September 2017 Tourism Analysis by Paul Brewbaker, TZ Economics

Getting Hawaii tourism data straight slides prepared for

Hawaii Public Radio to accompany an episode of The Conversation by Paul H. Brewbaker, Ph.D., CBE TZ Economics, Kailua, Hawaii September 22, 2017

Copyright 2017 Paul H. Brewbaker, Ph.D., CBE

A conversation about sustainable tourism is impossible without the correct data 1. Applying the adjective “sustainable” to “tourism” is phony if the term sustainable is a euphemism for the adjective “less:” if you want less tourism, say so 2. Lots of people want less tourism: xenophobes, ethnitocracists, “economic nationalists” and other anti-immigrants, from Barcelona to Iceland to Hawaii; if you’re one of them, own it 3. Long before it was fashionable to attach the adjective sustainable to tourism and everything else, economists wrestled with problems of resource stewardship and economic growth,* but over time the popular concept increasingly has satisfied Robert Solow’s maxim about sustainability, that “the less you know about it, the better it sounds.”† 4. Sustainable tourism has been studied extensively in Hawaii, quantifying its dimensions (feast on http://dbedt.hawaii.gov/visitor/sustainable-tourism-project/reports/)–“asked and answered” 5. Also well-studied, if worthy of further work, much of it from the University of Hawaii: natural resource valuations in Hawaii and why stewardship matters‡ *See, for example, Harold J. Barnett and Chandler Morse (1963), Scarcity and Growth, Baltimore, Johns Hopkins University Press; Edward Denison (1962), The Sources of Economic Growth in the United States and the Alternatives Before Us, New York, Committee for Economic Development; and William D. Nordhaus and James Tobin (1972), “Is Growth Obsolete?” in NBER Economic Research: Retrospect and Prospect vol. 5, National Bureau of Economic Research (http://www.nber.org/chapters/c7620.pdf) †Robert M. Solow (1991) “Sustainability: An Economist’s Perspective” presented as the Eighteenth J. Seward Johnson Lecture to the Marine Policy Center, Woods Hole Oceanographic Institution, at Woods Hole, Massachusetts, reprinted in Robert N. Stavins, ed., Economic of the Environment, 5th ed. New York, W.W. Norton. ‡ Brooks Kaiser and James Roumasset (2002), “Valuing indirect ecosystem services: the case of tropical watersheds,” Environment and Development Economics vol. 7 no. 4 pp. 701-714, Cambridge University Press (working paper at http://uhero.hawaii.edu/assets/EDE.pdf) and a zillion other papers.

Slide copyright 2017

1

A conversation about sustainable tourism is impossible without the correct data 6. Sustainable dynamic economic equilibrium requires mechanism design and management practices for natural resource stewardship that are not helpfully conflated with tourism, per se 7. Catastrophic resource depletion (e.g. reef degradation) is important to mitigate in and of itself 8. Excessive congestion on beaches or forest trails is not unique to tourism, and reflects absence of a positive price (too many people implies that the price for resource exploitation is “too low”) 9. It’s not obviously tourism’s fault if policy-makers neglect natural resource stewardship obligations 10. Your failure to understand why half of Hawaii’s 9 million tourists (and most of Hawaii’s population) prefer urban locales may be a reflection of your preferences, not theirs 11. Did tourism increase the demand for housing, or did jurisdictions restrict the supply of housing? 12. Diminished public perceptions of Hawaii’s tourism benefits have unclear roots** 13. The facts remain: (a) Hawaii tourism export receipts are lower absolutely, in inflation-adjusted terms, than 27 years ago; (b) This year (2017) may be the first in the 21st century in which tourism was worth more than in the year 2000; (c) Blame crowds on the Apps—unless you told everybody the secret—I use Jedi mind tricks, “these aren’t the surf spots you’re looking for” **See James Mak, “How Many Tourists is Too Many?” UHERO Blogpost (January 26, 2017) (http://www.uhero.hawaii.edu/news/view/317)


2

Economic structure frames economic performance


3

Hawaii estimated value-added (GDP)* in 2014: we don’t measure economic activity by how many widgets were assembled State, local 9.7% Federal military 7.0% Federal civilian 5.4%

Other private 60.5%

Important notice: Tourism is not an industry, neither is the “visitor industry” (a euphemism for tourism); tourism is an export activity in which numerous industries participate and from which values-added in numerous industries originate (a.k.a. gross domestic product). Industries here are defined using the North American Industrial Classification System (NAICS), and the methodology for mapping impacts of tourism exports on individual industries is contained in references to the next slide. Industry share estimates are approximations based on data sets noted and, as made clear in the aforementioned references, are net of imports.

