hawaii’s expansion remains on track, but could the global...

© 20162424 MAILE WAY, SAUNDERS HALL 540 • HONOLULU, HAWAII 96822 • (808) 956-2325 UHERO.HAWAII.EDU

UHERO STATE FORECAST UPDATE, SPONSORS EDITION

FEBRUARY 26, 2016

Growing in a Riskier World

Like the U.S. economy overall, Hawaii continues on a

moderate growth path despite financial market volatility, a

surging dollar, and global slowing. To be sure, record-setting

levels of visitor activity are beginning to feel the adverse

effects, but construction strength and a pause in federal

sequestration have arrived at just the right time. While risks

have clearly heightened in recent months, our outlook is for

fairly decent growth over the next several years.

ARRIVALS WILL REMAIN STRONG, BUT THE

DOLLAR WEIGHS ON SPENDING

Last year proved to be yet another record breaking

one for Hawaii tourism. In total we hosted more than 8.5

million visitors, about 4% more than in 2014. Each county

saw an increase in visitor days. Occupancy rates on Oahu

have remained in the lofty 85% range they have inhabited

since 2012, an unprecedented period of very high capacity

utilization. (Data is from Hospitality Advisors LLC.) And still,

arrivals have grown, with additional visitors apparently being

absorbed by alternative accommodations.

The strong arrivals figures mask a substantial

deceleration of visitor spending, related in part to the

strengthening US dollar. Since 2011 the Australian,

Canadian, and Japanese currencies have all fallen by roughly

30% against the US dollar. Trade and commodity related

weakness in several overseas markets is also a concern, but

the biggest spending dropoff has been among Japanese

travelers, whose daily spending has declined by almost 25%

over the past three years. This has had the biggest impact on

Oahu, where international tourists make up nearly half of all

Hawaii’s expansion remains on track, but could the global economy derail it?

visitors, compared with less than a quarter on the Neighbor

Islands. But even among US visitors, inflation adjusted daily

spending is flat, posing risks for the industry statewide. We

will have much more to say about the outlook for the four

counties in our County Forecast report, due out in the second

quarter.

The airline seat outlook reflects anticipated slowing of

the North American markets and continuing challenges in

Japan, with more upbeat expectations for other international

markets. For the US, after first quarter gains from expanded

Delta, Alaska, and Virgin America offerings, the annual

number of scheduled seats is expected to be flat. A similar

story holds for the Canadian market, where new Westjet

routes lift scheduled seats in the first quarter, but leave

anticipated annual figures more or less unchanged. Airlift is

JAPANESE DAILY VISITOR SPENDING HAS FALLEN BY ALMOST 25% OVER THE PAST THREE YEARS.

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Real Daily Spending per Visitor ($2015/Day)

US JapanAll Others

UHERO STATE FORECAST UPDATE FEBRUARY 26, 2016 - PAGE 2


expected to be higher for Australia and China, although this

will be offset by further declines in Japanese flights.

Some lift to the industry may come from lower travel

costs. So far the massive decline in oil prices has been slow

to translate into lower airfares. In the first half of 2015 (the

latest data available), the average roundtrip airfare on flights

from the US mainland to Honolulu declined by roughly 5%

year over year; during that same period the price of oil fell by

nearly half. Japanese carriers have, however, been removing

fuel surcharges. Of course, as we have seen nationally, the

positive effects of lower energy costs can be offset by their

adverse effects on investment in affected countries and

regions.

The overall visitor outlook remains favorable, but gains

will fall short of recent years. Restored capacity will provide

more space on Oahu, and the Neighbor Isles still have spare

capacity, but global economic conditions and the cautious

stance by airlines are sobering. We expect arrivals to rise by

1.3% this year and just 1% in 2017. The dollar will continue

to weigh on spending, which will be essentially flat in real

terms this year. Sharper currency movements could take a

bit more off our already cautious forecast for international

arrivals, as well.

EMPLOYMENT GAINS WILL LIFT WAGES

Labor market conditions continue their trend

improvement. Employment growth is outpacing expansion

of the labor force, driving the unemployment rate down

to a seasonally adjusted 3.2% in December, its lowest rate

since early 2008. At the same time, the pace of growth in

payroll jobs has eased as we have moved from the business

cycle recovery period onto a more typical long-run path.

Job growth averaged more than 2% in 2012-2013; last year

payrolls increased by 1.4%, fewer than 9,000 jobs.

As we have discussed in past reports, the impetus for

growth has increasingly shifted away from travel and tourism,

which led the state’s emergence from recession. Now it is

construction that is generating the greatest job gains. The

sector really kicked into high gear in 2015, accounting for

nearly one-third of all jobs created. Recent months have

come in particularly strong. According to our in-house

estimates of the upcoming government benchmark revision,

we now estimate an 8% gain in construction jobs last year. All

other sectors combined increased by about 1%.

The principal drag on growth continues to be the public

sector, which shed more than 900 jobs last year. While recent

legislation has deferred the next round of federal budget

battles until after the presidential election, the medium-term

prospects for federal employment remain bleak. Things

look a bit better at the state and local levels, where budget

constraints are likely to be less severe.

There are several areas of ongoing strength outside

the construction sector. Healthcare had a very strong year,

expanding nearly 3% and accounting for about a fifth of all

jobs created. This may reflect increased Medicaid transfers

under the Affordable Care Act. Transportation and utilities THE STRONG ARRIVALS FIGURES MASK A SUBSTANTIAL

DECELERATION OF VISITOR SPENDING.

