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Economic Analysis of Hawaii

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Economic Analysis of Hawaii

Hawaii, with an area of 28,313 sq. km (10,932 sq. mi.), is the 43rd largest

state in the U.S.; 6.9% of the land is owned by the federal government. It

consists mainly of the Hawaiian Islands, eight main 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 has increased

by 80,000 persons over the past five years. Demographics show a large number

of Hispanic origin: Asian Hispanics are the most populated with white Hispanic

and Asian non-Hispanic following. Hawaii's economy has been long dominated by

plantation agriculture and military spending. As agriculture has declined in

importance, the economy has diversified to encompass a large tourist business

and a growing manufacturing industry.

Hawaii's economy has changed drastically since statehood. In 1958, defense,

sugar, and pineapple were the primary economic activities, accounting for 40%

of Gross State Product (GSP). In contrast, visitor-related expenditures stood

at just over 4% of Hawaii's GSP prior to statehood. Today the positions are

reversed; sugar and pineapple constitute about 1% of GSP, defense accounts for

just under 11%, while visitor-related spending comes close to 24% of Hawaii's


The movement toward a service- and trade-based economy becomes even more

apparent when considering the distribution of Hawaii's jobs across sectors.

The share of the economy's jobs accounted for by manufacturing and agriculture

have declined steadily since 1959 and each currently makes up less than 4% of

total jobs in the economy. At the same time, the shares of jobs in wholesale

and retail trade and in services 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

enjoyed very low unemployment rates relative to the nation as a whole. But by

1994 the recession had raised Hawaii's unemployment rate 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 eleven months of the year to

5.4 percent, a 0.6 percentage point decline from the first eleven months of

1994. Despite the lower unemployment rate, the total number of wage and salary

jobs declined by 0.6 percent during the first eleven months of 1995. This was

due in part to a fall 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

percent in the same period. Other industries--namely, manufacturing,


transportation, communications/utilities, and finance, insurance, and real

estateexperienced declines in the number of jobs as well. Jobs in retail trade

and services, however, increased 2.2 percent and 0.5 percent, respectively,

reflecting an increase in visitor spending since 1994.

Following a dismal first quarter due to the Kobe earthquake, there was 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 the State

increased 3.2 percent during the first eleven months of 1995. The increase in

the value of the Japanese yen vis-a-vis the U.S. dollar during this period

contributed to a rise in eastbound visitors in the second and third quarter of

1995 by 11.8 percent and 15.4 percent, respectively. However, in the first

eleven months of 1995, the number of westbound visitors remained flat.

This year is the 11th year in a row that the U.S. has experienced reduced

spending on national defense. The continued reduction is due to the decline in

superpower tensions and the political disintegration of the Soviet and East

European-block during this decade which have prompted the Congress and

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 this changing military posture has not significantly

affected Hawaii's $3.7 billion Federal defense sector.

The construction industry continued its decline in the first eleven 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 percent drop in

1994. Another reason is that construction costs rose by 15 percent from 1992

to 1995, which is much higher



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