Department of Business, Economic Development, and Tourism Were Appropriated Funding to Carry out Programs to Assist the Community in Economic Recovery Efforts
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Dawn of a New Economy 2020 Department of Business, Economic Development, & Tourism Annual Report A report to the 31st Legislature of the State of Hawaii as required by Section 201-10 of the Hawaii Revised Statutes and Act 100, Session Laws of Hawaii 1999. DIRECTOR’S MESSAGE As we look back at DBEDT’s 2020 accomplishments and forward to the economic recovery for the State of Hawaii, we keep in mind DBEDT’s mission is to support the development of a Hawaii economy that embraces innovation, an economy that is globally competitive, dynamic and productive; and an economy that provides opportunities for all Hawaii’s citizens. The COVID-19 global pandemic is one of the most significant historically disruptive events impacting our civic, social, political and economic structures in our lifetime. Before COVID-19 struck in early 2020, Hawaii’s economy and business activity were the envy of the nation. The state’s unemployment rate was 2.7 Mike McCartney percent in December 2019, one of the lowest in the country. Visitor arrivals DBEDT Director finished the year strong, with more than 940,000 visitors arriving in Hawaii in December. Then COVID-19 reached Hawaii’s shores, sending our economy into a tailspin. By April, unemployment soared to more than 23 percent and visitor arrivals plunged to fewer than 5,000 for the month. From April to December, Hawaii lost 110,600 jobs, 58 percent of which were in the leisure and hospitality industries. The resulting loss of state revenue and decline in business forced a rapid adjustment to businesses in the public and private sectors. “This new cycle represents the birth of a digital-data economy in which teleworking, artificial intelligence, data-based decision-making and clean energy will be integrated into the workflow by businesses and government.” Based on the data available at this time, the COVID-19 era is expected to stretch into the next few years, impacting our global economy. This era will mark the closing of an old cycle and a transition to a paradigm that will allow us to become more resilient. This new cycle represents the birth of a digital- data economy in which teleworking, artificial intelligence, data-based decision-making and clean energy will be integrated into the workflow by businesses and government. As we move ahead, how we act and treat each other will determine how sustainable the outcome and results will be. Whether it is our natural environment, our communities, or each other, our collective ambition to find a balance for economic and civic prosperity will overcome the many challenges that are facing us during the COVID-19 pandemic. We are on a journey, not a sprint. The lessons we learned from the past about the courageous human spirit, innovation and resilience will lead us towards the future… and a new economy—Hawaii 2.0. With my aloha on behalf of DBEDT and our employees, HRS 5-7.5 (a)/(b) & HRS 89-1. Mike McCartney DBEDT Director 2 ECONOMIC IMPACTS OF COVID-19 ON HAWAII’S ECONOMY In 2020, Hawaii’s economy has been faced with one of the greatest economic challenges since statehood. The severity of the impact can be seen in Hawaii’s second quarter decline in real GDP of 13.9 percent over the same quarter of the previous year. To put this in perspective, the worst quarter of the Great Recession was the second quarter of 2009, which had a real GDP decline of 4.9 percent over the same quarter of the previous year. A good barometer of COVID-19’s impact on individual industry sectors was the second quarter state GDP data released by the Bureau of Economic Analysis. As the pandemic took hold, tourism-related industries were hit the hardest in the second quarter with real GDP declines in Arts, Entertainment and Recreation (-61.8%), Accommodation and Food Service (-61.1%), Transportation and Warehouse (-30.6%), Educational Services (-18.4%), and Wholesale Trade (-17.9%). Buoyed by resident spending, the retail industry fared better than other tourism-related industries, declining 9.0 percent in the second quarter over the same quarter of the previous year. Real GDP for knowledge-based industries showed a measure of resilience, declining less than overall state GDP in the second quarter compared with the same quarter of the previous year. These industries included Finance and Insurance (-1.3%), Information (-2.8%), Management of Companies and Enterprises (-4.3%), and Professional, Scientific, and Technical Services (-8.7%). The construction industry had a GDP decline of 3.5% in the second quarter over the same quarter of the previous year. In the third quarter, the value of building permits increased 5.6 percent over the same quarter of the previous year. The increase in the value of private building permits was fueled by the commercial and industrial category (44.4%) and residential (11.3%), while the additions and alterations category was down 5.8 percent. Government contracts awarded in the third quarter was strong, up 61 percent over the same quarter of the previous year. However, the October data shows a decline in private building permits, possibly signaling a softening as we head into 2021. In spite of the pandemic, there were two non-agriculture industries that showed GDP growth during the second quarter; the Federal Civilian Government (1.7%) and Utilities (2.6%). 