Four ways to think about
Hawaii’s economic outlook
prepared for the
Annual Conference of the Hawaii Economic Association
Catastrophe, Climate and Coordination
Hawaii Prince Hotel Waikiki
April 20, 2007
by Paul H. Brewbaker, Senior Vice President
and Chief Economist, Bank of Hawaii
Ever seen a school map of the US that looks like this?
1
1. Economic structure in value-added by industry
•
BEA’s data set picks up where DBEDT’s time series leaves off
•
Cross-section details informs us about structural shifts
•
Risk-adjusted returns suggest that policy-makers are clueless
•
Doesn’t diversification require a variance-covariance matrix?
•
As for the economic outlook: same as it ever was
2
Billion constant, 2000 dollars
Hawaii “gross domestic product by state”
DBEDT
BEA (SIC)
BEA (NAICS)
40
20
10
55
60
65
70
75
80
85
90
95
00
05
Sources: Hawaii DBEDT; Bureau of Economic Analysis, US Department of Commerce; Bank of Hawaii
10
3
Hawaii gross product by SIC industry, 1963
State/local government
7.1%
Military
13.2%
Agriculture
5.6%
Construction
6.1%
Manufacturing
8.6%
Federal
9.4%
Transportation
3.9%
Other services
4.1%
Social services
0.2%
Private education
0.5%
Communications
2.2%
Utilities
2.0%
Legal
0.4%
Wholesale
6.8%
Retail
8.5%
Health
2.3%
Amusement
0.6%
Movies
0.1%
Business
1.0%
Hotels Real estate Finance
3.0%
12.5%
1.8%
Sources: Bureau of Economic Analysis, US Department of Commerce; Bank of Hawaii
4
Hawaii gross product by NAICS industry, 2004
State/local
8.8%
Agriculture
0.8%
Utilities
1.7%
Military
8.1%
Construction
5.4%
Manufacturing
1.6%
Wholesale
3.6%
Federal civilian
5.5%
Retail
7.5%
Transportation
3.6%
Information
2.3%
Other services
2.6%
Food services
3.0%
Movies
0.3%
Accommodation
5.8%
Finance
4.7%
Arts, ent., recr.
1.2%
Health
6.7%
Private educ.
1.0%
Administrative Management
1.5%
3.4%
Real estate
16.5%
Professional
4.4%
Sources: Bureau of Economic Analysis, US Department of Commerce; Bank of Hawaii
5
Hawaii gross product by industry: risk and return
Compound growth (%)
15
10
5
0
10
20
30
40
50
-5
-10
Annual volatility (%)
Sources: Bureau of Economic Analysis, US Department of Commerce; calculations by Bank of Hawaii
6
Hawaii gross product by industry: risk and return
15
Compound growth (%)
Bliss
10
5
0
10
20
30
40
50
-5
-10
Annual volatility (%)
Sources: Bureau of Economic Analysis, US Department of Commerce; calculations by Bank of Hawaii
7
Hawaii gross product by industry: outer bounds
Computer systems design and related services
15
Information and data processing services
Social
assistance
10
Professional, scientific and technical services
Administrative and waste management services
Transportation
5
Securities, investments, funds, trusts
Compound growth (%)
Wholesale
Retail
Management of companies and enterprises
Publishing including software
0
“Inner
Core”
-5
Motion picture and sound
recording industries
10
20
Agriculture
Banking
Manufacturing
30
40
50
Legal services
-10
Annual volatility (%)
Sources: Bureau of Economic Analysis, US Department of Commerce; calculations by Bank of Hawaii
8
Hawaii gross product by industry: outer bounds
Compound annual
real growth rate,
1997-2004 (%)
Computer systems design and related services
Information and data processing services
Motion pictures and sound recording industries
Professional, scientific and technical services
Social assistance
Wholesale trade
Administrative and waste management services
Retail trade
Securities, investments, funds and trusts
Management of companies and enterprises
Publishing including software
Agriculture, forestry, fishing and hunting
Federal Reserve banks, credit intermediation
Manufacturing
Legal services
Annualized standard
deviation of log
changes
15.9
12.1
9.2
5.2
5.0
4.8
4.5
3.7
3.5
1.9
0.4
-0.1
-0.3
-2.6
-7.1
Sources: Bureau of Economic Analysis, US Department of Commerce; calculations by Bank of Hawaii