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Visitor DaysReal Visitor Spending (Right Scale)



surged 3%. Despite the stronger than expected arrivals

gains, jobs in the accommodations and food services sector

managed only 1.4% growth last year, in part because of

temporary closure of several resorts for renovation. Retail

trade employment rose less than 1%, and the broad “other

services” category by only 0.7%. Business services saw limited

growth that was partially offset by softness in the information

industry and private sector education services.

Tightening of the labor market is now prompting

significant gains in personal income. Real income per

employed person last year posted its strongest growth

since 2012, according to UHERO estimates. Still, the data

suggest that pockets of labor market weakness remain. For

example, temporary service employment continues to play a

disproportionate role in job gains. Further improvement in

employment conditions will drive a broad based increase in

wages, as unemployment rates edge further downward and

pockets of worker shortage emerge in some industries.

Employment in several important sectors will be

significantly affected by downsizing, business closures,

and ownership change. Alexander & Baldwin’s recently-

announced closure of Hawaii Commercial & Sugar, the

state’s last remaining sugar plantation, will lead to the layoff

of roughly 650 employees by 2017, about 1% of the Maui

labor force. Kaiser Permanente has agreed to take control

of the state-run hospitals on Maui and Lanai by mid-year,

reducing uncertainty over jobs at three Hawaii Health

Systems Corporation facilities.

The Army will be cutting by 8% the number of active

duty army troops stationed at Schofield Barracks by the

end of fiscal 2017; this will result in a loss of roughly 1,200

troops. The Army will cut roughly 17,000 civilian workers

nationwide during the same period, although the details of

where those layoffs will occur are yet to be determined. Over

the longer run, the anticipated relocation of Marines from

Okinawa to Hawaii will be a stabilizing factor.

Overall, we expect the payroll job count in the islands to

expand by 1.3% this year, in line with last year’s growth. As

the construction upswing matures, growth will drop below

1% by 2018.

THE CONSTRUCTION SECTOR ACCOUNTED FOR

NEARLY A THIRD OF ALL JOB GAINS IN 2015.

20152013201120092007200520032001

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0

-2

-4

-6

Contribution to Job Growth (%)

Construction All Other Sectors

OAHU HOME PRICES CONTINUE TO MOUNT, BUT AT A RESTRAINED PACE.

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Single Family Home Prices Condo Prices



CONSTRUCTION CYCLE IS THE CLEAR GROWTH

IMPETUS

The construction sector is bustling. Last year, the real

(cost-adjusted) value of private permits rose nearly 14%, the

second year of double-digit gains. The main driving force

remains the residential sector on Oahu, but the Neighbor

Islands have also picked up steam, with an 11% surge in

construction jobs last year.

Prospects for residential construction continue to look

favorable statewide. Notable recent developments include

a Supreme Court ruling that clears the way for D.R.

Horton’s Hoopili project on the Ewa Plain, planned 2016

groundbreaking on several more Kakaako condo towers, and

progress on residential developments on the Big Island. On

the flip side, we have seen our first cancellation of a planned

Kakaako residential tower, the luxury Vida project, because

of weak sales. Other luxury projects, such as Park Lane,

have had very successful pre-sales, so it is unclear whether

this reflects a topping out of the high end market or merely

characteristics and timing of this particular project.

Home prices continue to mount, but at a fairly restrained

pace. The median price of a single family home on Oahu

increased to $700,000 in 2015, or about 3%. The median

price for a condo rose to $360,000. Homes and condos

continue to sell at a very rapid clip, with median time on

market of about 20 days. Home prices across the Neighbor

Islands have continued their recovery as well. Kauai saw

the most substantial growth last year, with the median price

for a single family home jumping more than 15%; the Big

Island and Maui saw more modest gains of 4% and 2%,

respectively.

Activity on the nonresidential side has been more

moderate, with some falloff of permitting in the second half

of the year. While new retail and resort-related projects are

in the works or ongoing, others are now winding down. The

half-billion-dollar development of Ala Moana Center’s Ewa

Wing was completed last fall. We expect an uptick in non-

residential permits this year and next, falling off thereafter.

Public construction surged last year, in part due to a

second quarter spike in contracts awarded for roadway

and car rental improvements at Kahului airport and the

appearance of Honolulu rail stations in the statistics. Looking

forward, rail has lept another hurdle with the recent approval

by the Honolulu City Council of the GET surcharge through

2027, and there are ongoing upgrades to Hilo Harbor, and

new road work on the Big Island. As we noted in our last

report, the future of the Thirty Meter Telescope is uncertain,

as the entire permitting process has to be restarted, which

is likely to take years rather than months. In the meantime,

TMT management is actively searching for alternative sites.

INFLATION RESPITE WILL END, AND INCOME

GAINS WILL TAPER OFF

Inflation remained muted in the second half of 2015,

largely thanks to falling energy prices. For 2015 as a whole,

Honolulu consumer prices increased 1%, the lowest rate since

2009. The energy component of the Honolulu CPI declined

by 25% as the price of oil dropped from an average of $100/

bbl in 2014 to $37/bbl by the end of 2015.

LABOR INCOME GAINS ARE NOW THE DRIVING FACTOR IN OVERALL INCOME GROWTH.