Tourism 16.9%

Agriculture 0.6%

*$76.8 billion (2014) $80.6 billion (2015) $83.9 billion (2016)

Sources: Bureau of Economic Analysis, U.S. Department of Commerce, Hawaii DBEDT (State of Hawaii Data Book Table 7.34), Hawaii Agricultural Statistics Services, National Agricultural Statistics Service


4

Back to the future: Hawaii GDP and major exportable sector shares Agriculture 5.6%

Agriculture 0.9%

Agriculture 0.8%

Tourism 7.3% Tourism 26.3%

Military 13.2%

Other 73.9%

1963 ($2.37 billion)

Tourism 17.4%

Military 7.5%

Other 66.5% Military 6.2%

1999 ($39.2 billion)

Other 74.3%

2013 ($75.1 billion)

Sources: BEA (http://bea.gov/regional/index.htm); 2013 tourism estimates uses approximation to James Mak, 2005, “Tourism demand and output in the U.S. Tourism Satellite Accounts: 1998-2003,” Journal of Travel Research, 44 (1), pp. 4-5, and Eugene Tian, James Mak, and PingSun Leung, “The direct and indirect contributions of tourism to regional GDP: Hawaii,“ UHERO Working Paper No. 2011-5 (July 28, 2011) (http://www.uhero.hawaii.edu/assets/WP_2011-5.pdf); DBEDT World Travel and Tourism Council report (http://hawaii.gov/dbedt/info/visitor-stats/econ-impact/WTTC99.pdf)


5

Hawaii gross product by industry (bubble size) 2009-2016: tourism an initial 20-teens recovery engine; restructuring (outsourcing) a new theme Growth% Administrative and waste management

6

Management of companies and enterprises Accommodation

Retail

Food services Transportation

Health

Wholesale Real estate

Arts, entertainment and recreation Finance and insurance

State and local govt. Oth.

Federal civilian

Military

4

Information

2 Manufacturing

Construction and mining

0

Utilities Professional, scientific, and technical services

Legal services

Agriculture

Private education

0

5

10

Volatility (σ) %

Sources: Bureau of Economic Analysis, US Department of Commerce (http://www.bea.gov/regional/gsp/); calculations by author, annualized (compound annual) real growth rates and standard deviations of log changes of real GDP in chained 2009 dollars, by industry (hidden behind real estate: computer systems design and related services)

-2 Off the chart: (negatively) Motion picture and sound recording industries


6

Monetary policy divergence, exchange rates, and tourism

[This page intentionally left blank]


7

Oahu real hotel room rates rose fast with utilization (2010-2015); Japanese visitor outlay moved inversely with yen (1996-2016) (Quarterly data, s.a.)

225 2013 200

c. 25% after inflation

2012

175 2011

150 125

320

Per person per day exp ($)

Per person per day exp. ($)

Real room rate (2014 $)

250$

280

240

200

(Annual data) (Annual data) 2012 2014

320

280

2016

2013 240

2015 200

100 70

75

80

85

Hotel occupancy (% )

90%

60

60 80

80 100

100 120

120 140

140

/ dollar JapanesYeen y en / U.S(lagged . dollar 1 y ear)

Sources: Hawaii Tourism Authority, Hawaii DBEDT, Bureau of Labor Statistics; seasonal adjustment, deflation using Honolulu CPI-U (quarterly interpolation from semiannual data and annual averages, as appropriate) by TZE


8

Diverging policy: Japanese yen and Euro depreciated while U.S. Federal Reserve was moving towards monetary policy normalization 1.4

140 Value of dollar in yen

Yen/dollar (right scale)

1.2

120 113.475 ¥/$

1.0

100 Euro/dollar

Value of dollar in Euro

(left scale)

[$1.1377/€]−1

BoJ*

0.8

80 ECB†

0.6

60 2002

2004

2006

2008

2010

2012

2014

2016

2018

* Prime Minister Abe re-elected December 16, 2012, initiates “Abenomics,” endorsing Quantitative Easing (expanded asset purchases by Bank of Japan). † Quantitative

Easing by the European Central Bank widely anticipated in financial markets; announced by ECB President Draghi January 22, 2015.

Source: Federal Reserve Bank of St. Louis; data through July 2017 (http://research.stlouisfed.org/fred2/series/EXUSEU and http://research.stlouisfed.org/fred2/series/EXJPUS); exchange rates noted are U.S. market closing prices


9

Falling oil prices crashed the Loonie: higher oil prices led to substitution, technology change, fracking (Canada, Dakotas) and, by 2014, an oil glut 160

1.1

Value of CAN$ (in US$) (right scale)

120

1.0

100 0.9

80 60 Lehman Brothers

40

Crude petroleum price (US$)

0.8

(left scale)