10.8
16.2
51.8
3.7
2.3
3.6
4.7
4.1
15.8
15.5
16.8
15.3
9.8
8.7
7.9
9
Hawaii gross product by industry: inner core
Compound annual real
growth rate, 1997-2004
(%)
Transportation
Food services
Broadcasting and telecom
Insurance
Real estate
Health
Accommodation
Construction
Federal civilian
Military
State/local government
Arts, entertainment, recreation
Private education
Other services
Utilities
Annualized standard
deviation of log changes
2.8
2.8
2.7
2.5
1.4
1.1
1.0
0.7
0.6
0.5
-0.2
-0.6
-0.7
-1.0
-1.3
Sources: Bureau of Economic Analysis, US Department of Commerce; calculations by Bank of Hawaii
9.3
3.5
6.6
6.5
3.3
2.0
5.9
5.7
1.9
3.0
3.8
3.6
2.8
3.5
6.3
10
Hawaii gross product portfolio analytics:
cross-correlation matrix
Q01AGRI
Q02UTIL
Q03CNST
Q04MANF
Q05WHOL
Q06RETL
Q07TRAN
Q08PUBL
Q09MOVI
Q10BROD
Q11DATA
Q13NVST
Q14INSU
Q15REAL
Q16LEGL
Q17COMP
Q18PROF
Q19MANG
Q20ADMN
Q21BANK
Q21PEDU
Q22HLTH
Q23SOCI
Q24ARTS
Q25ACCO
Q26FOOD
Q27OSRV
Q28FEDR
Q29MILT
Q30STAT
1
-0.2348
-0.2879
0.1372
0.1305
-0.0470
-0.1006
0.0991
-0.0856
-0.2899
0.2216
0.4631
-0.3025
-0.3257
-0.3899
0.1956
0.0052
-0.6469
0.1113
-0.1820
-0.6168
-0.2257
0.1599
-0.6845
-0.2365
-0.0306
-0.6656
0.4703
-0.6776
-0.4533
-0.2348
1
-0.4015
0.0202
-0.7062
-0.6113
-0.3950
0.2874
-0.4664
-0.2859
-0.7783
-0.1639
-0.6776
-0.2385
0.7674
-0.7051
-0.6566
-0.1206
-0.5904
-0.3620
0.7199
-0.4910
-0.6880
0.2215
-0.2120
-0.3945
0.7213
-0.6513
-0.4113
0.1664
-0.2879
-0.4015
1
0.0753
0.6261
0.7432
0.1774
-0.7392
0.6066
0.2300
0.7238
-0.3926
0.7995
0.5782
-0.5655
0.7017
0.7468
0.7486
0.7543
0.9125
0.1266
0.8934
0.6080
0.4644
0.8951
0.6300
-0.1250
0.5739
0.7977
0.3418
0.1372
0.0202
0.0753
1
-0.4218
-0.4414
-0.7081
-0.5023
-0.1881
-0.7468
-0.1611
-0.5560
-0.3190
-0.6179
0.2869
-0.3023
-0.4000
0.0972
-0.3219
0.3508
0.2390
-0.3296
-0.4681
0.4252
-0.1719
-0.5949
0.2040
-0.2165
-0.1995
0.4662
0.1305
-0.7062
0.6261
-0.4218
1
0.9530
0.5708
-0.3948
0.5466
0.6174
0.9548
0.0929
0.8703
0.7518
-0.9495
0.9837
0.9767
0.3391
0.9626
0.4066
-0.6002
0.8638
0.9960
-0.1732
0.6219
0.8765
-0.6214
0.8351
0.5617
-0.0471
-0.0470
-0.6113
0.7432
-0.4414
0.9530
1
0.6797
-0.3610
0.6637
0.6894
0.9151
0.0984
0.9082
0.8615
-0.8852
0.9383
0.9913
0.4484
0.9673
0.5632
-0.4231
0.9427
0.9575
-0.0956
0.7944
0.9243
-0.5465
0.7395
0.7123
-0.0351
-0.1006
-0.3950
0.1774
-0.7081
0.5708
0.6797
1
0.3908
0.5311
0.8396
0.4439
0.6265
0.5259
0.7228
-0.5240
0.4677
0.6065
-0.0011
0.5157
0.1141
-0.4594
0.4862
0.6104
-0.5138
0.4122
0.6508
-0.5592
0.2462
0.4652
-0.4680
0.0991
0.2874
-0.7392
-0.5023
-0.3948
-0.3610
0.3908
1
-0.2339
0.1602
-0.5381
0.7947
-0.4830
-0.1787
0.3531
-0.4959
-0.4296
-0.7084
-0.4972
-0.6675
-0.1124
-0.5401
-0.3358
-0.6674
-0.4891
-0.2544
-0.1115
-0.4221
-0.4268
-0.7255
-0.0856
-0.4664
0.6066
-0.1881
0.5466
0.6637
0.5311
-0.2339
1
0.6323
0.5719
0.1510
0.5367
0.6643
-0.5764
0.5643
0.6611
0.5513
0.6331
0.5808
-0.1055
0.6905
0.5697
0.0568
0.7466
0.7246
-0.3126
0.4380
0.5242
0.1040
-0.2899
-0.2859
0.2300
-0.7468
0.6174
0.6894
0.8396
0.1602
0.6323
1
0.4253
0.3038
0.5658
0.8901
-0.4766
0.5006
0.6526
0.3564
0.5704
0.0298
-0.3038
0.5863
0.6375
-0.1797
0.4681
0.7855
-0.2356
0.2065
0.5259
-0.0390
0.2216
-0.7783
0.7238
-0.1611
0.9548
0.9151
0.4439
-0.5381
0.5719
0.4253
1
0.0135
0.8457
0.6157
-0.9662
0.9827
0.9466
0.3495
0.9546
0.5934
-0.5795
0.8474
0.9449
-0.1162
0.6571
0.7784
-0.6755
0.8761
0.5456
-0.0025
0.4631
-0.1639
-0.3926
-0.5560
0.0929
0.0984
0.6265
0.7947
0.1510
0.3038
0.0135
1
-0.1420
0.0548
-0.2343
0.0378
0.0519
-0.6870
0.0116
-0.3331
-0.4886
-0.1389
0.1669
-0.9085
-0.1347
0.1594
-0.6405
0.1647
-0.3055
-0.9113
-0.3025
-0.6776
0.7995
-0.3190
0.8703
0.9082
0.5259
-0.4830
0.5367
0.5658
0.8457
-0.1420
1
0.7355
-0.7389
0.8506
0.9105
0.5863
0.8426
0.5922
-0.2948
0.9172
0.8486
0.1679
0.6884
0.7523
-0.3550
