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Confidence in Hawaii Economy Reflects National Trends According to Bank of Hawaii Survey

Tuesday, March 25, 2008

Honolulu, Hawaii (March 27, 2008) - According to the February 2008 Bank of Hawaii Business Confidence Survey, business owners expressed a cautious outlook for the economy.

Paul Brewbaker, Bank of Hawaii’s chief economist, said, “More than three-quarters of the respondents do not expect lower sales, and two-thirds of respondents didn’t expect lower sales for their industry. However overall confidence in the economy is down from our August 2007 survey, reflecting concern about national financial markets.”

Regarding industry performance, respondents were optimistic about future sales for their businesses:  32.3 percent expect higher sales (26.3 percent “somewhat higher” and 6.0 percent “much higher”) while 43.5 percent expect about the same level.  That compares to 24.2 percent that anticipate lower sales in the next twelve months.

In the same February 2008 survey, 7.5 percent of respondents expect a higher overall level of activity in the Hawaii economy during the next twelve months, while 57.5 percent expect a lower level, the remainder expecting no change.  In the August 2007 survey, 35.2 percent of respondents expected lower overall economic activity, while 22.0 percent expected higher levels.

Historically, it has been common in Bank of Hawaii survey findings for firms to be less optimistic about the economy than about their own prospects, but that gap widened in the February 2008 survey.

"Confidence about the overall economy has fallen while confidence about firms’ own prospects has remained resilient,” said Brewbaker.

Several factors could explain the gap between firms’ own and their economy-wide outlooks.

“Most owners and managers know more about their businesses than the aggregate economy,” said Brewbaker, “perhaps because the economic news today sounds bleak.”

“It would be prudent,” Brewbaker added, “for firms to consider the implications of a national economic slowdown.”

When asked about recent performance of their businesses, respondents reported being less negatively surprised by sales results in the last twelve months than confidence measures might suggest: 40.2 percent of respondents experienced sales close to expectations, 24.8 percent had sales that exceeded expectations, and 35.0 percent had sales below expectations.

Some firms are still planning to hire in the coming year.  Although 63.1 percent expect to keep employment steady, 15.5 percent expect higher employment, and 21.4 percent anticipate lower employment. Regarding expectation of employment levels, 69.7 percent of survey respondents said their employment levels were close to expectation, 18.3 percent reported lower-than-expected employment, while 12.1 percent reported higher-than-expected employment.

Regarding industry performance, 21.1 percent reported expecting higher levels of activity within their own industries, while 37.7 percent reported expectations of lower levels during the February 2008 survey. This was a reversal from corresponding figures in the August 2007 survey: 31.5 percent reported expecting higher activity in their own industry and 26.1 percent reported expecting lower levels.

In the February survey, 26.8 expected higher capital spending compared to 35 percent in the August survey, and 26.1 percent expected a lower level of spending.

The February survey also found that 21.6 percent of respondents reported higher profits than expected one year ago, while 39.9 percent reported lower-than-expected profits. In the next 12 months, 27 percent still expect higher profits, while 33.2 percent anticipate profit declines.

In a special question, survey respondents were asked to reveal their own subjective probability assignment to prospects for economic recession in the Hawaii, national, and global economies. Results implied higher odds of a recession than evident in surveys of professional forecasters.  Recession odds among survey respondents were highest for the national economy at 56.1 percent. In turn, 36.2 percent of respondents felt the global economy was least likely to experience recession.  Recession odds for the Neighbor Islands in Hawaii were rated higher at 44.2 percent than the odds of recession on Oahu at 38.9 percent, a finding that mirrors the sharper downturn in residential construction on the Neighbor Islands than the corresponding cutbacks on Oahu.

The February 2008 Bank of Hawaii Business Confidence Survey received 295 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 +/- 5.7 percent at the 95 percent confidence level.

Complete results of Bank of Hawaii’s February 2008 Semiannual Survey of Business Confidence are posted at the Economic Research Center of the company’s web site. The URL is http://www.boh.com/econ/