0.7 Canada recession shaded

20

0.6 2002

2004

2006

2008

2010

2012

2014

Source: CD Howe Institute (https://www.cdhowe.org/pdf/Commentary_366.pdf), Federal Reserve Bank of St. Louis; data through July 2017 (monthly averages of daily data) (http://research.stlouisfed.org/fred2/series/EXCAUS and http://research.stlouisfed.org/fred2/series/MCOILWTICO/)

2016

2018 Slide copyright 2017

10

20-teens leap in Oahu hotel room rates reduced average stay length by 0.4 days since 2010 (×9 million persons) reversing 20 years’ rise Average length of stay in days 10.3

10.1

Domestic

10 9.7

9.4

9.6

Total (weighted)

9.0

9

9.0

H1N1-A Aloha Airlines shutdown

9/11

8.4

SARS/Iraqnaphobia

International

8

7.7

U.S. recessions shaded gray

7.7

7.0

7 6.3

6 1990

1992

1994

1996

1998

2000

2002

2004

2006

Sources: Hawaii Tourism Authority, Hawaii DBEDT, monthly estimates reverse engineered from visitor days and visitor arrivals by TZE

2008

2010

2012

2014


11

Real expenditure per visitor (s.a.) in thousand constant 2015$ recovered by 2012 but had been eroding until 2016-17 Monthly, thousand constant (2015) dollars, s.a U.S. recessions shaded

2.0 1.9 $1,897

1.8

$1,733 1.7 9/11

No Aloha, ATA

1.6 1.5 02

04

06

08

10

12

14

Sources: Hawaii Tourism Authority, Hawaii DBEDT, Bureau of Labor Statistics; seasonal adjustment, deflation using core U.S. CPI-U by TZ Economics (excludes the impact of more volatile food and energy sources of consumer price inflation) through November 2016

16


12

Visitor arrivals have recovered statewide; capacity-constrained Oahu boosted room rate, reduced stay length, more currency vulnerability Arrivals

Thou. persons

Mil. 2016$

(right scale)

Arrivals

Thou. persons

Mil. 2016$

(right scale)

475

750

700

450

700

450

650

425

650

425

600

400

600

400

375

550

375

350

500

750

475

No Aloha

550

Expenditure (left scale)

500

350

Expenditure (left scale)

450

325

450

325

U.S. recessions shaded

2004

2006

2008

2010

2012

2014

2016

2018

2004

2006

Oahu

Sources: monthly data from Hawaii Tourism Authority, Hawaii DBEDT (http://dbedt.hawaii.gov/economic/mei/), Federal Reserve Bank of St. Louis (https://fred.stlouisfed.org/series/CPILFESL); seasonal adjustment and deflation by TZE; monthly expenditures not published prior to 2001

2008

2010

2012

2014

2016

2018

Neighbor Islands


13

Real visitor expenditure, 2012-2015, just exceeded levels around peak of last cycle, felt drag of strong dollar before re-igniting in 2016 1,500

800

Total visitor arrivals (Thousands, right scale)

1,400

750

No Aloha

1,300

700 U.S. recession shaded

1,200

650

1,100

600

Real tourism receipts (Million 2016$, left scale)

1,000

550

Tohoku

900

500 H1N1-A

800

450 2004

2006

2008

2010

2012

Sources: monthly data from Hawaii Tourism Authority, Hawaii DBEDT (http://dbedt.hawaii.gov/economic/mei/), Federal Reserve Bank of St. Louis (https://fred.stlouisfed.org/series/CPILFESL); seasonal adjustment and deflation by TZE; monthly expenditures not published prior to 2001

2014

2016


14

In the long-run we’re dead, but tourism still hasn’t grown since the 1980s

[This page intentionally left blank]


15

LR Hawaii tourism volumes grew with aviation technology, statehood

(logs) 10.000

Annual arrivals (millions) WWII

Pan Am Clipper

Boeing 707

Boeing 787

1.000 Boeing 777 Boeing 767

0.100

Boeing 737-900ER

Boeing 747

0.010 Luxury

Discovery

Adolescence

Maturity

0.001 1930

Sources:

1940

1950

1960

1970

Hawaii Tourism Authority, Hawaii DBEDT, Robert C. Schmitt, Historical Statistics of Hawaii (1976) UH Press

1980

1990

2000

2010


16

Visitor arrivals, millions (log scale)

Strategic challenge: a mature tourism destination, Hawaii’s primary export sector now characterized less by growth, more by volatility 10.00

5.6% 1974-90 (D)

(C) 20.5% 1946-74

1.00

0.10

(A) 4.4% growth, 22.0% volatility

4.4% 1927-41

(B) 20.5% gr., 11.7% vol.

(A)

(C) 5.6% gr., 4.5% vol.