0.6283
0.8783
0.1084
-0.3257
-0.2385
0.5782
-0.6179
0.7518
0.8615
0.7228
-0.1787
0.6643
0.8901
0.6157
0.0548
0.7355
1
-0.5971
0.6897
0.8258
0.5671
0.7921
0.3602
-0.1499
0.8394
0.7635
0.0314
0.7757
0.9247
-0.1945
0.3946
0.6930
0.1295
-0.3899
0.7674
-0.5655
0.2869
-0.9495
-0.8852
-0.5240
0.3531
-0.5764
-0.4766
-0.9662
-0.2343
-0.7389
-0.5971
1
-0.9660
-0.9167
-0.1653
-0.9291
-0.4355
0.6987
-0.7630
-0.9570
0.3348
-0.5725
-0.8001
0.7932
-0.9100
-0.3776
0.1820
0.1956
-0.7051
0.7017
-0.3023
0.9837
0.9383
0.4677
-0.4959
0.5643
0.5006
0.9827
0.0378
0.8506
0.6897
-0.9660
1
0.9704
0.3583
0.9783
0.5092
-0.5499
0.8793
0.9796
-0.1233
0.6731
0.8554
-0.6265
0.8983
0.5342
-0.0161
0.0052
-0.6566
0.7468
-0.4000
0.9767
0.9913
0.6065
-0.4296
0.6611
0.6526
0.9466
0.0519
0.9105
0.8258
-0.9167
0.9704
1
0.4639
0.9825
0.5498
-0.4552
0.9429
0.9763
-0.0689
0.7664
0.9205
-0.5503
0.7948
0.6784
0.0091
-0.6469
-0.1206
0.7486
0.0972
0.3391
0.4484
-0.0011
-0.7084
0.5513
0.3564
0.3495
-0.6870
0.5863
0.5671
-0.1653
0.3583
0.4639
1
0.4435
0.6079
0.3937
0.6661
0.2977
0.8077
0.6675
0.4585
0.3967
0.1047
0.7558
0.7833
0.1113
-0.5904
0.7543
-0.3219
0.9626
0.9673
0.5157
-0.4972
0.6331
0.5704
0.9546
0.0116
0.8426
0.7921
-0.9291
0.9783
0.9825
0.4435
1
0.5747
-0.4406
0.9260
0.9631
-0.0697
0.7888
0.9146
-0.5527
0.8327
0.5861
0.0500
-0.1820
-0.3620
0.9125
0.3508
0.4066
0.5632
0.1141
-0.6675
0.5808
0.0298
0.5934
-0.3331
0.5922
0.3602
-0.4355
0.5092
0.5498
0.6079
0.5747
1
0.1588
0.6896
0.3924
0.3967
0.8140
0.3957
-0.1765
0.4104
0.6642
0.2885
-0.6168
0.7199
0.1266
0.2390
-0.6002
-0.4231
-0.4594
-0.1124
-0.1055
-0.3038
-0.5795
-0.4886
-0.2948
-0.1499
0.6987
-0.5499
-0.4552
0.3937
-0.4406
0.1588
1
-0.1365
-0.6028
0.7146
0.1360
-0.2984
0.8607
-0.5275
0.0983
0.4328
-0.2257
-0.4910
0.8934
-0.3296
0.8638
0.9427
0.4862
-0.5401
0.6905
0.5863
0.8474
-0.1389
0.9172
0.8394
-0.7630
0.8793
0.9429
0.6661
0.9260
0.6896
-0.1365
1
0.8602
0.2039
0.8966
0.8956
-0.2979
0.6990
0.8039
0.1713
0.1599
-0.6880
0.6080
-0.4681
0.9960
0.9575
0.6104
-0.3358
0.5697
0.6375
0.9449
0.1669
0.8486
0.7635
-0.9570
0.9796
0.9763
0.2977
0.9631
0.3924
-0.6028
0.8602
1
-0.2294
0.6345
0.8981
-0.6509
0.8471
0.5353
-0.1118
-0.6845
0.2215
0.4644
0.4252
-0.1732
-0.0956
-0.5138
-0.6674
0.0568
-0.1797
-0.1162
-0.9085
0.1679
0.0314
0.3348
-0.1233
-0.0689
0.8077
-0.0697
0.3967
0.7146
0.2039
-0.2294
1
0.2597
-0.0982
0.7636
-0.2434
0.4445
0.8575
Sources: Bureau of Economic Analysis, US Department of Commerce; calculations by Bank of Hawaii
-0.2365
-0.2120
0.8951
-0.1719
0.6219
0.7944
0.4122
-0.4891
0.7466
0.4681
0.6571
-0.1347
0.6884
0.7757
-0.5725
0.6731
0.7664
0.6675
0.7888
0.8140
0.1360
0.8966
0.6345
0.2597
1
0.7986
-0.1665
0.5189
0.7046
0.2101
-0.0306
-0.3945
0.6300
-0.5949
0.8765
0.9243
0.6508
-0.2544
0.7246
0.7855
0.7784
0.1594
0.7523
0.9247
-0.8001
0.8554
0.9205
0.4585
0.9146
0.3957
-0.2984
0.8956
0.8981
-0.0982
0.7986
1
-0.4041
0.6936
0.5630
-0.0061
-0.6656
0.7213
-0.1250
0.2040
-0.6214
-0.5465
-0.5592
-0.1115
-0.3126
-0.2356
-0.6755
-0.6405
-0.3550
-0.1945
0.7932
-0.6265
-0.5503
0.3967
-0.5527
-0.1765
0.8607
-0.2979
-0.6509
0.7636
-0.1665
-0.4041
1
-0.6820
0.0007
0.6272
0.4703
-0.6513
0.5739
-0.2165
0.8351
0.7395
0.2462
-0.4221
0.4380
0.2065
0.8761
0.1647
0.6283
0.3946
-0.9100
0.8983
0.7948
0.1047
0.8327
0.4104
-0.5275
0.6990
0.8471
-0.2434
0.5189
0.6936
-0.6820
1
0.2353
-0.2163
-0.6776
-0.4113
0.7977
-0.1995
0.5617
0.7123
0.4652
-0.4268
0.5242
0.5259
0.5456
-0.3055
0.8783
0.6930
-0.3776
0.5342
0.6784
0.7558
0.5861
0.6642
0.0983
0.8039
0.5353
0.4445
0.7046
0.5630
0.0007
0.2353
1
0.2883
11
-0.4533
0.1664
0.3418
0.4662
-0.0471
-0.0351
-0.4680
-0.7255
0.1040
-0.0390
-0.0025
-0.9113
0.1084
0.1295
0.1820
-0.0161
0.0091
0.7833
0.0500
0.2885
0.4328
0.1713
-0.1118
0.8575
0.2101
-0.0061
0.6272
-0.2163
0.2883
1
Hawaii gross product portfolio analytics:
