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 youre 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 Solows 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 Economists 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 Slide copyright 2017

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. 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. Its not obviously tourisms fault if policy-makers neglect natural resource stewardship obligations
10. Your failure to understand why half of Hawaiis 9 million tourists (and most of Hawaiis
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 Hawaiis 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 Appsunless you told
everybody the secretI use Jedi mind tricks, these arent the surf spots youre looking for

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**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

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3
 Hawaii estimated value-added (GDP)* in 2014: we dont measure
economic activity by how many widgets were assembled

State, local Important notice:

Tourism is not an industry, neither is the visitor
9.7% industry (a euphemism for tourism); tourism is an
export activity in which numerous industries participate
Federal military and from which values-added in numerous industries
7.0% originate (a.k.a. gross domestic product). Industries
here are defined using the North American Industrial
Classification System (NAICS), and the methodology
Federal civilian for mapping impacts of tourism exports on individual
industries is contained in references to the next slide.
5.4% Other private Industry share estimates are approximations based on
data sets noted and, as made clear in the
60.5% aforementioned references, are net of imports.

Tourism
16.9%

Agriculture *$76.8 billion (2014)

$80.6 billion (2015)
0.6% $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 Slide copyright 2017
Agricultural Statistics Service 4
 Back to the future: Hawaii GDP and major exportable sector shares

Agriculture
Agriculture Agriculture
5.6%
0.9% 0.8%
Tourism
Tourism
7.3%
Tourism 17.4%
Military 26.3%
13.2%
Military
7.5%
Other Other
66.5% Other
73.9%
Military 74.3%
6.2%

1963 ($2.37 billion) 1999 ($39.2 billion) 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 Slide copyright 2017
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 Management of companies and enterprises 6
Accommodation
Retail Food services Arts, entertainment 4
Transportation and recreation
Health
Wholesale
Real estate Finance and insurance
2
State and local govt. Manufacturing
Oth. Information
Federal civilian
Military Construction and mining
0
Utilities
Professional, scientific, and technical services
Legal services
Agriculture
-2
Private education
Off the chart:
(negatively)
Motion picture and
sound recording
industries
0 5 10 Volatility () %

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 Slide copyright 2017
standard deviations of log changes of real GDP in chained 2009 dollars, by industry (hidden behind real estate: computer systems design and related services) 6
Monetary policy divergence, exchange rates, and tourism

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7
 Oahu real hotel room rates rose fast with utilization (2010-2015);
Japanese visitor outlay moved inversely with yen (1996-2016)

250$ (Quarterly data, s.a.) (Annual data)

320 (Annual data)

Per person per day exp. ($)

Per person per day exp ($)

320 2012
225
Real room rate (2014 $)

2013 2014
200 c. 25%
280
after 280
inflation 2016
2013
175 2012

2011 240 240

150 2015

125 200
200

100
70 75 80 85 90% 60 60
80 80
100 100
120 120
140 140

Hotel occupancy (% ) JapanesYeen / dollar

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 Slide copyright 2017
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
Yen/dollar Value of
dollar in yen
(right scale)
1.2 120
113.475 /$

1.0 100
Value of Euro/dollar
dollar in (left scale) BoJ* [$1.1377/]1
Euro
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); Slide copyright 2017
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
80 0.9

60 Crude petroleum
price (US$) 0.8
Lehman (left scale)
Brothers
40
0.7

Canada recession shaded

20 0.6
2002 2004 2006 2008 2010 2012 2014 2016 2018

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) Slide copyright 2017
(http://research.stlouisfed.org/fred2/series/EXCAUS and http://research.stlouisfed.org/fred2/series/MCOILWTICO/) 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
9.6 9.4 9.7
Total (weighted)
9.0
9 H1N1-A 9.0
9/11 Aloha
8.4 Airlines
SARS/Iraqnaphobia
shutdown

8 International
U.S. recessions shaded gray 7.7

7.0 7.7
7

6.3

6
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
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Sources: Hawaii Tourism Authority, Hawaii DBEDT, monthly estimates reverse engineered from visitor days and visitor arrivals by TZE
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 16 18

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 Slide copyright 2017
volatile food and energy sources of consumer price inflation) through November 2016 12
 Visitor arrivals have recovered statewide; capacity-constrained Oahu
boosted room rate, reduced stay length, more currency vulnerability
Thou. persons Arrivals Mil. 2016$ Thou. persons Arrivals Mil. 2016$
(right scale) (right scale)
750 475 750 475
No Aloha
700 450 700 450
650 425 650 425
600 400 600 400

550 375 550 375

Expenditure
(left scale)
500 350 500 350
Expenditure
(left scale)
450 325 450 325