Great Depression

1930

1990-2016

Compound annual growth, unconditional volatility (%)

(B)

0.01

Source:

1.1%

40

(D) 1.1% gr., 4.9% vol. WWII

50

60

70

80

90

2000

Annual data Hawaii Visitors Bureau, Hawaii DBEDT; calculations by TZ Economics; *annualized growth rate 1990-2007 before the 2008-09 recession was +0.6 percent, volatility was 4.4 percent


17

Down Is The New Up: 2016 real Hawaii tourism receipts same as 2005 and 2000; $3 billion lower than 1989 all-time high (in 2016 dollars) Billion 2016 dollars

Million tourists $18.4 billion

Real visitor expenditure $17.5

8.9

(left scale)

U.S. recessions shaded

$15.6

16 Doubled in 1980s

$15.6

8

$15.6 billion

6.7

6

$14.0

$13.2

12 Visitor arrivals

$11.3

(right scale)

4

3.9 $9.2

1980

1985

1990

1995

2000

2005

2010

Sources: Hawaii Tourism Authority, Hawaii DBEDT (http://dbedt.hawaii.gov/visitor/tourism/), U.S. Bureau of Labor Statistics; deflated using Honolulu CPI-U, rebasing to 2016, to express tourism export receipts in terms of purchasing power of Honolulu residents over time, by TZ Economics

2015

2020


18

Hawaii real tourism receipts per visitor have declined on trend, but last quarter century corresponds with tightening lodging inventory Thousand 2016 dollars per Hawaii visitor 5,000 4,000

3,000

2,000 $1,746/visitor ($1,763 by air)

1950

1960

1970

1980

1990

2000

Sources: Hawaii Tourism Authority, Hawaii DBEDT (http://dbedt.hawaii.gov/visitor/visitor-plant), U.S. Bureau of Labor Statistics; calculations by TZ Economics

2010


19

Oahu visitor plant inventory (000 rooms): significantly lower than 30 years ago, Neighbor Isles renovating; vacation rentals included Thousand rooms, annual data Neighbor Isles

40 Oahu

Oahu 30

20

Neighbor Isles

10

0 1965

1970

1975

1980

1985

1990

1995

2000

Sources: Hawaii DBEDT, annual visitor plant inventory surveys (1997 is average of 1996 and 1998); seasonal adjustment by TZ Economics

2005

2010

2015


20

End of last major capital formation wave in Hawaii lodging units around 1990 coincides with decrease in real total visitor expenditure $18.4 billion

Billion 2016$

Thousand units

16

$15.6b

80

Real visitor expenditure (left scale)

12

60

8

40 Visitor plant inventory (right scale)

4

20

0 1950

1960

1970

1980

1990

2000

Sources: Hawaii Tourism Authority, Hawaii DBEDT (http://dbedt.hawaii.gov/visitor/visitor-plant), U.S. Bureau of Labor Statistics; calculations by TZ Economics

2010

0 2020


21

Hawaii tourism arrivals shifts: Japan yen appreciation (1970s), asset bubble (1980s), deflation (1990s), Asian Crisis (1997); “other” (2000s) 1600

Quarterly, in thousands s.a. (log scales) U.S.

640

800

(right scale)

Japan (left scale)

320 400 Other foreign

160

(left scale)

200

80 Gulf War

Asian Financial Crisis

9/11

No Aloha

40 1975

1980

1985

1990

1995

Source: Hawaii Tourism Authority, Hawaii DBEDT, UHERO; quarterly data, seasonal adjustment by TZE

2000

2005

2010

2015

2020


22

Longer-term Hawaii tourism observations 1. Long-term (80+ years) Hawaii tourism performance consistent with Tourism Destination LifeCycle Hypothesis (perhaps because “there is no space left on the Big Island;” “Thou Shalt Not Build A Building Taller Than Walter Dodds;” “Thou Shalt Not Build More Lodging Units;” “AirBnB is ruining my neighborhood, but enjoy my Undocumented Vacation Rental,” etc.) 2. So-called “capacity constraints” provide self-justifying intellectual framework for explaining why growth of Hawaii’s principle export is opposed by anti-tourism denialists—populist “sustainable tourism” agenda in political coalition blending “self-sufficiency” advocacy (autarky: the economic development strategy of North Korea), NIMBYism, global lodging brand protectionism 3. Problem with outcome: real tourism export receipts in 2016 were $3 billion lower than in 1989 (in 2016 dollars), same in 2016 as in 2000 (in dog years): “lower yield, same volatility” portfolio 4. Bumper sticker version: MORE VISITORS, NOT MORE DOLLARS (wait, what?) 5. Annual real outlays per tourist mostly have been falling since the 1950s—just like real outlays on food, clothing, computers, side-curtain airbags, cell phones, everything (i.e. “productivity growth”)—everything except tourism’s negative externalities, which policy-makers ignore (D’OH!)


23

Pau


September 2017 Tourism Analysis by Paul Brewbaker, TZ Economics

Recommend Documents