cross-correlation map
1.00
0.75
0.50
0.25
0.00
-0.25
-0.50
-0.75
-1.00
Sources: Bureau of Economic Analysis, US Department of Commerce; calculations by Bank of Hawaii
12
2. Some housing trends
•
That crunching sound is the drop in residential investment
•
Lower volatility and The Great Moderation
•
Didn’t you get the memo? Sales have been falling for two years!
•
Home price distributions are through moving for now
•
Long-run arbitrage equates rates of price appreciation
•
If Oahu trades at a discount to Orange County, that can’t be bad
•
Good news: residential compression vs. nonresidential expansion
13
US monthly housing starts
2.0
1.8
1.6
1.4
.35
1.2
Million units at annual rates
2.4
2.2
Housing starts (mil, right)
Conditional volatility (left)
.30
.25
.20
99
00
01
02
03
04
05
06
07
Source: Bureau of the Census, US Department of Commerce; calculations by Bank of Hawaii
08
14
US housing starts and real residential investment
Billion
chained
2000$
800
Million
units
Residential dK (bil chained 2000$, right)
Conditional annualized volatility (left)
400
1.6
.6
.4
Starts (mil, right)
0.8
GARCH vol (left)
200
.3
.4
.2
0.4
.1
.2
.0
60
65
70
75
80
85
90
95
00
Monthly housing starts
05
60
65
70
75
80
85
90
95
00
05
Quarterly residential investment
Source: Bureaus of Commerce and of the Census, US Department of Commerce; calculations by Bank of Hawaii
15
Monthly Oahu home sales and prices
Sales
Prices
700
600
Median price (000$, right)
Sales (units, left)
400
Median price (000$, right)
Sales (units, left)
300
500
450
400 800
200
400
300 600
350
300
100
200 400
250
200
2000
2001
2002
2003
2004
Single-family
2005
2006
2000
2001
2002
2003
2004
2005
2006
Condominium
Source: Harvey Shapiro, Honolulu Board of Realtors; Census X-12 and Hodrick-Prescott filtering by Bank of Hawaii
16
Monthly Oahu existing home sales through March
800
700
450
600
400
500
350
400
300
300
Single-family (left)
Condominium (right)
250
2002
2003
2004
2005
2006
2007
Source: Harvey Shapiro, Honolulu Board of Realtors; Census X-12 and Hodrick-Prescott filtering by Bank of Hawaii
17
Monthly Maui home sales and prices
Sales
Prices
800
800
Med. prices (000$, right)
Sales (units, left)
Median prices (000$, right)
Sales (units, left)
400
150
400
400
200
200
100
200
100
9/11
9/11
50
50
2001
2002
2003
2004
2005
Single-family
2006
2007
2001
2002
2003
2004
2005
2006
2007
Condominium
Source: Terry Tolman, Realtors Association of Maui; Census X-12 and Hodrick-Prescott filtering by Bank of Hawaii
18
1990-1998 median: $275k
900
(right scale)
800
200
700
2006 median: $700k
600
(left scale)
500
400
100
300
200
1990-98 sales ($50,000 increments)
1990-
2006 sales ($50,000 increments)
Maui single-family home price distributions,
1990-1998 and 2006
100
0
0
0
0.5
1
1.5
2
Million dollars (tick marks in $500,000 increments)
Sources: Realtors Association of Maui; calculations by Bank of Hawaii
19
Oahu single-family home price distributions,
1990 and 2006
700
1990 median:
$357k
2006 median:
$630k
600
500
400
300
200
100
0
0
1
2
Million dollars (tick marks in $200,000 increments)
Sources: Harvey Shapiro, Honolulu Board of Realtors; calculations by Bank of Hawaii
20
Nominal mean single-family home prices:
1000
Mean prices (thousand $)
4.66%
Oahu
Northeast
West
US mean
4.80%
100
55
60
65
70
75
80
85
90
95
00
Sources: Bureau of the Census, US Department of Commerce; calculations by Bank of Hawaii
05
21
Real Oahu mean single-family home prices:
same in1990 and 2006
Mean prices (thousand 2006$)
800
400
200
Deflated by Honolulu CPI-U
Deflated by construction cost
55
60
65
70
75
80
85
90
95
Sources: Harvey Shapiro, Honolulu Board of Realtors; calculations by Bank of Hawaii
00
05
22
Median existing single-family home sales prices
Thousand dollars, log scale
1000
100
Oahu
Maui
Kauai
1975
1980
1985
1990
SFO Bay Area
Orange Co.