U.S. recessions shaded

2004 2006 2008 2010 2012 2014 2016 2018 2004 2006 2008 2010 2012 2014 2016 2018

Oahu Neighbor Islands

Sources: monthly data from Hawaii Tourism Authority, Hawaii DBEDT (http://dbedt.hawaii.gov/economic/mei/), Federal Reserve Bank of St. Louis Slide copyright 2017
(https://fred.stlouisfed.org/series/CPILFESL); seasonal adjustment and deflation by TZE; monthly expenditures not published prior to 2001 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 Tohoku 550

900 500
H1N1-A

800 450
2004 2006 2008 2010 2012 2014 2016 2018

Sources: monthly data from Hawaii Tourism Authority, Hawaii DBEDT (http://dbedt.hawaii.gov/economic/mei/), Federal Reserve Bank of St. Louis Slide copyright 2017
(https://fred.stlouisfed.org/series/CPILFESL); seasonal adjustment and deflation by TZE; monthly expenditures not published prior to 2001 14
In the long-run were dead, but tourism still hasnt grown since the 1980s

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 LR Hawaii tourism volumes grew with aviation technology, statehood

(logs) Annual arrivals (millions)

WWII
10.000

Pan Am Clipper Boeing 707

Boeing 787
1.000
Boeing 777 Boeing
Boeing 767 737-900ER
0.100
Boeing 747

0.010
Luxury Discovery Adolescence Maturity

0.001
1930 1940 1950 1960 1970 1980 1990 2000 2010

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Sources: Hawaii Tourism Authority, Hawaii DBEDT, Robert C. Schmitt, Historical Statistics of Hawaii (1976) UH Press
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 Strategic challenge: a mature tourism destination, Hawaiis primary
export sector now characterized less by growth, more by volatility

10.00 5.6% 1.1%

Visitor arrivals, millions (log scale)

1974-90
(D) 1990-2016
(C)
20.5%
1.00 1946-74 Compound annual growth,
unconditional volatility (%)
(B)
(A) 4.4% growth,
22.0% volatility
0.10 4.4%
1927-41 (B) 20.5% gr., 11.7% vol.
(A)
(C) 5.6% gr., 4.5% vol.

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

0.01 Great
WWII
Depression

1930 40 50 60 70 80 90 2000 2010

Source: 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, Slide copyright 2017
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
Real visitor expenditure
$18.4 billion (left scale) 8.9
$17.5
U.S. recessions shaded
8
16 $15.6 $15.6 $15.6 billion

Doubled
6.7
in 1980s
$14.0 6
$13.2
12
Visitor arrivals $11.3
(right scale)

3.9
4
$9.2
1980 1985 1990 1995 2000 2005 2010 2015 2020

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 Slide copyright 2017
express tourism export receipts in terms of purchasing power of Honolulu residents over time, by TZ Economics 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 2010 2020

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Sources: Hawaii Tourism Authority, Hawaii DBEDT (http://dbedt.hawaii.gov/visitor/visitor-plant), U.S. Bureau of Labor Statistics; calculations by TZ Economics
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 2005 2010 2015 2020
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Sources: Hawaii DBEDT, annual visitor plant inventory surveys (1997 is average of 1996 and 1998); seasonal adjustment by TZ Economics
20
 End of last major capital formation wave in Hawaii lodging units
around 1990 coincides with decrease in real total visitor expenditure
Billion 2016$ $18.4 billion Thousand units

16 $15.6b 80
Real visitor expenditure
(left scale)
12 60

8 40

Visitor plant inventory

(right scale)
4 20

0 0
1950 1960 1970 1980 1990 2000 2010 2020

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Sources: Hawaii Tourism Authority, Hawaii DBEDT (http://dbedt.hawaii.gov/visitor/visitor-plant), U.S. Bureau of Labor Statistics; calculations by TZ Economics
21
 Hawaii tourism arrivals shifts: Japan yen appreciation (1970s), asset
bubble (1980s), deflation (1990s), Asian Crisis (1997); other (2000s)

Quarterly, in thousands 1600

s.a. (log scales)

640 U.S.
(right scale) 800
Japan
(left scale)
320
400
Other foreign
160 (left scale)

200
80 Asian
Gulf War Financial 9/11 No Aloha
Crisis

40
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

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Source: Hawaii Tourism Authority, Hawaii DBEDT, UHERO; quarterly data, seasonal adjustment by TZE
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 Longer-term Hawaii tourism observations

1. Long-term (80+ years) Hawaii tourism performance consistent with Tourism Destination Life-
Cycle 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 Hawaiis principle export is opposed by anti-tourism denialistspopulist 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 1950sjust like real outlays on
food, clothing, computers, side-curtain airbags, cell phones, everything (i.e. productivity
growth)everything except tourisms negative externalities, which policy-makers ignore (DOH!)

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 Pau

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