Current Hawaii Economic Conditions. Eugene Tian

Current Hawaii Economic Conditions Eugene Tian Department of Business, Economic Development & Tourism At the PATA/TTRA 2016 Annual Outlook & Economic Forecast Forum February 3, 2016

Positive Signs in the Economy Overall, Hawaii s economy is on a normal growth path Labor market will continue to improve in 2016 Construction industry will continue to expand in 2016 Hawaii s economy will grow at the similar rate as the nation in 2016 between 2.0% and 2.5% Hawaii s unemployment rate will still be better than the nation in 2016

Challenges in the Economy Economic slowing down in most of the countries worldwide Many Hawaii industries are still recovering Hawaii and Kauai Counties are still recovering Unemployment due to economic reasons is still high Air seat growth significantly slowing down and will lead visitor industry growth slowing down Construction industry momentum is weakening Reduction in military presence

Presentation Layout A Review on Economic Growth Labor Market Construction and Real Estate Tourism Military

A Historical Review of Hawaii s Economic Growth Annual average growth, % Indicator 30 years, 1984-2014 20 years, 1994-2014 2015 2016 Real GDP 2.0 1.2 2.0 2.3 Real personal income 1.9 1.7 3.6 3.0 Honolulu inflation rate 3.2 2.3 1.0 2.3 Non-Ag wage and salary jobs Unemployment rate 1/ 1.3 0.8 1.3 1.2 4.7 5.0 3.8 3.7 Visitor arrivals by air 1.8 1.3 4.4 1.8 Real visitor expenditures 2/ 1.0-0.07 2.1 1.2 1/ Average of 30 years, 1984 2014. 2/ Deflated by Honolulu CPI.

Many of the Economies of Hawaii Visitor Origin Countries Will Experience Slowing Down 2013 2014 2015 2016 USA. 1.5 2.4 2.5 2.5 Canada 2.0 2.4 1.1 2.1 Japan 1.6-0.1 0.6 1.1 S. Korea 2.9 3.3 2.6 2.8 Hong Kong 3.1 2.5 2.3 2.2 Taiwan 2.2 3.8 1.1 2.1 China 7.7 7.3 6.9 6.4 United Kingdom 1.7 3.0 2.4 2.2 Germany 0.2 1.6 1.5 1.8 France 0.7 0.2 1.1 1.4 Eurozone -0.3 0.5 1.5 1.7 Australia 2.1 2.7 2.3 2.5 Brazil 2.7 0.1-3.3-2.4 Source: Blue Chip Economic Indicators, January 10, 2016

Hawaii s economy has been following the U.S. in the most recent two business cycles Real GDP growth, % change from previous year 8.0% 6.0% 8.3 years 10.7 years 7.6 years United States 4.0% 2.0% 0.0% -2.0% Hawaii -4.0% -6.0% 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 Source: US BEA, DBEDT, NBER, and Blue Chip Economic Indicators

Personal Income Growth: U.S. and Hawaii 16.0% 14.0% 12.0% Hawaii 10.0% 8.0% United States 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: U.S. Bureau of Economic Analysis

Total Job Growth: U.S. and Hawaii Total jobs including payroll jobs and proprietors, both full-time and part-time 6.0% 5.0% Hawaii 4.0% 3.0% United States 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: U.S. Bureau of Economic Analysis

U.S. and Japanese Visitor Arrivals to Hawaii: 1980-2015 6,000,000 US Japanese 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: HVB, DBEDT, and HTA

Labor Market

Statewide Labor Force, Employment, and payroll Job Count Reached Record High Levels in 2015 800,000 700,000 Labor Force Employment Jobs 600,000 500,000 400,000 300,000 200,000 100,000 0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

105 100 For Job Count, Honolulu and Maui Counties Have Fully Recovered From Great Recession But Hawaii and Kauai Counties Are Still Recovering (% recovery from December 2007) Honolulu Maui Hawaii Kauai 95 90 85 80 75 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Source: DILR and calculations by DBEDT

Unemployment Rate 12.0 10.0 % Honolulu State of Hawai'i United States December 2015 1/ United States 4.8% Hawai i 2.9% Honolulu 2.7% 8.0 6.0 4.0 2.0 0.0 Jan-04 Mar-04 May-04 Jul-04 Sep-04 Nov-04 Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Source: Bureau of Labor Statistics * Not seasonally adjusted. 8

In 2015, unemployment claims dropped 18.4% Comparison of Initial Unemployment Claims 3,000 2,500 Number of Claims 2,000 1,500 1,000 500 2013 2014 2015 2016 0 Source: Hawaii DLIR

Statewide Job Count Changes: 2014 Hawaii Gained 6,750 Payroll Jobs in 2014 Professional & Business Services 2,400 State & local gov. 1,833 Food Services & Drinking Places 1,150 Health Care & Social Assistance Accommodation 783 750 Nat. Resources, Mining, Constr. Transp., Warehousing, Util. 467 542 Financial Activities Manufacturing Arts, Entertainment & Recreation 175 133 283 Retail Trade Wholesale Trade 0 33 Other Services Information -292-133 Educational Services Federal gov. -667-708 (1,000) (500) - 500 1,000 1,500 2,000 2,500 3,000 Source: Hawaii State Department of Labor and Industrial Relations

