The new forecast: mild recession, faint recovery

The current recession could not be harder to measure if it were wearing Harry Potter's invisibility cloak, but state economists have made their quarterly attempt to do it, so you may as well have the new numbers. The revised forecast issued Monday calls for 1.1% shrinkage in Hawaii's economy this year, a third less than the 1.6% shrinkage that the same people predicted three months ago. They also think there will be less inflation this year, 0.6%, half as much as predicted earlier. At the same time DBEDT, the Department of Business, Economic Development & Tourism, forecasts 3% job shrinkage, more than it said earlier, and, despite steady visitor traffic, an 11.5% plunge in visitor spending, a third worse than it said earlier. The deeper predicted decline in the number of jobs is mostly based on the knowledge of how many jobs have already gone away, but it's also partly based on the expectation that hospitality jobs could shrink some more. "We do not believe it is prudent to predict an economic recovery yet," DBEDT Director Ted Liu said. "And all indications are that any recovery will be gradual." Carl Bonham of the UH Economic Research Organization, who appeared Monday morning on "Sunrise," said there are some encouraging signs here and there, but he and other economists wonder what will happen when the economic stimulus is done. "The thing is," he said as we waited to go on the air, "what if artificial stimulus is the only thing driving the economy right now? What happens after?" A widespread view among economists both in Hawaii and on the mainland is that the economy will resume growing by year's end, but might slip back into recession sometime in 2010 when homebuying credits, Cash for Clunkers and other stimulus is done. You're probably wondering how you personally will be affected. The key issue is whether you retain your income. Will you keep your job? If you have more than one job, will you keep that part of your income that is essential to your daily lifestyle? If the answer is yes, you should do okay, because inflation will be quite low for at least another year. But a big part of what inflation there is, is energy costs. How much money do you spend on fuel? If there is even a small chance you will lose your job in the next year, and you are committed to remaining in Hawaii, you should be building a war chest, enough savings to survive a few months out of work. I also suggest that you start reading online commentaries by the New York Times or the Wall Street Journal about personal investments. Right now the conventional wisdom is that you might as well stick with your current 401k portfolio because stocks have probably fallen about as much as they're going to, and later they'll rebound. But a double-dip recession may prove that wrong. After the Great Crash of 1929, stocks actually regained a third of their value by the end of the following winter, before falling again and further. Even safe bonds are being questioned by some commentators who think the next big financial calamity will be a collapse of the bond market. This is not yet a widely-held view and I haven't figured out how real a possibility this is. It continues to be helpful to channel as much of your spending as possibility toward local businesses that pour the money back into the local economy.

Comments

[Michael]

Maybe a fantasy but for me the recession will be over when things are back to normal. But what is normal now?
People who are back on the work force and not working by choice. People who are to retire will retire at the required age and not sooner. Social Security has a bank account overflowing. Health care not an issue. Education paid for so everyone has a chance not left behind. Aloha Airlines still flying.
Our politicians as public servants serve the public and not the public serve our politicians. News told me a Story.

Kudos to you.

[@dkmashino]

I like this post, it's excessively nerdy with a very human flare on the explanations -- not overly 'ABC.'

With that said, though, what might work to spur some feeling of ease among Hawaii folks is a comparison of impact inflation rate has on personal income (quotient, "disposable income") from the nation and then in Hawaii.

Previous studies I've seen show a very slim margin between inflation personal income growth in Hawaii, which is the truth behind how difficult it is for many folks to make ends meet. A potential silver-lining result from showing such a Hawaii vs. mainland comparison could be the whole misery loves company effect.

[Don Maddux]

Have the economists at DBEDT or UH included the rail project as a stimulus? I dunno if it's getting federal money but a $5 billion construction project surely put a dent in the recession, right?