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While headline inflation has remained low, it is clear that

prices for many goods and services are beginning to increase.

Core inflation, which excludes the volatile food and energy

components, ticked up to 2.7%, the fastest pace since 2007.

The shelter component of the CPI increased by 3%, also

the highest inflation since 2007. As the dampening effect of

energy price decline fades, these factors will push inflation

above 2-½% by 2017 and to nearly 3% in 2018.

Moderating inflation has helped to boost income.

Through the first three-quarters of last year, real personal

income increased 4%, the fastest income growth since 2004.

Labor income is now the driving factor, led by double-digit

gains in the construction sector. But income growth will

taper off across nearly all sectors over the next several years,

with particular weakness expected in the public sector. Real

income growth will slow to 2.3% this year and drop to 1.4%

late in the decade.

Since the beginning of the recovery we have seen

relatively limited gains in real gross domestic product for

Hawaii. In 2014, the latest data available, per-capita real

GDP remained more than 8% lower than the pre-recession

peak. However, based on currently available data we estimate

that real GDP increased 4% in 2015, and we expect 3.2%

growth this year. As with income, GDP growth will slow in

coming years, falling to 1.6% late in the decade.

WORRIED ABOUT THE REST OF THE WORLD

So, Hawaii seems more or less on track. The problem

is a rising risk that global economic conditions could derail

us. Marked slowing in China and the adverse effects on

developing countries of plunging commodity prices have

prompted concerns about the resiliency of global demand

going forward. This has come right when the Federal Reserve

has begun its move away from ultra-low interest rates. The

result has been growing financial market volatility and

weakness, and depreciation of many currencies against the

dollar. To keep their economies afloat, policymakers abroad

have scrambled to come up with new monetary stimulus.

This does not yet mean we are in for a global recession,

or that global conditions will deteriorate enough to badly hurt

Hawaii. The US economy has held up well so far. Yes, exports

have suffered from poor demand and the strong dollar, and

the oil price collapse has had a marked negative effect on

capital investment. But US consumer spending remains

steady and confidence high, and the drag from government

cuts has eased for now. With the US still by far our largest

visitor market, this is certainly good news. And while foreign

economies have weakened, there remains considerable upside

potential for these markets over the medium term.

Still, the situation remains precarious. With the US only

managing 2+% growth, and with little room for monetary

easing and zero appetite for fiscal stimulus, prolonged

financial market turmoil, additional dollar appreciation, or

excessive Fed tightening could tip things downward. Since the

US is the sole growth engine at present, that would swing the

global economy toward recession. If that were to happen, all

bets would be off for Hawaii growth.

THE OIL PRICE COLLAPSE HAS HAD A NEGATIVE EFFECT ON CAPITAL INVESTMENT.

IVIIIIIIIVIIIIII20152014

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Contribution to US Real GDP Growth (%)

Consumption Private Investment



2013 2014 2015 2016 2017 2018

Visitor Arrivals 1.7 2.3 4.3 1.3 1.0 1.2U.S. Visitor Arrivals 0.7 2.2 5.7 1.5 1.2 1.1Japan Visitor Arrivals 3.6 -0.4 -0.8 -0.5 0.1 1.2Other Visitor Arrivals 3.2 5.0 4.7 2.1 1.1 1.5

Non-farm Payrolls 2.0 1.3 1.4 1.3 1.1 0.9Unemployment Rate (%) 4.9 4.4 3.7 3.0 2.8 2.9

Inflation Rate, Honolulu MSA (%) 1.8 1.4 1.0 1.7 2.6 2.8Real Personal Income -1.0 3.2 3.9 2.3 1.7 1.4Real GDP 0.8 1.3 4.0 3.2 2.1 1.6

Non-farm Payrolls for 2014 and 2015 are UHERO estimates of the forthcoming benchmark revision.

HAWAII ECONOMIC INDICATORSYEAR-OVER-YEAR PERCENT CHANGE

Note: Source is UHERO. Figures for income and GDP for 2015 are UHERO estimates. Figures for 2016-2018 are forecasts.



2013 2014 2015 2016 2017 2018

Non-farm Payrolls (Thou) 618.6 626.6 635.4 643.5 650.6 656.5 % Change 2.0 1.3 1.4 1.3 1.1 0.9

Employment (Thou) 619.5 639.0 651.3 661.3 666.8 672.8 % Change 1.7 3.1 1.9 1.5 0.8 0.9

Unemployment Rate (%) 4.9 4.4 3.7 3.0 2.8 2.9

Population (Thou) 1,409.0 1,419.6 1,429.4 1,438.5 1,447.9 1,457.0 % Change 1.2 0.8 0.7 0.6 0.7 0.6

Personal Income (Mil$) 62,437.3 65,348.0 68,595.8 71,388.1 74,448.1 77,654.3 % Change 0.7 4.7 5.0 4.1 4.3 4.3

Inflation Rate, Honolulu MSA (%) 1.8 1.4 1.0 1.7 2.6 2.8

Real Personal Income (Mil 2015$) 63,971.9 66,001.3 68,595.8 70,166.1 71,328.4 72,339.3 % Change -1.0 3.2 3.9 2.3 1.7 1.4

Real Per Capita Income (Thou 2015$) 45.4 46.5 48.0 48.8 49.3 49.7 % Change -2.2 2.4 3.2 1.6 1.0 0.8

