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Business Confidence Outlook Stabilizing According to Bank of Hawaii Survey

Wednesday, September 12, 2007

Honolulu, Hawaii (September 12, 2007) - Confidence levels among Hawaii’s businesses foretell a stabilizing outlook, based on results from the August 2007 Bank of Hawaii Business Confidence Survey.

Paul Brewbaker, Bank of Hawaii’s chief economist, said, “Survey results indicate the economy is stabilizing along a moderate growth path.  People’s expectations are more balanced between positive and negative postures, where previously there was a positive tilt.”

The survey results illustrate the shift in expectations: 22.0 percent of respondents expect a higher overall level of activity in the Hawaii economy during the next twelve months, while 35.2 percent expect a lower level, with 42.8 percent in the middle.  “More respondents had negative than positive outlooks about the local economy, but two-thirds still do not expect the Hawaii economy to reverse course,” said Brewbaker, who also noted that care should be taken in interpreting the August results which were gathered amid unusual financial market turbulence.

Respondents were more enthusiastic about their own prospective sales performance:  40.5 percent expect higher sales—35.6 percent “somewhat higher” and 4.9 percent “much higher”—while 41.1 percent expect about the same level.  Only 18.4 percent anticipate lower sales in the next twelve months.  Construction respondents were the most positively inclined:  more than two-thirds anticipate higher sales during the next twelve months. 

Respondents reported, on balance, being slightly positively surprised by sales results in the last twelve months.  While 43.3 percent of respondents experienced sales close to expectations, 26.3 percent had sales that exceeded expectations, and 30.5 percent had sales below expectations.

Firms are still planning to hire in the coming year.  Although 64.6 percent expect to keep employment steady, 19.2 percent expect higher employment, and only 16.1 percent anticipate lower employment. On balance, firms reported lower-than-expected employment growth in the last 12 months, possibly reflecting tight labor market conditions.  Although 73.3 percent said their employment levels were close to expectation, 16.1 percent reported lower-than-expected employment, while 10.6 percent reported higher-than-expected employment. 

As has often been observed in the past, respondents are most enthusiastic about their own sales performance in the next year, and less enthusiastic—if essentially neutral—about the overall economy.  Respondents’ expectations for their own industries are somewhere in-between.

Results from the prior survey, conducted in February 2007, showed 31.8 percent of respondents expected higher performance in overall economic activity in the year ahead, and 21.3 percent expected lower performance. The proportion expecting “about the same” level of activity in the next 12 months dropped slightly to 42.8 percent of respondents in the August survey, down from  46.9 percent last February.

Regarding industry performance, 31.5 percent expected higher levels of activity within their own industries, while 26.1 percent expected lower levels, during the August 2007 survey. Corresponding figures from the February 2007 survey were 39.8 percent and 17.8 percent, respectively.

Responses to more detailed survey inquiries on capital spending and employment plans were mixed.

In the August survey, 24.5 percent of respondents reported higher profits than expected one year ago, while 34.8 percent reported lower-than-expected profits. In the next 12 months, 35.7 percent still expect higher profits, while 26.4 percent anticipate profit declines during the year ahead.

The August 2007 Bank of Hawaii Business Confidence Survey received 335 responses to a mail-out instrument from firms randomly sampled from an independent business database in a survey administered by a third-party research firm, yielding a response rate consistent with recent semiannual survey responses. The survey results have a margin of error of +/- 5.3 percent at the 95 percent confidence level.

Complete results of Bank of Hawaii’s August 2007 Semiannual Survey of Business Confidence are posted at the Economic Research Center of the company’s web site. The URL is www.boh.com/econ/. These include complete historical data and survey respondents’ characteristics, such as number of employees and annual sales figures.