Despite Tourism Lull, Kaua‘i’s Economy Keeps Expanding

Kaua‘i Marriott and Beach Club Resort at Kalapaki Beach

Now that tourism on Kaua‘i growth is tapering off — visitor industry led the island’s recovery after the 2008 recession — construction and other sectors will play a more important role in the continuing expansion, according to the Kaua‘i Economic Outlook Summary by University of Hawai‘i Economic Reserch Organization released last week.

The employment picture has improved considerably, and significant income gains are on the way, states the UHERO report prepared for the County of Kaua‘i.

“Kaua‘i’s economic recovery accelerated last year. Visitor industry gains, while off 2012’s robust pace, were the strongest among the Neighbor Islands, and job growth was solid. Visitor industry activity has fallen off recently, and the scope for additional gains will be limited going forward. While construction continues to languish, we expect marked improvement over the next several years,” the report states.

Here are some of the main points in the report:

• Visitor days set a new record last year. A 7 percent growth in room rates and an increase in length of stay helped boost overall visitor spending on Kaua‘i by nearly 13 percent.
• Arrivals from the dominant U.S. market have been progressively weakening since the first quarter of 2013, and annual numbers for this year will suffer as a result. Next year, arrivals growth will pick up to 3.6 percent, as U.S. demand firms.
• Last year, Kaua‘i’s unemployment rate stood at 5.7 percent, but jobs have only returned to pre-recession levels in a limited number of sectors, including leisure and hospitality and healthcare.
• Kaua‘i’s construction sector has turned the corner, but remains depressed. The industry will begin to add jobs at an accelerating rate, peaking at 11 percent in 2016.
• Overall, the job base will expand by 2 percent this year, with similar rates of growth for the next several years. Expansion will be more broad-based than in recent years.
• After last year’s 2.1 percent expansion, inflation-adjusted personal income growth will shift into the 3.5 percent range this year and next as business conditions improve.

More than 1.1 million visitors landed on Kaua‘i in 2013, a 2.7 percent increase from the previous year, according the report. Arrivals remained 14 percent below the all-time record set in 2007. However, the figures for the mid-2000s were inflated by the large number of short-staying cruise visitors at that time. Total visitor days, which takes into account both the number of visitors and their average length of stay, increased 4 percent last year, setting a new record.

The average hotel occupancy rate on Kaua‘i in 2013 was about 69 percent, up about a half-percent from 2012, but still below the 75-78 percent range before the recession.

However, the average hotel room rate on Kaua‘i has risen by 20 percent over the past three years. Last year, room rates on Kaua‘i averaged $226 per night, up 7 percent from 2012. Higher room rates and record visitor days helped to boost overall visitor spending on Kaua‘i by nearly 13 percent.

The Kaua‘i construction industry turned the corner in 2013, after four years of significant job losses. However, permitting for new construction remains at an exceptionally low level. The value of residential permits issued last year was just 28 percent of their level in 2006.

On the plus side, resales of existing homes have risen 70 percent from their low point in 2009, and median single-family home prices rose 13 percent last year. The firming of the housing market will provide increasing incentives for new building going forward, the report states.

New figures from the 2012 USDA Census of Agriculture indicate that the Kaua‘i agricultural industry has undergone a period of consolidation since the time of the last census in 2007. In 2012, there were 591 farms operating on Kaua‘i, 157 fewer than there were in 2007.

Despite fewer farms, the aggregate value of crop and livestock sales increased more than 40 percent to nearly $64.5 million. Seed crops, primarily corn grown for seed, continue to play a large role in the local agricultural industry, according to the report.

Kaua‘i experienced the largest decline in the unemployment rate across the state over the past four years. Though the island’s unemployment rate remains elevated at 5.7 percent, substantial progress has occurred since the rate peaked above 9 percent in 2009. However, a large part of last year’s drop continued to be the result of a shrinking labor force, as opposed to an increase in the number of people finding work.

“Kaua‘i’s economic recovery has built up some strength over the past three years, and growth will broaden beyond tourism. The employment picture has improved considerably, and significant income gains are on the way. Construction, which has lagged the rest of the state, has finally begun to edge upward. This will provide additional support for moderate growth over the next several years,” the report states in its conclusion.