Real GDP (Mil 2015$) 75,978.6 76,932.6 79,984.8 82,577.1 84,342.0 85,666.7 % Change 0.8 1.3 4.0 3.2 2.1 1.6

TOURISM SECTOR DETAILTotal Visitor Arrivals by Air (Thou) 8,003.5 8,183.7 8,534.0 8,641.4 8,727.9 8,832.4

% Change - Total Visitor Arrivals by Air 1.7 2.3 4.3 1.3 1.0 1.2U.S. Visitors 4,913.3 5,021.5 5,307.0 5,385.4 5,449.8 5,510.1

% Change - U.S. Visitors 0.7 2.2 5.7 1.5 1.2 1.1Japanese Visitors 1,518.5 1,511.7 1,499.2 1,491.9 1,493.8 1,511.5

% Change - Japanese Visitors 3.6 -0.4 -0.8 -0.5 0.1 1.2Other Visitors 1,571.7 1,650.5 1,727.8 1,764.1 1,784.3 1,810.8

% Change - Other Visitors 3.2 5.0 4.7 2.1 1.1 1.5

Avg. Length of Stay (Days) 9.3 9.2 9.1 9.2 9.2 9.2Visitor Days (Thou) 74,049.8 74,982.9 77,749.3 79,262.2 80,363.0 81,026.2

% Change 0.5 1.3 3.7 1.9 1.4 0.8Average Daily Room Rate ($) 229.5 235.7 244.1 250.9 256.5 264.7

% Change 12.2 2.7 3.6 2.8 2.2 3.2Occupancy Rate (%) 76.6 77.1 78.1 78.3 78.1 77.5Real Visitor Expenditures (Mil 2015$) 14,705.2 14,926.2 15,118.9 15,080.0 14,928.2 14,815.1

% Change -0.6 1.5 1.3 -0.3 -1.0 -0.8

TABLE 1: MAJOR ECONOMIC INDICATORSSTATE OF HAWAII FORECAST

Note: Source is UHERO. Historical figures for occupancy rate and daily room rate are from Hospitality Advisors LLC. Figures for income, GDP, average daily room rate and occupancy rates for 2015 are UHERO estimates. Figures for 2016-2018 are forecasts. Non-farm Payrolls for 2014 and 2015 are UHERO estimates of the forthcoming benchmark revision.



2013 2014 2015 2016 2017 2018

Non-farm Payrolls (Thou) 618.6 626.6 635.4 643.5 650.6 656.5

% Change 2.0 1.3 1.4 1.3 1.1 0.9

Construction and Mining 31.0 32.1 34.8 37.0 38.3 38.8

% Change 5.5 3.5 8.3 6.5 3.4 1.4

Manufacturing 13.6 13.9 14.2 14.2 14.2 14.3

% Change 1.8 2.5 1.9 0.5 -0.5 0.7

Trade 87.4 87.6 88.4 89.1 89.7 90.3

% Change 1.0 0.2 0.9 0.8 0.7 0.6

Transportation and Utilities 29.5 30.2 31.1 31.8 32.2 32.6

% Change 4.2 2.2 3.1 2.2 1.4 1.2

Finance, Insurance and Real Estate 27.2 27.1 27.4 27.8 28.1 28.2

% Change 1.6 -0.1 0.9 1.7 0.9 0.3

Services 305.5 310.0 314.8 318.2 322.0 325.6

% Change 3.0 1.5 1.6 1.1 1.2 1.1

Health Care and Soc. Assistance 64.1 65.0 66.8 68.0 69.0 70.1

% Change 3.0 1.4 2.8 1.8 1.4 1.7

Accommodation and Food 99.3 101.2 102.6 103.7 104.8 106.1

% Change 3.2 1.9 1.4 1.1 1.1 1.2

Other 142.1 143.8 144.9 146.5 148.3 149.4

% Change 2.9 1.2 0.7 1.1 1.2 0.8

Government 124.5 125.7 124.7 125.3 126.1 126.7

% Change -0.9 1.0 -0.8 0.4 0.7 0.5

Federal Government 33.9 33.2 32.7 32.9 33.0 33.1

% Change -3.0 -2.0 -1.4 0.5 0.4 0.2

State and Local Government 90.6 92.5 92.0 92.4 93.1 93.7

% Change 0.0 2.1 -0.5 0.4 0.7 0.6

Note: Source is UHERO. Figures for 2016-2018 are forecasts. Industry job counts for 2014 and 2015 are UHERO estimates ofthe forthcoming benchmark revision.

STATE OF HAWAII FORECASTTABLE 2: JOBS BY INDUSTRY



2013 2014 2015 2016 2017 2018

Real Personal Income (Mil 2015$) 63,971.9 66,001.3 68,595.8 70,166.1 71,328.4 72,339.3

% Change -1.0 3.2 3.9 2.3 1.7 1.4

Labor & Proprietors' Income 46,194.1 47,211.1 49,094.9 50,356.5 51,133.5 51,711.2

