Laney: Bottom reached

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KAHULUI - The recession is probably over, and the recovery probably has begun, although you'd hardly notice.

The message from Thursday's First Hawaiian Bank Maui Economic Outlook Forum at the Maui Beach Hotel was encouraging, tepidly.

Hawaii Pacific University professor Leroy Laney presented his 20th annual review on behalf of the bank, and it was better than last year.

"The year 2010 may be a relatively flat year," he told about 120 invited guests of the bank at a breakfast meeting. "It will not be a snapback, but just modest growth."

He also said that, even before the disruption of world financial markets in 2008, Maui County was due for some retrenchment, particularly in construction.

That important sector was approaching a directional change due to the ordinary business cycle anyway, he said, especially in the Neighbor Islands. He surveys each county each year, and he thinks the construction cycle began to turn south in 2007, or perhaps even as early as 2006 on the Big Island.

When it turned, it was pushed down rapidly. Private building permits in Maui County are set to end this year down 30 percent. Big hotel projects have been canceled or postponed. The foreclosure of Makena Resort last week was a more spectacular demonstration of a widespread slowdown.

But two other things outside the financial meltdown also contributed on Maui: the "Show Me the Water" ordinance that requires developers to show a permanent source of new water before getting permits, and the work force housing ordinance that requires 50 percent to 60 percent of residential projects to be sold for below-market prices.

In the question-and-answer period, Laney was asked whether he thought those two county ordinances should be considered for amendment.

"The short answer is yes," he said. "From the standpoint of economic aspects, they were rather ill-timed."

However, tourism is still the main economic factor in the county's economic vitality, and it was clobbered directly by the worldwide recession.

Luxury discretionary travel to tropical islands is always among the first things to be cut from household budgets under stress, Laney said. Even if the national economy recovers, as presenter Jack Suyderhoud predicted, it is not so certain that Maui's visitor segment will bounce back in the accustomed manner.

Maui's upscale reputation, carefully cultivated for decades, may not be such an advantage "if the new world of frugality will last," Laney said.

He said Maui's business decline came on very fast in the first quarter of 2008. Since then, unemployment has doubled and may finish this year at 10 percent, and visitor spending is down 16 percent.

Proxies for overall economic conditions are all down: Maui Electric Co. sales were down 7.5 percent in the first quarter and are likely to finish the year down 3.2 percent; Matson containers shipped to the islands are down 14 percent (the same amount as the decline in visitor arrivals); and First Hawaiian's biggest merchant accounts for its credit cards are showing a 10 percent drop in transactions.

Congestion at Kahului Harbor has lessened, with no ferry, one instead of three regular cruise ships calling and Young Brothers bringing in barges just three times a week instead of six. As usual, college enrollment is up as people out of work use their free time to improve their labor value, and Maui Community College is smashing records with enrollment at nearly 4,000.

The college's growth is by far the greatest among the state's community colleges, Laney said.

He predicts a "jobless recovery" with an "L-shaped curve."

Recessions are inevitable - this is the third during his tenure as First Hawaiian's economic updater - but in the past in Hawaii they were often "V-shaped" - a quick drop followed by a quick rebound.

This one looks like a quick drop and then a slow, flat rebound. The best hope is that Maui already has gotten through the quick-drop portion, Laney said.

"A lot of the angle of that trend will depend on tourism's recovery," he said.

Suyderhoud, a professor at the University of Hawaii Shidler School of Business, gave the national and international outlook. Like Laney, he said the economy was headed for a crunch even without the financial collapse of Wall Street.

In world terms, though, the culprit was not the business cycle but a long-term and unsustainable imbalance between American consumption and savings.

This presents uncertainties and difficulties for recovery, Suyderhoud said, although like Laney he foresees modest recovery next year.

Americans must begin saving more, but since not only the national but the world economies have depended on Americans' habits of buying and buying, so any turn to thrifty habits will retard the recovery.

The conundrum was demonstrated dramatically by what Suyderhoud calls "stimulus one," a swift kick in the economy's backside administered in May 2008. He noted that the size ($168 billion) was worrisomely large to many people at the time but seems tiny now.

It did not have the effect intended. Instead of spending the money in their tax rebate, Americans used it to pay down debts.

That was good for the long-term goal of rebalancing consumption and savings, but did not help boost economic activity.

"Stimulus two" does seem to be boosting activity but at a breathtaking increase in the government deficit.

"The recession of 2008-09 will mark not only the longest post-World War II U.S. economic downturn, but also the demise of a generation-long unsustainable macroeconomic arrangement," Suyderhoud said.

For the past 34 years, the bank's annual economic update has been a presentation of the Maui Chamber of Commerce. This year it was an invitation-only affair for the bank's customers.

Vice Chairman Tony Guerrero said First Hawaiian increased its lending by $800 million over the past year, while other local banks did not.

"We don't change our style," he said. By conservative lending practices, First Hawaiian avoided the financial meltdown and now has equity capital of $2.5 billion - greater than the combined equities of all other island banks.

Guerrero's Retail Banking Group has a billion dollars to lend.

* Harry Eagar can be reached at heagar@mauinews.com.