First Hawaiian Bank CEO Bob Harrison and UHERO Executive Director Carl Bonham joins Spotlight Hawaii

Well good morning everyone, thanks so much for tuning in. I'm Ryan Kalesuji, joined by Yunji de Nies, and this is Spotlight Hawaii, of course a program where we highlight some of the issues and headlines here in the state of Hawaii. And one of those topics that we are going to tackle today, Yunji, is our economy.

Yeah, we want to talk about the economic recovery, where Hawaii is right now and how we are trying to get ourselves out of the hole created by the coronavirus pandemic. Of course we see all these tourists coming back, but what does that mean for our unemployment levels and really how people are living day to day? And so we've invited Bob Harrison from First Hawaiian Bank, CEO there, along with University of Hawaii Economic Research Organization, UHERO, Executive Director Carl Bonham. Thank you gentlemen for being here this morning. Professor Bonham, I want to start with you. Can you give us a lay of the land? Where are we when it comes to economic recovery right now in Hawaii?

Well, we're still very much in the beginning phases of that recovery. And you pointed out the tourism recovery that we're seeing, and that is accelerating. We are seeing many more visitors. If you look at the April data, we're probably going to end April with visitor counts about 55 to 60 percent of 2019 levels, so that's really quite impressive, up from the 30 percent level in March. And an interesting feature there is that they're almost all US visitors; there's virtually no international visitors. So we're talking about US visitors recovering to roughly 75 to 80 percent of where they were in 2019, which is really pretty astounding. Now having said that, the restaurants, the hotels, and others are still dealing with some social distancing issues and capacity constraints, and they're still not full by any stretch. And so the employment picture hasn't recovered quite as much as those initial visitor numbers, but they will. The employment picture is going to improve. April is going to be better than March. The summer is likely to be a strong period for hiring, and we're going to continue to see growth in employment and falling unemployment rates as we go into the summer and into the fall.

Bob Harrison, for you, what are you seeing at the bank? And what sectors are you seeing from your customers that are continuing to struggle? What are some of the trends that you're noticing as a financial institution in the state?

Carl, I want to go to some of what Bob was saying about these areas that are hiring people back at a fast clip. What are the areas that you think will be more permanent job losses? Where are the shifts in the economy happening?

To be honest, right now you can't point to a sector where you can say unequivocally there's going to be permanent job losses. The thing that would lead to permanent job losses is if we don't get out and vaccinate enough people to put the virus almost completely behind us. What would lead to permanent job losses, which would be in the high-contact areas, would be if the pandemic really continued to simmer and constantly have outbreaks every three to six months. But we're doing really well on the vaccine front. We released a blog a couple of weeks ago talking about what would happen in terms of reaching a large percentage of our population if we just continue at the same rate. And if we do that, we really get back to normal. We're not really talking about permanent job losses; we're talking about some sectors recovering faster than others. And with the really strong tourism recovery that we expect this summer, we really don't see a reason to think that those sectors won't recover even faster in July and August. Remember, that's also when people are really going to be looking at the fact that the federal stimulus, the extra unemployment benefits, is all going to be set to run out in September. And people are going to be vaccinated. They're going to be looking forward to child care and looking forward to schools reopening, and they're going to want to be back at work.

Professor, I want to expand a little bit more about what you just mentioned there, with that federal support running out in September. Do you anticipate there being a significant impact to the economy because of the support that's being provided by the federal government right now through unemployment and through other measures to help the state stabilize and rebuild the economy? Do you expect some falloff there as this federal support runs out?

There is going to be falloff if you make the wrong comparisons. If you compare the end of 2021 or the beginning of 2022 with the end of 2020 in terms of total household income, there's going to be falloff because in the end of 2021 and the beginning of 2022 you won't have the extra unemployment benefits, you won't have the direct payments to households. But those are really the wrong comparisons. If you go back and compare to 2019, what we see is income not falling below 2019 levels at any time in the forecast horizon, because the economic recovery is expected to accelerate enough to essentially support the community as the federal support begins to go away. And keep in mind, there's going to be other forms. We'll see what happens in Washington, but I think there's a pretty good chance that we're going to see at least some money in the form of infrastructure spending, which we desperately need in Hawaii.

That's interesting, that's a really good point, Bob. The national estimates that I've seen suggest that we're a little surprised that consumers are continuing to spend as much as they are out of the third stimulus check. But we're seeing consumers save or pay down debt with about 75 percent of that money. So that's really helping household balance sheets and sets the stage for that recovery to continue and a longer recovery. Because it's not just 'I got to get over a hump.' I really kind of got better over this period of time because I took in that money, paid down my personal debt, have cash in my checking account and savings account, and now I'm ready as the economy restarts to grow into that. So there could be quite a bit of upside over the next couple years.

You know, one of the areas, Bob, where we've seen tremendous upside just in recent months is Hawaii's housing market. It seems that the minute a single-family home goes on the market, within a week or two it's gone. Can you tell us a little bit about the real estate trends you're seeing? It's so tight right now. What are you projecting in the future when it comes to the real estate market?