San Diego
1995
2000
Sources: UHERO, Mike Sklarz, FNF; NAR; Harvey Shapiro, HBR; Bank of Hawaii
2005
2010
23
Median existing single-family home sales prices
800
Thousand dollars, log scale
Oahu
Maui
Kauai
SF Bay Area
Orange Co.
San Diego
400
200
90
92
94
96
98
00
02
Sources: UHERO, Mike Sklarz, FNF; NAR; Harvey Shapiro, HBR; Bank of Hawaii
04
06
24
Recent median single-family home sales prices
Anaheim, Santa Ana
(Orange County)
Median prices (thousand $)
800
San Jose, Sunnyvale,
Santa Clara
Maui,
Oahu
San Francisco,
Oakland,
Fremont
400
Oahu
Maui
Los Angeles, Long Beach,
Santa Ana
200
San Diego, Carlsbad, San Marcos
90
92
94
96
98
00
02
04
06
Source: Honolulu Board of Realtors; Realtors Association of Maui; National Association of Realtors; Bank of Hawaii
25
New housing units authorized by building permit
(seasonally-adjusted, through fourth quarter 2006)
Neighbor
isles
1000
Oahu
Historical annual data:
Units, log scale
14
100
1975
000
units/year
12
10
8
Oahu
Neighbor island
6
4
WW2
2
1980
1985
1990
Source: Bank of Hawaii; Hawaii DBEDT
1995
2000
2005
0
40
50
60
70
80
90
00
26
10
Hawaii housing units authorized by building permit
(seasonally-adjusted, through fourth quarter 2006)
Units, log scale
4.0
2.0
BOH
DBEDT
H-P filter
1.0
0.5
1980
1985
1990
Source: Bank of Hawaii until 1993, Hawaii DBEDT thereafter
1995
2000
2005
27
3. Interest rates and inflation
•
Yield curve inversion: you can stop holding your breath now
•
Cross-section details informs us about structural shifts
•
Risk-adjusted returns suggest that policy-makers are clueless
•
Doesn’t diversification require a variance-covariance matrix?
•
As for the economic outlook: same as it ever was
28
Term spreads from 10-year US Treasuries to Fed Funds
6
Percentage points
4
2
0
-2
US recessions
shaded
-4
-6
-8
1960
1970
1980
Source: Federal Reserve Bank of St. Louis; Bank of Hawaii
1990
2000
2010
29
Term spreads from 10-year to 2-year US Treasuries
Percentage points
3
2
US recessions
shaded
1
0
-1
88
90
92
94
96
Source: Federal Reserve Bank of St. Louis; Bank of Hawaii
98
00
02
04
06
30
Monthly US Treasury yields, Fed Funds targets
and mid-cycle monetary policy firming
Percent
9
1994-95
8
2004-06
6
5
7
4
6
3
5
2
4
1
3
2
1990
0
1991
1992
1993
1994
1995
Less credibility
Source: Federal Reserve Bank of St. Louis; Bank of Hawaii
2001
2002
2003
2004
2005
2006
More credibility
31
Monthly US Treasury yields and Fed Funds rates
5.4
5.2
Percent
5.0
4.8
4.6
4.4
4.2
Fed Funds
3-month
10-year
2-year
4.0
2006:04 2006:07 2006:10 2007:01 2007:04
Source: Federal Reserve Bank of St. Louis; Bank of Hawaii
32
US Treasury constant-maturity yield curves
Percent
Real (TIPS) yields
Nominal yields
5.25
2.50
July 2006
July 2006
5.00
Dec 06
April 16, 2007
Feb 07
4.75
2.25
Dec 06
April 16, 2007
4.50
Feb 07
Mar 07
Source: Federal Reserve Bank of St. Louis; Bank of Hawaii
30
-y
r
20
-y
r
10
-y
r
7yr
5yr
FF
1y
2- r
y
3- r
yr
30
-y
r
20
-y
r
10
-y
r
7yr
5yr
2.00
FF
1y
2- r
y
3- r
yr
4.25
33
Implied expected inflation + inflation risk premium
2.75
July 2006
Percent
April 16, 2007
2.50
Mar 07
Feb 07
2.25
Dec 06
Source: Federal Reserve Bank of St. Louis; Bank of Hawaii
yr
30
-
yr
20
-
yr
10
-
5yr
7yr
FF
1y
2- r
y
3- r
yr
2.00
34
Expected inflation? Just ask for the forecast
Recent core inflation forecasts
Vintage
Inflation (%)
American Banker's Association
Economic Advisory Committee
January 2007
2.4
Core CPI
Federal Reserve Board Report
to Congress (Bernanke)
February 2007
2.00-2.25
Core PCE
National Association for
Business Economics survey
February 2007
2.3
Core CPI
Source
Sources: as noted; Bank of Hawaii
Metric
35
Price inflation less food and energy costs
3.0
2.5
FRB PCE zone
2.0
Core CPI
PCE deflator
1.5
1.0
2002
2003
2004
2005
Source: Bureau of Labor Statistics, US Department of Labor; Bank of Hawaii
2006
2007
36
Hawaii minus US inflation
4
Percentage points
2006: +2.6%
2
0
-2
Honolulu minus US urban
Hodrick-Prescott filter
-4
-6
1940
1950
1960
1970
1980
1990
2000
Source: Bureau of Labor Statistics, US Department of Labor; calculations byBank of Hawaii
37
