Honolulu: Good Recession, Bad Recovery

by Gaetano Venezia

The recession and recovery have brought turmoil and strife to cities like Detroit, but many cities have not suffered nearly as much. Cities experience economic turmoil in differing ways and luckily Honolulu has retained a relatively strong economy. Based on government spending, property development, and tourism, Honolulu performed better through the recession than most other major American cities. Unfortunately, Honolulu’s recovery was not as impressive.

To help evaluate shifting city economies in recent years, the Brookings Institute recently released the 2014 edition of the Metro Monitor, a report that tracks relative change in economic indicators for the 100 largest metropolitan areas in the US during the recession and recovery.

In the Brookings Institute report, (1) Honolulu ranked 26th best of the 100 largest metropolitan areas. But separating recession from  recovery the Brookings report reveals an interesting contrast. Overall, Honolulu ranked 14th best of 100 during the recession, but dropped to 58th during the recovery. The 26th place ranking was based on changes in the following measures during the recession and recovery: 

• Total Jobs: 35th  (+1%)
• Unemployment: 42nd  (+1.8%)
• Output (Gross Product): 28th (+6.3%)
• House Prices: 7th (-8.7%) 

The Brookings rankings are not indicative of economic strength per se, but rather of change over time relative to other cities. During the recovery, Honolulu dropped in ranking because many of the cities that had fallen dramatically in the recession had a lot to then gain during the recovery, while Honolulu—a strong economy in the recession—did not as rapidly expand during the recovery. A higher ranking during the recession and a lower ranking during the recovery actually seem to point to greater stability during the whole time period.

Florida and California cities’ performance support these points. Both states’ cities performed poorly in the recession, the best ranking between the two being 71st of 100. Then during the recovery, these cities were able to regain much of the lost growth, propelling all but one city into the top 50% of Brookings’s rankings with the most dramatic jump coming from Cape Coral-Fort Myers, FL, which went from 100th to 5th highest out of 100. Looking at the Brookings maps of the recession versus the recovery reveals this pattern across the country: good recession, bad recovery or bad recession, good recovery.

Part of the reason Honolulu and Hawaii in general retain such good employment is that the state has the 3rd highest percentage of the labor force working in the government of US states. Even in the face of lower tax revenues, governments will run up debts to stimulate the economy. While temporarily beneficial in supplying jobs, continued overspending is costly to the state in the long run as its debts increase.  According to State Budget Solutions, (2) Hawaii has the second highest state debt per capita at $33,111 and the highest debt as a proportion of GDP at 64%.

Unfortunately, factors like a high cost of living (3) and a poor government climate for businesses (4) mitigate the advance of Honolulu’s economy, thereby limiting its potential for the kind of economic growth needed to climb out of the debt hole Hawaii has dug for itself.

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Gaetano Venezia is a research intern at the Grassroot Institute of Hawai‘i and is pursuing a degree in philosophy at the University of New Orleans.

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1. Brookings Institute 2014 Metro Monitor For the Brookings report, the recession of a given city was “defined by the period from its metro-specific "peak" to its "trough" and the recovery [was] defined by the period from its "trough" to the first quarter of 2014.”

2. State Budget Solutions' Fourth Annual State Debt Report

3. Ranked 50th of 50 for cost of living in CNBC’s Top States for Business. Also, “Data from the US Census Bureau indicates that Hawaii has the highest median monthly gross rent of all 50 states at $1,353 per month (2010-2012 avg. in 2012 dollars)” (quote from this article).

4. Tax Climate for Entrepreneurs and Small Businesses: 43rd best of 51 (2012) The Small Business & Entrepreneurship Council’s “Business Tax Index 2012” (ranking on page 4)

4. Business Tax Climate: 30th best of 50 (2014) Tax Foundation: State Business Tax Climate Index (Interactive table, click on “overall ranking”)

4. America’s Top States for Business: worst of 50 (2013) CNBC