So this is actually a standard characteristic of Hawaii's housing market. Any time there's a shock to demand, anything that causes demand to jump—in this case it's the incredibly low interest rates, the need for more space to work from home—anytime that increases, because our supply is so limited, we get these jumps in prices. And we've seen it over and over. And if you look at the supply of housing, how many units were permitted, total housing units permitted, as Bob said, over the last 10 to 15 years, actually over the last decade we've had four of the lowest number of houses permitted going all the way back to the 80s. And 2019 was actually near the bottom; we're talking about within a hundred housing units of the lowest we've ever permitted in the last 30 years. So if you don't build houses, then this is what we get.

You know, one of the things that we'd like to do on this program is bring questions from the audience. This is an interesting one from Ingrid Peterson, who's asking Carl: 'What is your opinion about raising the minimum wage and the impact of gradually raising the minimum wage on the economy, on businesses, on consumer spending, and loss of population to the mainland?' We know that this continues to be a topic that is debated not only here locally but nationally, just the overall minimum wage. But what is your thought about how increasing the minimum wage right now during this time in our state's economy and recovery would significantly impact the overall state and well-being of the economy?

So look, this is a tough issue and it's not nearly as cut and dry as either side would have you believe. It is absolutely not true that the vast majority of research now says that raising the minimum wage is only good, which is often what you hear. And it's certainly not true that raising the minimum wage is going to devastate all of our small businesses and cost huge job losses. It's much more nuanced than that, and it's challenging. Obviously there's not a lot of good evidence that tells us what will happen from an increase in the minimum wage when we're talking about high single-digit unemployment rates. So some caution, I think, is warranted. At the same time, we do know that raising the minimum wage does help the people at the bottom of the income distribution, and that's something that's really important for Hawaii. It's not necessarily the best way to do it. And I think what we really should be looking at is gradual increases in the minimum wage, and I'm a strong advocate of indexing it. It just makes no sense that we have these debates every year or every five years or every 10 years, and then we don't raise the minimum wage for a decade or two decades, and then in real dollars it just keeps going down and down. It just makes no sense to go through this process.

Well, let's talk about some of the ways that banks have been able to help people through this pandemic. We know that a lot of people did lose jobs early on, and some of those folks were homeowners who perhaps couldn't pay their mortgage. What are some ways that people have reached out and how have you been working with your customers to help them through this time?

Carl, I want to talk to you a little bit about what's happening with the tourism industry here in Hawaii and some of the things that are happening in the state legislature that may impact our numbers. There have been recent bills that have just been passed, one that would impose a new hotel room tax of up to three percent. There's also the raising of rental car fees for visitors. It seems like the legislature is putting the burden back on visitors coming to the islands. How much of an impact do you think that will have on our visitor industry and how that will impact the landscape of how much we rely on tourism here in our economy?

I haven't looked at the rental car surcharge. The three percent... actually, if I remember right, the legislation allowed the counties to impose an additional three percent and then took some of the TAT away from the counties. I think that's probably the same thing as a tax increase. I think it's kind of like the minimum wage; it's nuanced. You obviously need to be careful to make sure that the industry is still competitive and don't get fooled into thinking that this pent-up demand bounce back in US demand for visits to Hawaii is some kind of a permanent feature that we can just rely on. It's really important that the money that is raised is spent in a way that helps to manage tourism. There's a lot of concern in the community, much of it well-founded, about whether we are managing tourism for tourists or managing it for residents. And it's important that we spend that revenue in a way that makes the experience positive for visitors and for residents alike. We have to do that; we haven't done that in the past.

I want to bring in another viewer question. We'll pose this to Bob first, but I'd love both of you to take it on. It says: 'I know some places are having a hard time hiring staff. They've raised their wages, but it seems that people would rather stay on unemployment and rely on stimulus checks. Is that an issue in other places and companies, or something that we're experiencing only in some industries?' Bob, I know that you have plenty of employees yourself. Have you had a hard time hiring, and what are you hearing from your customers who are business owners about the hiring landscape? This idea that people prefer to stay on unemployment, is that real or is that just sort of an urban myth?

There's basically the research that has been done on this, and there's actually been quite a bit, but it was all done with the initial CARES Act. We really haven't had long enough experience and time to collect the data to understand what the effects are now, and the world is so different today. During the initial CARES Act, you wanted people to stay home, so you didn't want them going back out into the labor market and looking for work because they had to, because we were in the middle of an uncertain time with surging case counts. Today is different. Now we've got a situation where the demand for workers is growing faster than the supply. So it makes sense, and it should be the case, that those expanded unemployment benefits and the direct payments are having an effect. They are having a negative effect on people's willingness to seek employment. But you need to remember that it's short term. Those run out. The last stimulus check, you're not going to get another stimulus check in August, folks; it's not going to happen. And the extended unemployment benefits end as well. So if someone's choosing between a good job prospect with an employer that they like and they look at it as a long term versus two more months of unemployment benefits, what do you think they're going to choose? It's nuanced. There's a lot of different things going on. And I personally think the child care is a huge issue, and I was happy to see some of the support for child care in the president's latest announcements.