Monthly interest rates
6
5
Percent
4
Forecast
Forecast
3
Fed Funds
3-month
2-year
10-year
2
1
0
2003
2004
2005
Source: Federal Reserve Bank of St. Louis; Bank of Hawaii
2006
2007
38
Quarterly LIBOR/swap yields and unpublished forecast
6
30-year swap rate
Percent
5
4
Forecast
3
2
1
Fed Funds
0
2002.I
2003.I
2004.I
Source: Federal Reserve Bank of St. Louis; Bank of Hawaii
2005.I
2006.I
2007.I
2008.I
39
4. Hawaii’s Phillips “curve”
•
The current expansion: friction burn plus a little supply shock
•
Clockwise rotation in inflation−unemployment (π, u) space
•
Credible monetary policy means lowers long-term π e,
•
Lower real volatility means less variation around potential output
•
Economic outlook: to NAIRU and steady state (π o, u o) equilibrium
40
Hawaii inflation and unemployment: one generation
14
CPI-U inflation (%)
12
Note: Honolulu inflation
Hawaii unemployment
10
8
6
2007.1e
4
1977.1
2
0
-2
1
2
3
4
5
6
7
8
9
Unemployment rate (%)
Source: Bureau of Labor Statistics, US Department of Labor; Bank of Hawaii
41
Hawaii inflation and unemployment: three expansions
14
CPI-U inflation (%)
12
10
8
6
4
1977-1980
2
1983-1990
0
1998-2006
-2
1
2
3
4
5
6
7
8
9
Unemployment rate (%)
Source: Bureau of Labor Statistics, US Department of Labor; Bank of Hawaii
42
Hawaii inflation and unemployment: the recent cycle
10
CPI-U inflation (%)
8
6
4
2
0
-2
1
2
3
4
5
6
7
Unemployment rate (%)
Source: Bureau of Labor Statistics, US Department of Labor; Bank of Hawaii
43
Hawaii inflation and unemployment: the recent cycle
10
CPI-U inflation (%)
8
1989.1 to 1998.3
6
4
2
0
1998.3 to 2007.1e
-2
1
2
3
4
5
6
7
Unemployment rate (%)
Source: Bureau of Labor Statistics, US Department of Labor; Bank of Hawaii
44
Hawaii inflation and unemployment: plus supply shock
10
CPI-U inflation (%)
8
6
4
2
Energy
booster
0
Short-term trade-off
-2
1
2
3
4
5
6
7
Unemployment rate (%)
Source: Bureau of Labor Statistics, US Department of Labor; Bank of Hawaii
45
Hawaii inflation and unemployment: steady-state?
10
End-2006
CPI-U inflation (%)
8
6
Bernanke Bliss
4
πo
2
0
-2
1
2
3
o
4 u 5
6
7
Unemployment rate (%)
Source: Bureau of Labor Statistics, US Department of Labor; Bank of Hawaii
46
PAU
47
Appendix 1: tourism used to rock
48
Domestic and international tourism: opposites
Thousands,
log scales
280
480
240
440
Rain
200
400
360
Spring
Broke
Gulf
Kobe
Y2K
160
Gulf
Y2K
120
320
SARS
9/11
9/11
280
80
90
92
94
96
98
00
02
04
Domestic visitor arrivals
Source: Hawaii DBEDT; Bank of Hawaii
06
92
94
96
98
00
02
04
06
International visitor arrivals
49
Hawaii domestic visitor arrivals through February
Thousands
480
440
Rain
400
Spring
Broke
360
Iraq
Post-9/11
2002
2003
Source: Hawaii DBEDT; Bank of Hawaii
2004
2005
2006
2007
50
Hawaii international visitor arrivals through February
190
180
170
160
150
Post-9/11
140
130
120
Iraq/SARS
110
2002
2003
Source: Hawaii DBEDT; Bank of Hawaii
2004
2005
2006
2007
51
Hawaii total visitor arrivals through February
640
600
Rain
Spring
Broke
560
520
Iraq/SARS
480
Post-9/11
2002
2003
Source: Hawaii DBEDT; Bank of Hawaii
2004
2005
2006
2007
52
Hawaii hotel performance metrics
85
80
75
70
200
180
160
65
Occupancy (percent, right)
Real room rate (2006$, left)
60
9/11
140
Gulf
120
100
1980
1985
Source: Hawaii DBEDT; UHERO; Bank of Hawaii
1990
1995
2000
2005
53
Hawaii hotels, revenues, and visitor days
85
Occupancy (percent, right scale)
Real room rate (2006$, left)
18
17
Visitor days (millions, right)
Real TAT (mil. 2006$, left)
80
16
200
15
75
190
70
14
60
13
50
180
65
9/11
170
60
160
40
12
Gulf
9/11
30
20
00
01
02
03
04
05
06
07
Hotel occupancy and room rates
Source: Hawaii DBEDT; UHERO; Bank of Hawaii
90
92
94
96
98
00
02
04
06
Visitor days and TAT revenue
54
Can Hawaii grow its principal export?
19.1%
1947-74
Million visitor arrivals (log scale)
10.000
5.6%
1974-90
(D)
0.6%
1990-2006
(C)
1.000
Transition to low growth,
persistent volatility (D)
(B)
0.100
6.5%
1922-41
(A)
WWII
0.010
Great
Depression
30
40
Source: Hawaii DBEDT; Bank of Hawaii
50
60
70
(A)
4.4% growth;
21.0 % volatility
(B)
19.1% gr; 8.6% vol.
