Soviet and East
European-block during this decade which have prompted the Congress and
Administration to initiate significant cuts in the level of defense
expenditures in recent years. However, because of the strategic location of
Hawaii in the Pacific this changing military posture has not significantly
affected Hawaii’s $3.7 billion Federal defense sector.
The construction industry continued its decline in the first eleven months of
1995. This loss was mainly due to decreasing demand exacerbated by higher
interest rates during the first half of 1995, following a 12.4 percent drop in
1994. Another reason is that construction costs rose by 15 percent from 1992
to 1995, which is much higher than the consumer inflation rate of 8 percent
during the same period.
Agriculture jobs, including self-employed, showed a 6.6 percent decline in
the first eleven months of 1995 from the same period in 1994. In the earlier
part of the year, the agricultural work force fell to its lowest level in 21
years. Agriculture accounts for slightly less than 2percent of jobs in the
Latest data from the Bureau of Economic Analysis ranked Hawaii 26th among the
50 states in terms of growth in personal income between the first and second
quarters of 1995. During the second quarter of 1995, personal income was
estimated to be an annualized 29.2 billion dollars, up 4.0 percent at an
annual rate from the second quarter of 1994. The growth in personal income is
mainly attributed to an increase in rents, dividends and interest, along with
transfer payments of 7.6 percent and 7.5 percent in the second quarter,
respectively. The largest component of personal income, wages and salaries,
increased by 2.3 percent over the period as compared to only 1.0 percent in
The consumer inflation rate, as reflected in the percentage change of the
Honolulu Consumer Price Index, increased by 2.1 percent between the first half
of 1994 and the first half of 1995. In the second half of 1995, the inflation
rate slowed to 0.7 percent as compared to the second half of 1994. If the
current trend continues, overall inflation for Hawaii in 1995 will be
slightly lower than 2.0 percent, the lowest since 1986.
DBEDT expects the Honolulu Consumer Price Index to increase about 2.0 percent
in 1995 and 2.5 percent in 1996. This is lower than the expected consumer
price increases of 3.0 to3.5 percent for the nation as a whole in 1996,
reflecting the relatively slower growth of Hawaii’s economy. Real Gross State
Product (RGSP) is expected to grow at an annual rate of approximately 2.2%
between 1995 and 2000. Average annual growth in the number of civilian jobs is
projected to rise by 1.8% per year over the next five years. Over the same
period, the unemployment rate should decline gradually from 5.5% in 1995 to
5.3% over 1996-2000. Growth of real disposable income is anticipated to rise
to 1% next year and to an average of 1.2% each year to 2000.
Hawaii’s people have seen dramatic changes in the economic structure over the
last generation. The military and agriculture, the traditional pillars of the
Hawaii economy, have declined and no longer employ the bulk of the labor
force. At the same time, Hawaii’s increasing reliance on service industries,
especially tourism, makes them particularly sensitive to external economic
events. To some extent, the effects of this sensitivity are reflected in the
unprecedented long period of low growth in recent years.
At no time since statehood has Hawaii grown at such low rates for such a
sustained period. The initial downturn was clearly associated with the
cyclical recession on the mainland and eventually in Japan. This cyclical
downturn was exacerbated by important structural changes in Hawaii’s economy.
While Hawaii cannot ignore and must still address these structural issues, it
appears that it is now rebounding from the cyclical downturn. Fourth quarter
economic data for 1995 show that it is entering an economic recovery and
prospects for the medium term are good.
Economic Analysis of Hawaii
Thesis: As military and agriculture decline, Hawaii’s economy has diversified
to encompass a large tourist business and a growing manufacturing industry.
III. Labor Force and Jobs
XI. Price and Product
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