% Change 0.2 2.2 4.0 2.6 1.5 1.1

Construction 3,296.1 3,443.5 3,915.0 4,279.2 4,478.7 4,544.0

% Change 2.2 4.5 13.7 9.3 4.7 1.5

Manufacturing 839.5 867.1 883.6 896.9 901.3 912.4

% Change 0.8 3.3 1.9 1.5 0.5 1.2

Trade 4,090.2 4,124.7 4,213.1 4,308.4 4,351.5 4,404.5

% Change 1.6 0.8 2.1 2.3 1.0 1.2

Transportation and Utilities 2,301.8 2,364.4 2,476.2 2,515.6 2,567.9 2,609.8

% Change 6.5 2.7 4.7 1.6 2.1 1.6

Finance, Insurance & Real Estate 3,041.2 3,031.4 3,239.0 3,351.6 3,440.9 3,502.7

% Change -6.4 -0.3 6.8 3.5 2.7 1.8

Services 17,799.9 18,233.2 18,895.4 19,439.2 19,810.2 20,143.3

% Change 2.2 2.4 3.6 2.9 1.9 1.7

Health Care & Soc. Assist. (% ch.) 2.4 1.9 5.1 3.1 2.2 2.3

Accommodation & Food (% ch.) 4.0 3.2 4.3 3.3 1.6 1.7

Other (% ch.) 1.3 2.3 2.6 2.6 1.9 1.4

Government 14,481.8 14,773.6 15,046.6 15,142.0 15,179.0 15,186.4

% Change -2.5 2.0 1.8 0.6 0.2 0.0

Federal, civilian (% ch.) -6.1 1.4 1.8 1.0 0.9 0.8

State & Local (% ch.) 1.3 4.5 2.9 0.7 0.6 0.1

Less Social Security Taxes (-) 5,541.8 5,478.6 5,588.1 5,677.9 5,765.5 5,830.7

% Change 14.4 -1.1 2.0 1.6 1.5 1.1

Transfer Payments 10,080.9 10,571.6 10,963.6 11,198.8 11,483.1 11,769.7

% Change 1.6 4.9 3.7 2.1 2.5 2.5

Dividends, Interest and Rent 13,238.7 13,697.2 14,125.2 14,288.7 14,477.3 14,689.0

% Change -1.7 3.5 3.1 1.2 1.3 1.5

Population (Thou) 1,409.0 1,419.6 1,429.4 1,438.5 1,447.9 1,457.0

% Change 1.2 0.8 0.7 0.6 0.7 0.6

Real Per Capita Income (Thou 2015$) 45.4 46.5 48.0 48.8 49.3 49.7

% Change -2.2 2.4 3.2 1.6 1.0 0.8


Nominal Personal Income (Mil. $) 62,437.3 65,348.0 68,595.8 71,388.1 74,448.1 77,654.3

% Change 0.7 4.7 5.0 4.1 4.3 4.3

Note: Source is UHERO. Figures for income for 2015 are UHERO estimates. Figures for 2016-2018 are forecasts.

TABLE 3: PERSONAL INCOME BY INDUSTRYSTATE OF HAWAII FORECAST



2013 2014 2015 2016 2017 2018

BUILDING PERMITS (Mil 2015$)Total Commitments to Build 4,391 4,639 5,518 5,760 5,897 5,895 % Change 9.1 5.6 19.0 4.4 2.4 0.0

Real Private Building Permits 3,052 3,486 3,964 4,283 4,537 4,431 % Change -2.1 14.2 13.7 8.1 5.9 -2.3

Real Residential Building Permits 1,150 1,037 1,651 1,816 1,874 1,844 % Change 16.5 -9.8 59.3 10.0 3.2 -1.6

Real Non-Residential Building Permits 1,902 2,449 2,312 2,466 2,663 2,587 % Change -10.7 28.8 -5.6 6.7 8.0 -2.9

Government Contracts Awarded 1,340 1,153 1,555 1,477 1,360 1,464 % Change 47.1 -13.9 34.8 -5.0 -7.9 7.7

CONSTRUCTION ACTIVITYReal GE Contracting Tax Base (Mil 2015$) 8,223 7,385 8,162 9,157 9,578 9,743 % Change -0.4 -10.2 10.5 12.2 4.6 1.7

Nominal GE Contracting Tax Base (Mil $) 7,330 7,024 8,162 9,788 10,923 11,723 % Change 4.6 -4.2 16.2 19.9 11.6 7.3

Construction Job Count (Thou) 31.0 32.1 34.8 37.0 38.3 38.8 % Change 5.5 3.5 8.3 6.5 3.4 1.4

Real Construction Income (Mil 2015$) 3,296 3,444 3,915 4,279 4,479 4,544 % Change 2.2 4.5 13.7 9.3 4.7 1.5

PRICES & COSTS (HONOLULU)Honolulu Median Home Price (Thou $) 647.0 675.6 697.5 739.3 773.7 797.5 % Change 3.5 4.4 3.2 6.0 4.7 3.1

Honolulu Median Condominium Price (Thou $) 333.6 350.4 362.1 388.4 413.9 433.5 % Change 5.6 5.0 3.3 7.3 6.6 4.7

Honolulu Housing Affordability Index 87.5 78.4 81.4 79.0 74.6 72.2 % Change -3.1 -10.4 3.8 -2.9 -5.6 -3.2

Honolulu Construction Cost Index (2015=100) 89.1 95.1 100.0 106.9 114.0 120.3 % Change 5.1 6.7 5.1 6.9 6.7 5.5

30-Year Mortgage Rate (%) 4.0 4.2 3.9 4.2 4.7 5.1

Income is deflated by Honolulu CPI. Housing affordability index is the ratio of median family income to qualifying income for a loanthe sum of private permits and public contracts awarded. Permits and tax base are deflated by Honolulu Construction Cost Index.