3 ECONOMIC IMPACTS OF COVID-19 The labor market declined sharply in the third quarter of 2020, with 110,000 fewer non-agriculture payroll jobs compared with the same quarter of 2019. The decrease in jobs was the highest for Accommodation (-33,300 or 77.8%), Food and Drinking Places (-30,000 or 42.7%), Transportation, Warehousing & Utilities (-9,800 or 28.7%), Professional & Business Services (-7,500 or 10.1%), and Arts, Entertainment, and Recreation (-5,900 or 43.1%). As of October 2020, Hawaii’s unemployment rate remains high at 14.3 percent (seasonally adjusted), which is approximately double the national rate of 6.9 percent. Despite the job losses, nominal personal income increased by 15.9 percent in the second quarter of 2020. Under normal economic conditions, personal income moves somewhat in tandem with GDP. However, the anomaly of personal income increasing and GDP decreasing in the same quarter was due to an increase in government transfers including unemployment insurance payments and CARES Act funds, offsetting decreases in wages and salaries. Another contributing factor appears to be that consumers chose to save their cash, rather than to spend it on goods and services. While data is not available for Hawaii, the personal savings rate for the nation more than doubled in the third quarter over the same quarter of the previous year, from 7.2 percent to 16.1 percent. With the general decline in the economy, came a decline in tax revenues. In the third quarter, total tax collections applied to the state general fund were down 3.2 percent over the same quarter of the previous year and 12.1 percent for the first three quarters of 2020. A majority of the third quarter decline was in general excise tax revenues, which declined 24.6 percent over the previous year. Due to the increase in personal income, individual income tax revenues increased 38.9 percent, and this cushioned the drop in over general fund revenues. The tourism accommodation tax declined 92.1 percent due to the drop in tourism. The tourism sector was by far the area most impacted by the pandemic; Hawaii’s visitor numbers were a mere 2.4 percent of the previous year’s level in the third quarter. However, tourism gained some traction as the state's pre-travel testing program began October 15 and Japanese tourists were included from November 6. The daily passenger count for the first seven days of December was 22.2 percent of the same period of the previous year. 4 ECONOMIC IMPACTS OF COVID-19 The annual impact of the pandemic on Hawaii’s economy was reflected in DBEDT’s fourth quarter forecast was released December 2. For 2020, the forecast predicts Hawaii’s real GDP growth will decline by 11.2 percent, while real personal income will increase by 5.6 percent. For 2021, this is forecast to reverse with real GDP increasing by 2.1 percent, and real personal income decreasing by 8.9 percent as the flow of federal funds decreases. Hawaii reopened to visitors on October 15, 2020. This picture of Waikiki Beach was taken in the first week of November 2020, devoid of the usual crowds. 5 CARES FUNDING In December 2019, the Centers for Disease Control and Prevention became aware of a respiratory disease outbreak reported in Wuhan City, Hubei Province, China, known as SARS-COV-2 (novel coronavirus) and subsequently called COVID-19. On March 11, 2020, WHO declared a pandemic of international concern. In order to prevent the disease from spreading further into Hawaii, State and County officials implemented several emergency measures including stay-at-home orders, mandated social distancing, a mandatory 14-day quarantine for travelers, and the closure of all nonessential businesses. As a result of the stay-at-home orders and shutting down of nonessential businesses in Hawaii, unemployment soared as hotels, retail stores, and restaurants closed their doors on March 25, 2020. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Public Law 116-136, was enacted on March 27, 2020. Division A, Title V of the Federal CARES Act provided $1,250,000,000 to Hawaii for expenditures that are necessary and incurred due to the public health emergency with respect to COVID-19.