Economics Of Hawaii Essay, Research Paper
Hawaii has an area of 28,313 sq. kilometers(10,932sq miles) and is the 43rd largest
state in the United States. 6.9% of the land is owned by the federal government. The
Hawaiian islands consist of 8 mainland 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 over the last 5 years has increased by
80,000 people. Demographics show a large number from the Asian-Hispanic,
Asian, and white. Hawaii?s economy has long been dominated plantation
agriculture and military spending. As agriculture has declined in importance, the
economy has diversified to encompass a large tourism business and growing
Hawaii economy has changed drastically since statehood. In 1958, defense,
sugar and pineapple were the primary economic activities. This accounted for 40%
of Gross State Product (GSP). In contrast, visitor related expenditure stood at just
over 4% of Hawaii?s GSP prior to statehood. Today the positions are reversed;
sugar and pineapple constituted about 1% of GSP, defense is just under 11%, while
visitor related spending accounted for about 24% of Hawaii?s GSP.
The movement towards a service and trade based economy becomes even
more apparent when considering the distribution of Hawaii?s jobs across sectors.
The share of jobs in manufacturing and agriculture have declined steadily since
1959, and each makes up less than 4% of total economy. At the same time, jobs in
wholesale, retail trade, and service 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 had very low unemployment rates compared to the United States as a
whole. But by 1994, the recession had raised Hawaii?s unemployment 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 11 months of the year to 5.4%, a
0.6% point decline from the first 11 months of 1994. Despite the lower
unemployment rate, the total number of wage and salary jobs declined by 0.6%
during the first 11 months of 1995. This was due to afall 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% in the same period.
Other industry such-namely, manufacturing, agriculture, transportation,
communications/utilities, finance, insurance and real estated suffered a decline in
jobs as well. Jobs in retail trade and service, however increased by 2.2% and a 0.5%
respectively, reflecting an increase in visitor spending since 1994.
Following a dismal first quarter due to the Kobe earthqauke, there was a
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 Hawaii increased
3.2% during the first 11 months of 1995. The increase in the value of the Japanese
yen vis-a-vis the US dollar during this period, contributed to a rise in eastbound
visitors in the second and third quarter in by 11.8% and 15.4%, respectively.
However, in the first 11 months of 1995, the number of westbound vistors remained
flat. This is the 11th year in a row where the US has experienced reduced spending
on national defense. The continued reduction is due to the decline in super power
tension and political disintegration of the soviet and East European block during
this decade which has prompted Congress and the 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, the changing in posture
has not affected Hawaii?s $3.7 billion federal defense sector.
The construction industry continued its decline in the first 11 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% drop in 1994. Another
reason is that construction costs rose by 15% from 1992 to 1995, which is much
higher than the consumer inflation rate of 8% during the same period.
Agriculture jobs, including self-employed, showed a 6.6% decline in the first
11 months of 1995 from the same period in 1994. In the earlier part of the year, the
agriculture work force fell to its lowest level in 21 years. Agriculture accounts for
slightly less than 2% of the jobs in the state.
The latest data from the Burea of Economic Analysis ranked Hawaii 26th
among 50 states, in terms of growth in personal income between the first and
second qaurter of 1995. During the second qaurter of 1995, personal income was
estimated to be annualized $29.2 billion dollars, up 4% at an annual rate from the
second qaurter of 1994. The growth in personal income is mainly attributed to an
increase in rents, dividends, interest, along with transfer payments 7.6% in the
second quarter. The largest component of personal income, wages, and salaries
increased by 2.3% over the period, as compared to only 1% in1994.
The consumer inflation rate, as reflected in the percentage change of the
Honolulu Consumer Price Index, increased by 2.1% 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% as compared to the second half of 1994. If the current trend continues, overall
inflation for Hawaii in 1995 will beslightly lower than 2%, the lowest since 1986.
DBEDT expects the Honolulu Consumer Price Index to increase about 2% in 1995
and 2.5% in 1996. This lower than the expected consumer price increases of
3-3.5% for the nation as a whole in 1996, reflecting the relatively slower growth in
Hawaiis economy. Real Gross State Product(RGSP) is expected to grow at an
annual rate of approximately 2.2% between 1995 and 2000. Average annaul growth
in the number of civilian jobs is projected to rise by 1.8% per year over the next 5
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 drastic change in the economic structure over the
last generation. The military and agriculture, the traditional make up of Hawaii?s
economy, have declined and no longer employ the bulk of the labor force. At the
same time, Hawaii?s increasing reliance on service industries, espscially tourism,
makes them paticularly sensitive to external economic events. To some extents, the
effects of the sensitivity are reflected in the unprecedented long periods 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 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 cyclical downturn. Fourth qaurter economic data for 1995 shows
that it is entering an economic recovery and prospects for the medium term are
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