(C)
5.6% gr.; 4.4% vol.
(D)
0.6% gr.; 4.6% vol.
80
90
00
55
Hotel capacity constraints don’t inhibit resident travel
10.0
Residents (million)
1.00
4.4 percent
1988-2005
1.0
Visitor arrivals (right scale)
Resident travel (left)
0.1
0.10
0.01
1950
1960
Source: Hawaii DBEDT; Bank of Hawaii
1970
1980
1990
Visitors (millions)
1.2 percent
1988-2005
2000
56
Hotel capacity constraints may inhibit visitor travel
Real expenditure (bil 2006$, right)
Visitor arrivals (millions, right)
Visitor plant inventory (units, left)
10.00
Thousand units
60
1.00
40
Billion 2006 dollars,
Million visitors
80
0.10
20
0
1950
0.01
1960
Source: Hawaii DBEDT; Bank of Hawaii
1970
1980
1990
2000
57
Tired of logarithmic scales?
15
Tourist receipts, arrivals
(right scale)
10
80
Thousand units
5
Billion 2006 dollars,
Million visitors
Expenditure (bil 2006$, right)
Arrivals (millions, right)
Plant inventory (units, left)
60
0
40
20
1950
Hotel rooms
(left scale)
1960
Source: Hawaii DBEDT; Bank of Hawaii
1970
1980
1990
2000
58
We meant to do that
14
Thousand units
75
10
70
9/11
Gulf
65
8
60
6
55
Billion 2006 dollars
12
Real visitor expenditure (bil. 2006$, right)
Visitor plant inventory (thous. rooms, left)
50
1985
Source: Hawaii DBEDT; Bank of Hawaii
1990
1995
2000
2005
59
My PATA/TTRA tourism forecasts in January 2006
percent change
2005
2006
2007
AR(1)
d(log)
VAR
Domestic average
8.1
7.8
7.3
7.7
8.2
6.9
4.4
6.5
4.8
4.9
3.8
4.5
AR(1)
d(log)
VAR
International average
5.4
5.8
5.8
5.7
1.4
3.4
2.6
2.5
4.9
4.8
2.9
4.2
Domestic actual*
7.4
2.6
0.8
International actual*
5.2
−6.6
2.4
Arrivals growth forecasts from early-January 2006 based on quarterly data through 2005Q3 assumed 3.5 percent US real
GDP growth, 2.5 percent Japan real GDP growth, constant petroleum prices at $65/barrel, quarterly yen appreciation of 5
yen/dollar for two years and the absence of shocks under three specifications. Averages are growth rates of forecast levels.
*Actual figures for 2005 and 2006, preliminary 2007 forecast revisions from third quarter 2006.
60
Appendix 2: the path to convergence ain’t smooth
61
Real GDP growth and the ASEAN-4
15
Percent change
10
5
IMF
forecast
0
dot.com
Thailand
Malaysia
Indonesia
Philippines
-5
-10
Asian
Crisis
-15
88
90
92
94
96
98
00
02
04
06
08
Source: International Monetary Fund World Economic Outlook Databases (http://imf.org/external/ns/cs.aspx?id=28)
62
Real GDP growth and the Tigers
12
8
Percent change
4
IMF
forecast
0
Hong Kong
Singapore
Taiwan
Korea
-4
dot.com
Asian
Crisis
-8
88
90
92
94
96
98
00
02
04
06
08
Source: International Monetary Fund World Economic Outlook Databases (http://imf.org/external/ns/cs.aspx?id=28)
63
Real GDP growth and Emerging Markets Economies
20
Percent change
10
IMF
forecast
0
China
Vietnam
Cambodia
Myanmar
-10
Asian
Crisis
88
90
92
94
96
98
00
02
04
06
08
Source: International Monetary Fund World Economic Outlook Databases (http://imf.org/external/ns/cs.aspx?id=28)
64
Thai baht exchange rate levels and variability
50
Thai baht/US $ (right scale)
Log change (left)
40
Annualized monthly log change
30
.8
20
.4
Thai baht / US dollar (log scale)
60
.0
-.4
Asian
Crisis
-.8
1985
1990
1995
2000
Source: Federal Reserve Bank of St Louis; author’s calculation (data through March 2007)
2005
65
Daily exchange rate levels and variability
60
40
2
Annualized daily log change
30
Baht/dollar (right scale)
d(log(Baht/dollar)) (left)
1
20
Thai baht / US dollar (log scale)
50
0
-1
97
99
00
01
02
03
04
05
06
Source: Federal Reserve Bank of St Louis; author’s calculation (data through April 6, 2007)
07
66
Relative currency valuations (indexed in US dollars)
110
Index (Dec 1996 = 100)
100
Hong Kong SAR
Singapore
90
South Korea
Taiwan
80
Thailand
70
60
Malaysia
50
Asian Crisis
40
1996
1998
2000
2002
2004
2006
Source: Federal Reserve Bank of St Louis; author’s calculations (data through March 2007)
67
Appendix 3: UHERO construction forecast
2004
2005
2006
2007
2008
2009
4,413
2,927
1,898
1,029
1,486
4,217
3,492
2,259
1,233
725
4,208
3,431
1,649
1,782
777
3,811
3,052
1,438
1,614
759
3,535
2,757
1,296
1,462
778
3,518
2,728
1,291
1,438
789
OTHER MEASURES OF CONSTRUCTION ACTIVITY
Real GE Contracting Tax Base (mil 2005$)
5,283
Nominal GE Contracting Tax Base (mil $)
4,922
Construction Job Count (thousand)
29.40
Construction income (mil. 2005$)
2,369
5,851
5,851
33.40
2,725
6,343
6,970
35.88
2,856
6,619
7,903
36.93
2,940
6,390
8,030
36.43
2,919
6,159
8,060
35.93
2,904
586.53
266.67
395.41
100.00
632.03
310.25
391.03
109.89
610.90
321.22
421.58
119.40
615.61
317.80
441.28
125.66
629.83
321.62
461.86
130.87
CONSTRUCTION AUTHORIZATIONS (million 2005$)
Total public and private authorizations
Private building permits
Residential
Non-Residential
Government contracts awarded
PRICES & COSTS (HONOLULU)
Honolulu median home price (thousand $)
Honolulu median condominium price (thousand $)
Honolulu affordable home price (thousand $)
Honolulu construction cost index (2005 = 100)
457.15
206.93
374.04
93.15
* Permits and tax base are deflated by Honolulu Construction Cost Index. Income is deflated by Honolulu CPI. Affordable
home price is calculated as the maximum price affordable for a two-income earner household, assuming a 30-year mortage,
20% down payment, and 30% debt-to-income ratio.