STATE OF HAWAII FORECASTTABLE 4: CONSTRUCTION INDICATORS

Note: Source is UHERO. Figures for 2015 are UHERO estimates. Figures for 2016-2018 are forecasts. Commitments to Build are

for the median-priced home (times 100).



2013 2014 2015 2016 2017 2018

U.S. FACTORS

Employment (Thou) 143,929.3 146,305.3 148,833.4 150,943.1 152,165.0 152,834.7

% Change 1.0 1.7 1.7 1.4 0.8 0.4


Inflation Rate (%) 1.5 1.6 0.2 1.7 1.9 1.9

Real GDP (Bil 2009$) 15,583.3 15,961.7 16,352.5 16,734.4 17,101.9 17,464.8

% Change 1.5 2.4 2.4 2.3 2.2 2.1

Population (Thou) 316,839.0 319,173.0 321,368.9 323,995.5 326,625.8 329,256.5

% Change 0.7 0.7 0.7 0.8 0.8 0.8

JAPAN FACTORS

Employment (Thou) 63,110.0 63,502.5 63,759.2 63,624.5 63,339.8 63,089.4

% Change 0.7 0.6 0.4 -0.2 -0.4 -0.4


Inflation Rate (%) 0.4 2.7 0.8 0.5 2.2 2.0

Real GDP (Bil 2005 yen) 526,472.1 525,878.8 529,873.6 534,752.4 539,236.4 546,651.6

% Change 1.4 -0.1 0.8 0.9 0.8 1.4

Population (Thou) 126,985.0 126,794.6 126,573.5 126,323.7 126,045.2 125,738.4

% Change -0.1 -0.2 -0.2 -0.2 -0.2 -0.2

Exchange Rate (Yen/$) 97.6 105.9 121.0 122.7 121.1 117.7

Note: Source is UHERO. Figures for Japanese GDP and population for 2015 are UHERO estimates. Figures for 2016-2018 are forecasts.

TABLE 5: EXTERNAL INDICAT0RSSTATE OF HAWAII FORECAST



2015 2016 2017 2018 2019 2020

Non-farm Payrolls (Thou) 635.4 643.5 650.6 656.5 661.1 664.8 % Change 1.4 1.3 1.1 0.9 0.7 0.6

Employment (Thou) 651.3 661.3 666.8 672.8 676.7 679.8 % Change 1.9 1.5 0.8 0.9 0.6 0.5


Population (Thou) 1,429.4 1,438.5 1,447.9 1,457.0 1,467.9 1,479.1 % Change 0.7 0.6 0.7 0.6 0.8 0.8

Personal Income (Mil$) 68,595.8 71,388.1 74,448.1 77,654.3 80,349.8 82,730.4 % Change 5.0 4.1 4.3 4.3 3.5 3.0


Real Personal Income (Mil 2015$) 68,595.8 70,166.1 71,328.4 72,339.3 73,285.1 74,219.7 % Change 3.9 2.3 1.7 1.4 1.3 1.3

Real Per Capita Income (Thou 2015$) 48.0 48.8 49.3 49.7 49.9 50.2 % Change 3.2 1.6 1.0 0.8 0.6 0.5

Real GDP (Mil 2015$) 79,984.8 82,577.1 84,342.0 85,666.7 86,945.3 88,331.6 % Change 4.0 3.2 2.1 1.6 1.5 1.6

TOURISM SECTOR DETAILTotal Visitor Arrivals by Air (Thou) 8,534.0 8,641.4 8,727.9 8,832.4 8,893.8 8,954.1

% Change - Total Visitor Arrivals by Air 4.3 1.3 1.0 1.2 0.7 0.7U.S. Visitors 5,307.0 5,385.4 5,449.8 5,510.1 5,545.9 5,573.3

% Change - U.S. Visitors 5.7 1.5 1.2 1.1 0.7 0.5Japanese Visitors 1,499.2 1,491.9 1,493.8 1,511.5 1,515.0 1,524.6

% Change - Japanese Visitors -0.8 -0.5 0.1 1.2 0.2 0.6Other Visitors 1,727.8 1,764.1 1,784.3 1,810.8 1,832.9 1,856.2

% Change - Other Visitors 4.7 2.1 1.1 1.5 1.2 1.3

Avg. Length of Stay (Days) 9.1 9.2 9.2 9.2 9.1 9.2Visitor Days (Thou) 77,749.3 79,262.2 80,363.0 81,026.2 81,349.9 81,953.7

% Change 3.7 1.9 1.4 0.8 0.4 0.7Average Daily Room Rate ($) 244.1 250.9 256.5 264.7 272.3 279.2

% Change 3.6 2.8 2.2 3.2 2.9 2.5Occupancy Rate (%) 78.1 78.3 78.1 77.5 76.9 76.9Real Visitor Expenditures (Mil 2015$) 15,118.9 15,080.0 14,928.2 14,815.1 14,724.8 14,723.0

% Change 1.3 -0.3 -1.0 -0.8 -0.6 0.0

TABLE 6: MAJOR ECONOMIC INDICATORSEXTENDED STATE OF HAWAII FORECAST

Note: Source is UHERO. Historical figures for occupancy rate and daily room rate are from Hospitality Advisors LLC. Figures for income, GDP, average daily room rate and occupancy rates for 2015 are UHERO estimates. Figures for 2016-2020 are forecasts. Non-farm Payrolls for 2015 are UHERO estimates of the forthcoming benchmark revision.