Hawaii Gained 9,500 Payroll Jobs in 2015 Health Care & Social Assistance Nat. Resources, Mining, Constr. 1,800 1,900 Food Services & Drinking Places Retail Trade 1,700 Statewide Job Count Changes: First 4 months of 2015 Professional & Business Services 1,300 1,600 Transp., Warehousing, Util. Other Services 800 900 Arts, Entertainment & Recreation Financial Activities Wholesale Trade 400 500 500 Information Educational Services Manufacturing Accommodation State & local Government Federal Government -100-200 -200-300 -400-500 -1,000-500 0 500 1,000 1,500 2,000 2,500 Source: Hawaii State Department of Labor and Industrial Relations

Hawaii Industrial Winners Percent of Jobs Compared with December 2007 140 Health Care Professional Services Food Services Art & Entertainment Other Services 120 % of the December 2007 level 100 80 60 40 20 0 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Source: DLIR

Hawaii Industrial Losers Percent of Jobs Compared with December 2007 120 100 80 % change in job count 60 40 20 0 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Construction Manufacturing Wholesale trade Transporation & Warehousing Information Finance Education Services Source: DLIR

% Unemployment Rate Due to Economic Reasons Difference between U6 and U3 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: U.S. Bureau of Labor Statistics

Construction and Real Estate

Private Construction Continues Recovering 12-Month Moving Average of Building Authorization Components* 500,000 450,000 Additions & Alterations Commercial & Industrial Residential 400,000 350,000 $ Thousands 300,000 250,000 200,000 150,000 100,000 50,000 0 *Additions and Alterations and Commercial & Industrial data do not include Kauai. All data through December 2015 Source: County building departments and U.S. Census Bureau

Real Estate Sales (% change 2014 to 2015) Single Family Homes Condo Homes Island Closed sales Median price Closed sales Median price Honolulu 5.2% 3.7% 4.5% 2.9% Maui 15.0% 2.0% 0.0% -1.0% Hawaii 6.5% 4.3% 0.8% -1.8% Kauai 4.5% 15.1% 10.1% 7.1% Source: Hawaii Information Service, the Honolulu Board of Realtors, and Realtors Association of Maui.

2015 Home Median Prices Island Single Family Homes Condo Homes Honolulu $700,000 $360,000 Maui $580,000 $410,000 Hawaii $328,500 $275,000 Kauai $613,500 $370,000 Source: Hawaii Information Service, the Honolulu Board of Realtors, and Realtors Association of Maui.

Tourism Industry

Diversification of Visitor Market Region 2006 Arrivals % of Total 2015 Arrivals % of Total US Mainland 5,173,624 68.7 5,307,045 62.2 Japan 1,362,878 18.1 1,499,167 17.6 Canada 280,920 3.7 517,238 6.1 Australia 117,043 1.6 353,897 4.1 China 54,924 0.7 333,998 3.9 Korea 37,912 0.5 179,868 2.1 Europe 106,032 1.4 171,524 2.0 Latin America 19,020 0.3 143,435 1.7 Others 375,753 5.0 27,806 0.3 Total 7,528,106 100.0 8,533,978 100.0 Source: DBEDT and HTA

Visitor Arrivals and Expenditures Millions 10.0 8.0 6.0 4.0 2.0 7.0 7.3 Visitor Arrivals (1) 8.0 8.2 8.3 8.6 8.8 0.0 2010 2011 2012 2013 2014 2015 2016 Calendar Year Millions Visitor Expenditures (1) $20,000 $15,000 $11,066 $12,158 $14,365 $14,521 $14,943 $15,417 $15,964 $10,000 $5,000 $0 2010 2011 2012 2013 2014 2015 2016 Calendar Year Source: HTA and DBEDT (1) 2015 and 2016 figures are projections 18

Given the outlook of air seats at the beginning of 2016, visitor arrivals by air might be a 0.3% increase in 2016 2010 2011 2012 2013 2014 2015 2016 Total air seats 9,299,913 9,392,291 10,328,316 10,896,815 11,264,105 11,912,851 11,956,990 Total passengers 8,333,417 8,504,757 9,198,738 9,332,485 9,693,318 10,076,950 10,115,614 Load factor 89.6% 90.6% 89.1% 85.6% 86.1% 84.6% 84.6% Visitors by air 6,916,894 7,174,397 7,867,143 8,003,474 8,183,671 8,533,978 8,557,809 Returning residents 1,416,523 1,330,360 1,331,595 1,329,011 1,233,208 1,542,972 1,557,804 % of visitors 83.0% 84.4% 85.5% 85.8% 84.4% 84.7% 84.7 Source: HTA

Military in Hawaii

Military Presence in Hawaii is the Highest Since WWII Active Duty Personnel in Hawai i 55,000 50,000 49,110 49,023 51,045 46,764 45,000 43,141 41,887 42,371 40,000 38,397 38,755 35,000 35,412 33,930 30,000 25,000 20,000 1960 1970 1980 1990 2000 2010 2011 2012 2013 2014 2015 16 Source: U.S. Department of Defense.