Source: Carl Bonham and Paul Brewbaker, research assistance by Somchai Amornthum and Porntawee Nantamanasikarn
UHERO Construction Forecast , "Surge in Nonresidential Building Sustains Cycle," (March 30, 2007)
68
Appendix 4: remember El Nino
69
Southern Oscillation Index 1876-April 2007
30
20
10
0
-10
-20
-30
1900
Source: some Auzzie blokes
1925
1950
1975
2000
70
Southern Oscillation Index 1980-April 2007
20
10
0
-10
Iwa
-20
Iniki
-30
1985
Source: some Auzzie blokes
1990
1995
2000
2005
71
Hawaii monthly visitor arrivals
700
600
Old HVB series
New DBEDT series
500
400
Persian
Gulf
9/11
300
200
100
0
70
75
Source: Hawaii Visitors Bureau; Hawaii DBEDT
80
85
90
95
00
05
72
Conditional volatility of Hawaii visitor arrivals
.8
700
.7
500
400
Gulf
UAL
300
.6
9/11
Arrivals
600
200
9/11
100
Persian
Gulf
0
.5
1970
.4
ILWU
1980
1990
2000
UAL
.3
PATCO
Y2K
SARS
.2
.1
70
75
80
85
90
95
00
05
Source: Hawaii Visitors Bureau; Hawaii DBEDT; TARCH(1,1) conditional standard deviations calculated by author
73
Kauai monthly employment statistics
28
26
24
Percent of labor force
25
Employment (persons, right)
Payrolls (jobs, right)
Unemployment rate (left)
20
15
10
Thousands, log scale
34
32
30
22
9/11
Post-Iniki
5
0
90
92
94
Sources: Hawaii DBEDT; Bank of Hawaii
96
98
00
02
04
06
74
Kauai monthly employment and jobs
34
32
30
28
26
9/11
24
Thousands, log scale, seasonally-adjusted
Employment (persons)
Payrolls (jobs)
22
1998
Sources: Hawaii DBEDT; Bank of Hawaii
2000
2002
2004
2006
75
Kauai domestic visitor arrivals
Monthly in thousands, log scale,
seasonally-adjusted
160
80
Rain
9/11
40
20
Iniki
10
90
92
94
Sources: Hawaii DBEDT; Bank of Hawaii
96
98
00
02
04
06
76
Kauai international visitor arrivals
Monthly in thousands, log scale,
seasonally-adjusted
32
16
Rain
8
Kobe
SARS
9/11
Iniki
4
90
92
94
Sources: Hawaii DBEDT; Bank of Hawaii
96
98
00
02
04
06
77
Kauai hotel occupancy and real room rates
100
90
Constant 2006 dollars, log scale
80
70
200
60
160
Percent of capacity
Hotel occupancy (right)
Real room rate (left)
9/11
50
120
Gulf
Iwa
Iniki
80
1980
1985
1990
1995
2000
Sources: Hospitality Advisors LLC; PKF Hawaii, Hawaii DBEDT; Bank of Hawaii
2005
78
Kauai visitor plant inventory
9
8
Annual enumeration; units
7
Iniki
6
5
4
3
2
1
0
1980
1985
Sources: Hawaii DBEDT; Bank of Hawaii
1990
1995
2000
2005
79
Kauai existing home sales volumes
Quarterly units, log scale
100
9/11
Single-family
Condominium
10
Iniki
Iwa
1980
1985
Sources: UHERO; Bank of Hawaii
1990
1995
2000
2005
80
Quarterly in billion 2006 dollars, log scale
Kauai real residential building permit values
BOH series
DBEDT series
OEP post-Iniki
100
10
1975
1980
1985
1990
1995
Sources: Hawaii DBEDT; Kauai Office of Emergency Permitting; Bank of Hawaii
2000
2005
81
Quarterly in billion 2006 dollars, log scale
Kauai real nonresidential building permit values
BOH series
DBEDT series
OEP nonresd.
100
No data
since 2001
10
1
1975
1980
1985
1990
1995
Sources: Hawaii DBEDT; Kauai Office of Emergency Permitting; Bank of Hawaii
2000
2005
82
REALLY PAU
83