2015 2016 2017 2018 2019 2020

Non-farm Payrolls (Thou) 635.4 643.5 650.6 656.5 661.1 664.8

% Change 1.4 1.3 1.1 0.9 0.7 0.6

Construction and Mining 34.8 37.0 38.3 38.8 38.7 38.0

% Change 8.3 6.5 3.4 1.4 -0.3 -1.8

Manufacturing 14.2 14.2 14.2 14.3 14.3 14.4

% Change 1.9 0.5 -0.5 0.7 0.5 0.4

Trade 88.4 89.1 89.7 90.3 90.7 91.1

% Change 0.9 0.8 0.7 0.6 0.5 0.4

Transportation and Utilities 31.1 31.8 32.2 32.6 32.9 33.2

% Change 3.1 2.2 1.4 1.2 1.0 0.8

Finance, Insurance and Real Estate 27.4 27.8 28.1 28.2 28.2 28.1

% Change 0.9 1.7 0.9 0.3 0.0 -0.2

Services 314.8 318.2 322.0 325.6 329.0 332.1

% Change 1.6 1.1 1.2 1.1 1.0 1.0

Health Care and Soc. Assistance 66.8 68.0 69.0 70.1 71.2 72.3

% Change 2.8 1.8 1.4 1.7 1.6 1.5

Accommodation and Food 102.6 103.7 104.8 106.1 106.9 107.6

% Change 1.4 1.1 1.1 1.2 0.8 0.6

Other 144.9 146.5 148.3 149.4 150.8 152.2

% Change 0.7 1.1 1.2 0.8 0.9 1.0

Government 124.7 125.3 126.1 126.7 127.3 127.9

% Change -0.8 0.4 0.7 0.5 0.4 0.4

Federal Government 32.7 32.9 33.0 33.1 33.1 33.2

% Change -1.4 0.5 0.4 0.2 0.1 0.2

State and Local Government 92.0 92.4 93.1 93.7 94.2 94.7

% Change -0.5 0.4 0.7 0.6 0.6 0.5

Note: Source is UHERO. Figures for 2016-2020 are forecasts. Industry job counts for 2015 are UHERO estimates of the forthcomingbenchmark revision.

TABLE 7: JOBS BY INDUSTRYEXTENDED STATE OF HAWAII FORECAST



2015 2016 2017 2018 2019 2020

Real Personal Income (Mil 2015$) 68,595.8 70,166.1 71,328.4 72,339.3 73,285.1 74,219.7

% Change 3.9 2.3 1.7 1.4 1.3 1.3

Labor & Proprietors' Income 49,094.9 50,356.5 51,133.5 51,711.2 52,181.2 52,587.9

% Change 4.0 2.6 1.5 1.1 0.9 0.8

Construction 3,915.0 4,279.2 4,478.7 4,544.0 4,522.5 4,426.9

% Change 13.7 9.3 4.7 1.5 -0.5 -2.1

Manufacturing 883.6 896.9 901.3 912.4 921.7 930.1

% Change 1.9 1.5 0.5 1.2 1.0 0.9

Trade 4,213.1 4,308.4 4,351.5 4,404.5 4,455.3 4,504.4

% Change 2.1 2.3 1.0 1.2 1.2 1.1

Transportation and Utilities 2,476.2 2,515.6 2,567.9 2,609.8 2,646.4 2,681.6

% Change 4.7 1.6 2.1 1.6 1.4 1.3

Finance, Insurance & Real Estate 3,239.0 3,351.6 3,440.9 3,502.7 3,546.6 3,573.9

% Change 6.8 3.5 2.7 1.8 1.3 0.8

Services 18,895.4 19,439.2 19,810.2 20,143.3 20,436.7 20,700.9

% Change 3.6 2.9 1.9 1.7 1.5 1.3

Health Care & Soc. Assist. (% ch.) 5.1 3.1 2.2 2.3 2.2 1.9

Accommodation & Food (% ch.) 4.3 3.3 1.6 1.7 1.7 1.5

Other (% ch.) 2.6 2.6 1.9 1.4 1.0 0.9

Government 15,046.6 15,142.0 15,179.0 15,186.4 15,242.2 15,357.0

% Change 1.8 0.6 0.2 0.0 0.4 0.8

Federal, civilian (% ch.) 1.8 1.0 0.9 0.8 0.7 0.6

State & Local (% ch.) 2.9 0.7 0.6 0.1 -0.1 0.1

Less Social Security Taxes (-) 5,588.1 5,677.9 5,765.5 5,830.7 5,883.6 5,929.5

% Change 2.0 1.6 1.5 1.1 0.9 0.8

Transfer Payments 10,963.6 11,198.8 11,483.1 11,769.7 12,075.6 12,397.1

% Change 3.7 2.1 2.5 2.5 2.6 2.7

Dividends, Interest and Rent 14,125.2 14,288.7 14,477.3 14,689.0 14,911.9 15,164.2

% Change 3.1 1.2 1.3 1.5 1.5 1.7

Population (Thou) 1,429.4 1,438.5 1,447.9 1,457.0 1,467.9 1,479.1

% Change 0.7 0.6 0.7 0.6 0.8 0.8

Real Per Capita Income (Thou 2015$) 48.0 48.8 49.3 49.7 49.9 50.2

% Change 3.2 1.6 1.0 0.8 0.6 0.5


Nominal Personal Income (Mil. $) 68,595.8 71,388.1 74,448.1 77,654.3 80,349.8 82,730.4

% Change 5.0 4.1 4.3 4.3 3.5 3.0

Note: Source is UHERO. Figures for income for 2015 are UHERO estimates. Figures for 2016-2020 are forecasts.

