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The Honolulu Advertiser
Posted on: Sunday, May 2, 2010

The recession is almost over. Really! Here's how you can tell ...


By Paul Brewbaker

Hawaii news photo - The Honolulu Advertiser
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Hawaii news photo - The Honolulu Advertiser

Hawai'i's principal export is leisure tourism and, Paul Brewbaker says, the recovering visitor spending will show more vigor this summer.

Advertiser library photo

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A year ago this month, few were willing to embrace the notion that the "green shoots" of spring rebounding stock prices evidenced economic recovery around the corner. Such bets paid off: Stock values in March 2010 were about 50 percent higher than in March 2009.

As every Mid-Pac teenager will tell you, losing 50 percent of your wealth and then gaining back 50 percent of what was left still leaves you short about one-quarter of what you originally had (like, when stocks peaked in October 2007).

So stands U.S. stock market wealth, as well as real gross domestic product: Only partway back to where we started. Ditto for home prices, whose rebound isn't even close to prior percentage losses and will take several more years to revive.

Still, last week's advance real GDP report for first-quarter 2010 instructively marked three consecutive quarters of economic growth above 2 percent. This is a pace the 2001-2003 recovery couldn't sustain for six consecutive quarters. It confirms that, sometime in the second half of 2010, real GDP will exceed its previous all-time high from the second quarter of 2008.

Oddly enough, official arbiters have determined that the recession already was under way when real GDP peaked in mid-2008. Go figure. The U.S. recession likely ended in the third quarter of 2009, unofficially. More importantly, at the current pace the economy will have recovered by the third quarter of 2010, next quarter!

If you're still not ready for the economic expansion of the 20-teens, now is not too early to as the youngsters say get hooked up. It's coming to a neighborhood like yours later this year, with or without you.

So it turns out that the economic green shoots took root time to get the lawnmower.

Skeptics wielding "double-dip" weed-whackers feared that recovery would false crack, relapsing into recession.

Politicos postulated that Obama fiscal policy intervention twice the scale of the 1930s New Deal, and Bernanke monetary policy intervention the opposite of Great Depression failures, both, were mistakes, as if nothing was learned from Keynes and Friedman. (Wiki them if you need to.)

Some diehards still are holding out for a renewed recession when the impact of the stimulus fades in 2011, self-validation that sustainable expansion is not possible.

Most observers, however, recognize now that the policy interventions were well-timed and well-focused. The foundation for sustained economic growth has been laid.

Treasury's TARP program for banks will actually make money, as so-called "bailouts" pay off ahead of schedule. (Compare that to Hawai'i's Act 221.) Growth of the Federal Reserve's balance sheet supplied the public's precautionary demand for liquidity, which will revert as credit channels reopen. Quantitative easing has faded out and monetary policy shortly will begin the process of reverting interest rates to "cruising altitude" (HINT: higher).

The Mainland and Hawai'i economies still have plenty of digging to do weeding, anyway but things are sprouting here in the Islands as elsewhere.

Consumer-led expansion revved up Asian economies and reignited U.S. economic growth, but Hawai'i's principal export is a luxury consumable, long-haul leisure tourism. It's further down the list of "things we need to do again soon"; give it time.

Hawai'i visitor arrivals have been drifting upward for more than a year. As airlines restore lost lift, the 3 percent arrivals growth pace since Lehman Brothers failed in the fall of 2008 should double in 2010. Tourist spending will extend an existing half-year of recovery with more vigor this summer.

As for Hawai'i investment, O'ahu real estate markets are firm, undersupplied, with slim inventories and modest to low vacancies, but the Neighbor Islands are overbuilt, even way overbuilt. It might not take as much to spark new building as it has on O'ahu in cycles past, but it will take more time on the Neighbor Islands.

Regarding labor markets, employers, check it out: You laid off too many people, yo! Good luck with that, Holmes, because you didn't make enough babies 30 years ago. Hawai'i job counts are rising now, not falling.

Finally, Freaky Fridays. That was the plan? Seriously. No, seriously. Thirteen years, and we short children one month of school? What's the present value of that foregone return on human capital investment, nothing?

The carnage of the last recession always becomes the basis for the next expansion. One investor's foreclosure is another's big score: the investment cycle lives on. Destination Hawai'i still rules. Meanwhile, young people are waiting for our answer: What's beyond the recovery?

Tourism in 2009 yielded the same, after inflation, as in 1984, but by design it never has yielded more than in 1989. Strategically, in a world in which some Asian households earn five times what they did a generation ago, Hawai'i's plan is to earn ... the same? Hawai'i's risk-management strategy is "sometin' li' dat"? Who's Third World now?

Paul Brewbaker, Ph.D, is principal of TZ Economics in Kailua and former chief economist for Bank of Hawaii. He wrote this commentary for The Advertiser.


Correction:Lehman Brothers failed in the fall of 2008. Because of an editing error, the date was incorrect in the Focus commentary by Paul Brewbaker in a previous version of this story.