We have talked on this platform and through our conversations with other leaders about the diversity of Hawaii's economy, the reliance on tourism, and trying to find ways to invest in other sectors. Carl, from what you're seeing, what do you believe some of those other sectors could be that could help to provide this additional support and help to boost the economy long term? We realize that it's not going to happen overnight, but what are you seeing in terms of where those other industries could significantly impact the overall economy?

That was an interesting statement: 'We realize that it's not going to happen overnight,' because it's not clear that everybody realizes that. This is something that is going to take decades. I think we're going to see some diversification automatically. When tourism goes through a downturn, some of these people who aren't going back to work in bars and restaurants have started their own businesses. They've already started a pop-up delivery business or maybe they're cooking out of their kitchen now and they've set up a website. So you're going to get some entrepreneurial activity, and some of it is going to be moving away from tourism. So some of that's just going to happen. We actually released a blog and a brief by a new UHERO faculty member that's joining us this summer, Stephen Bond-Smith. You can find it on our website. It talks in detail about a strategy for focusing on what is unique about Hawaii. You can think about aquaculture, you can think about astronomy. The things that we can do better than anyone else in the world is really where we want to focus. And it's not really about direct government subsidies; it's about facilitating connections between what we're good at and making sure that we can actually... a good example of this is some of the incubators and accelerators that are helping people who have primarily served tourism over the years, whatever they're manufacturing, to sell on the internet to reach a global market. So it's a lot of little things.

You know, Bob, you made a great point. It is something... this is what I was talking about before when I was talking about not being able to sort of flip a light switch and diversify the economy so you don't have to bring visitors anymore. It just doesn't work that way. Bob, you made mention earlier about some of the things that the bank had done in terms of pivoting to meet customers where they are at now in this new environment. I know that this is a big week for FHB when it comes to technical innovation. Can you share a little bit about what you're doing that's different and the announcement that you made this week?

As our time wraps up, Carl, I'm wondering if you can give your final thoughts and words here on this for our program and for our viewers this morning on where you see the state heading for the rest of the year and any other projections or predictions that you may have moving forward.

So we're going to release a forecast update in coming weeks, and it will be more optimistic than our last one. In fact, it will be essentially very similar to our last optimistic scenario. And it's primarily... everything is changing so fast. The pace of vaccination is so much faster than anybody really anticipated. We used to think, 'Oh well, people will be able to get access to the vaccine by summer.' Now it's looking more like we could hit 70 percent of the population by summer. So it's a much more optimistic outlook. The job market is going to continue to recover. And if I could just pivot a little bit, because when I'm listening to Bob talk about all the things they're doing to improve the customer experience, we've heard politicians talk about how we have to enter the digital age, but we forget that the state hasn't entered the digital age. And there isn't much conversation, I'm not hearing a lot of conversation about how we can make government better. And I think that's something that we need to pivot some of our focus into: how do we make sure that government services are provided more efficiently and more consumer focused?

Okay, well thank you both for being here this morning. We really appreciate both of your insights on our economy and the recovery ahead. Thank you again to First Hawaiian Bank CEO Bob Harrison and UHERO Executive Director Carl Bonham. Have a great day. Thank you both.

Interesting there, Ryan, to hear both of their perspectives. The good news is you heard a lot of optimism when it comes to job growth and people being hired back. A lot of that, of course, tied to the vaccine. The missing piece there, as Professor Bonham pointed out, though, is the child care. And as schools reopen and people are able to get their kids into programs, that will be a big factor as well. But I did hear a lot of positives in the outlook there.

Yeah, I was just thinking back to when we interviewed Professor Bonham in the middle of the pandemic last year and just hearing some of the projections and some of the concerns that he had about where the economy was going, and it was real concerns that lawmakers shared as well. A lot more optimism certainly from hearing his projections here looking into the future. A lot of that, of course, attributed to the federal support that has come through and being able to help the state through this time. But also saying that once this runs out, once this federal support runs out at the end of the summer, he doesn't expect a big drop off. There will be some impact, but it won't be as significant as maybe some have thought it would be.

Yeah, that's very encouraging to hear. Also interesting to hear both of their thoughts, as we have many times from other leaders, about the tight housing market and just the shortage of homes and what an impact that has on the upward mobility of us as a community. That people can't get into that entry-level home and they can't grow that equity and then make it to the next step. So that's something that city and state leaders have tried to address for many, many years and they continue to do so. One aspect of that, of course, is city planning. And to talk about that on Friday, we're going to be talking to Honolulu Mayor Rick Blangiardi. We'll be talking to him about his plan to increase affordable housing, also to address homelessness, and then some broader topics just when it comes to the pandemic itself. What does he think about the tier system and also the new CDC guidance that says that if you're outdoors and you're vaccinated, you don't necessarily need to wear a mask?

Yeah, we have a lot of questions for him there on a wide range of topics and issues that I'm sure many of you who also have questions for him as well. So we encourage you to tune right back in here on Friday at 10:30 for another edition of Spotlight Hawaii with the mayor. Until then, stay safe and take care. Aloha.