TABLE 8: PERSONAL INCOME BY INDUSTRYEXTENDED STATE OF HAWAII FORECAST



2015 2016 2017 2018 2019 2020

BUILDING PERMITS (Mil 2015$)Total Commitments to Build 5,518 5,760 5,897 5,895 5,519 5,159 % Change 19.0 4.4 2.4 0.0 -6.4 -6.5

Real Private Building Permits 3,964 4,283 4,537 4,431 4,117 3,707 % Change 13.7 8.1 5.9 -2.3 -7.1 -10.0

Real Residential Building Permits 1,651 1,816 1,874 1,844 1,739 1,543 % Change 59.3 10.0 3.2 -1.6 -5.7 -11.3

Real Non-Residential Building Permits 2,312 2,466 2,663 2,587 2,378 2,164 % Change -5.6 6.7 8.0 -2.9 -8.1 -9.0

Government Contracts Awarded 1,555 1,477 1,360 1,464 1,402 1,451 % Change 34.8 -5.0 -7.9 7.7 -4.2 3.5

CONSTRUCTION ACTIVITYReal GE Contracting Tax Base (Mil 2015$) 8,162 9,157 9,578 9,743 9,695 9,559 % Change 10.5 12.2 4.6 1.7 -0.5 -1.4

Nominal GE Contracting Tax Base (Mil $) 8,162 9,788 10,923 11,723 12,048 11,958 % Change 16.2 19.9 11.6 7.3 2.8 -0.7

Construction Job Count (Thou) 34.8 37.0 38.3 38.8 38.7 38.0 % Change 8.3 6.5 3.4 1.4 -0.3 -1.8

Real Construction Income (Mil 2015$) 3,915 4,279 4,479 4,544 4,522 4,427 % Change 13.7 9.3 4.7 1.5 -0.5 -2.1

PRICES & COSTS (HONOLULU)Honolulu Median Home Price (Thou $) 697.5 739.3 773.7 797.5 806.9 801.4 % Change 3.2 6.0 4.7 3.1 1.2 -0.7

Honolulu Median Condominium Price (Thou $) 362.1 388.4 413.9 433.5 444.9 447.3 % Change 3.3 7.3 6.6 4.7 2.6 0.5

Honolulu Housing Affordability Index 81.4 79.0 74.6 72.2 71.4 71.8 % Change 3.8 -2.9 -5.6 -3.2 -1.0 0.4

Honolulu Construction Cost Index (2015=100) 100.0 106.9 114.0 120.3 124.3 125.1 % Change 5.1 6.9 6.7 5.5 3.3 0.7

30-Year Mortgage Rate (%) 3.9 4.2 4.7 5.1 5.3 5.5

TABLE 9: CONSTRUCTION INDICATORS

the sum of private permits and public contracts awarded. Permits and tax base are deflated by Honolulu Construction Cost Index.

STATE OF HAWAII FORECAST

for the median-priced home (times 100).Income is deflated by Honolulu CPI. Housing affordability index is the ratio of median family income to qualifying income for a loan

Note: Source is UHERO. Figures for 2015 are UHERO estimates. Figures for 2016-2020 are forecasts. Commitments to Build are



2015 2016 2017 2018 2019 2020

U.S. FACTORS

Employment (Thou) 148,833.4 150,943.1 152,165.0 152,834.7 153,684.1 154,659.7

% Change 1.7 1.4 0.8 0.4 0.6 0.6


Inflation Rate (%) 0.2 1.7 1.9 1.9 2.0 2.0

Real GDP (Bil 2009$) 16,352.5 16,734.4 17,101.9 17,464.8 17,829.7 18,212.0

% Change 2.4 2.3 2.2 2.1 2.1 2.1

Population (Thou) 321,368.9 323,995.5 326,625.8 329,256.5 331,884.0 334,503.5

% Change 0.7 0.8 0.8 0.8 0.8 0.8

JAPAN FACTORS

Employment (Thou) 63,759.2 63,624.5 63,339.8 63,089.4 62,836.6 62,594.7

% Change 0.4 -0.2 -0.4 -0.4 -0.4 -0.4


Inflation Rate (%) 0.8 0.5 2.2 2.0 1.7 1.5

Real GDP (Bil 2005 yen) 529,873.6 534,752.4 539,236.4 546,651.6 553,305.7 559,443.1

% Change 0.8 0.9 0.8 1.4 1.2 1.1

Population (Thou) 126,573.5 126,323.7 126,045.2 125,738.4 125,402.9 125,039.0

% Change -0.2 -0.2 -0.2 -0.2 -0.3 -0.3

Exchange Rate (Yen/$) 121.0 122.7 121.1 117.7 113.5 109.2

Note: Source is UHERO. Figures for Japanese GDP and population for 2015 are UHERO estimates. Figures for 2016-2020 are forecasts.

TABLE 10: EXTERNAL INDICAT0RSEXTENDED STATE OF HAWAII FORECAST



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