Copyright 2020

Paul H. Brewbaker, Ph.D., CBE

Navigating Hawaii’s Road to Recovery: Travel and Tourism

a presentation prepared for Aquila Group of Funds

by Paul H. Brewbaker, Ph.D., CBE

TZ Economics, Kailua, Hawaii

July 16, 2020

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The persistent novel coronavirus: SARS-CoV-2

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Hawaii daily confirmed new COVID-19 cases: after successfully

mitigating the first wave now, without tourism, second wave?

Hawaii daily confirmed new COVID-19 cases Natural logarithms

0

10

20

30

40

Mar 2020 Apr May Jun Jul Aug0

1

2

3

4

Mar 2020 Apr May Jun Jul Aug

Source: Hawaii DOH (https://health.hawaii.gov/coronavirusdisease2019/), Hawaii Data Collaborative (https://docs.google.com/spreadsheets/d/1sd-L317Je9ZhiQh3_uH9jTkl3ckc_o3sgrVauShcwCk/edit#gid=0); data through

July 15, 2020 and calibration of 3-variable SIR model and log-linear regression by TZ Economics.

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Critics and some experts tell me that this is not a second wave, so I

call it “a Banana:” whatever it is, it’s 100 percent local FAIL

0

10

20

30

40

3/1/2020 4/1/2020 5/1/2020 6/1/2020 7/1/2020 8/1/2020

SIR model

Exponentiation

Hawaii daily confirmed new COVID-19 cases

Source: Hawaii DOH (https://health.hawaii.gov/coronavirusdisease2019/), Hawaii Data Collaborative (https://docs.google.com/spreadsheets/d/1sd-L317Je9ZhiQh3_uH9jTkl3ckc_o3sgrVauShcwCk/edit#gid=0); data through

July 15, 2020 and calibration of 3-variable SIR model and log-linear regression by TZ Economics.

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Hawaii’s tourism re-opening challenge: can only invite the mainland

not smart countries (East Asia, Canada, Down Under); [Hawaii (20)]

0

100

200

300

400

500

New COVID-19 cases per million persons (7-day moving averages)

Mar 20 Apr 20 May 20 Jun 20 Jul 20

New York (26)

Spain (14)

Arizona (451)

Florida (517)

Texas (313)

California (225)

New York

Italy

Spain

Germany

509

Sources: Github (https://github.com/CSSEGISandData/COVID-19/tree/master/csse_covid_19_data/csse_covid_19_time_series and https://raw.githubusercontent.com/CSSEGISandData/COVID-

19/master/csse_covid_19_data/csse_covid_19_time_series/time_series_covid19_confirmed_global.csv), data through July 14, 2020 normalization and 7-day moving averages calculated by TZ Economics

528

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New COVID-19 cases/million residents, week of

July 5-12, as multiple of Hawaii prevalence (19.8)

Rank State

Prevalence

(COVID-19

cases/million) Multiple X

1 Arizona 478.2 24.2

2 Florida 463.1 23.4

3 Louisiana 396.4 20.0

4 South Carolina 327.4 16.6

5 Texas 321.9 16.3

6 Alabama 275.6 13.9

7 Mississippi 258.6 13.1

8 Idaho 253.4 12.8

9 Georgia 253.2 12.8

10 Nevada 244.2 12.3

11 California 216.4 10.9

Hawaii had 19.8 confirmed daily new COVID-19 cases/million last week:

equivalent prevalence by state, visitor day-weighted HTA U.S. regions

State

Prevalence

(COVID-19

cases/million) Multiple X

U.S. West 184.2 9.3

U.S. East 159.0 8.0

Visitor-day weighted regional prevalence as

a multiple of Hawaii prevalence (19.8)

Sources: U.S. Bureau of the Census, Hawaii DBEDT (http://files.hawaii.gov/dbedt/census/popestimate/2019_state_pop_hi/nst-est2019-01.xlsx), Github (https://github.com/CSSEGISandData/COVID-

19/tree/master/csse_covid_19_data/csse_covid_19_time_series), weekly averages for July 5-12, 2020

Tourism samples from a mainland population,

weighted by individual states’ shares of visitor

days within these two regions are 8-9 times

more likely to have confirmed a new COVID-

19 case last week than was true in Hawaii

(during its highest 7-day average to-date)

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Hawaii tourism impacts of the novel coronavirus

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0

5

10

15

20

25

30

Thousand deplaned passengers/day

Jan 20 Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20

Daily Hawaii passenger counts averaging 2,150 over the last week

(mid-July)—declined before the 14-day quarantine (endogenous)

Domestic

International

95%

confidence

interval

Source: Hawaii DBEDT (http://dbedt.hawaii.gov/visitor/daily-passenger-counts/); trend regression is 𝑙𝑛 𝑑𝑜𝑚𝑒𝑠𝑡𝑖𝑐 𝑝𝑎𝑠𝑠𝑒𝑛𝑔𝑒𝑟𝑠 = −129.9095 +0.017569𝑡, where t is defined in days; all parameter estimates have P-

values of 0.0000, an F-statistic of 0.00000 and an adjusted R-squared value of 0.879568, the estimating period is April 1 – July 14, 2020, and the projection is depicted with 2 standard-error bandwidth.

14-day traveler

quarantine starts

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Hawaii visitor arrivals, 2020 to date (n.s.a): monthly data reflect the

pattern observed in daily passenger counts—straight to near-zero

0

100,000

200,000

300,000

400,000

500,000

600,000

JAN FEB MAR APR MAY JUN

Neighbor Islands

Oahu

Sources: Hawaii Tourism Authority (https://www.hawaiitourismauthority.org/research/monthly-visitor-statistics/), Hawaii DBEDT (http://dbedt.hawaii.gov/economic/mei/).

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0 20 40 60 80

Percent of total

Hotel

Condo

Timeshare

Vacation

rental

Friends/

relatives

0 20 40 60 80

Percent of total

Hotel

Condo

Timeshare

Vacation

rental

Friends/

relatives

Hawaii lodging preferences, post-COVID-19: fewer absolute arrivals

but distinct lodging share shifts toward home stays, resilient VR

Spring

Winter

Source: Hawaii Tourism Authority (https://www.hawaiitourismauthority.org/research/monthly-visitor-statistics/?year=2020); transitional data in March 2020 ignored, Winter represents totals for January-February 2020, Spring

represents totals for April May 2020. Proportions exceed100 by 8-14 percentage points during winter 2020 because some parties stay in more than one lodging type. Residual staying in Bed & Breakfasts, hostels,

camp sites, beaches and others not included (1.4 percent in both periods).

Spring

Winter

Oahu Neighbor Islands

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0

2

4

6

8

10

12

JAN FEB MAR APR MAY JUN0

5

10

15

20

25

30

35

JAN FEB MAR APR MAY JUN

Stay length

(days)

20

30

40

50

60

JAN FEB MAR APR MAY JUN0.0

0.5

1.0

1.5

2.0

2.5

JAN FEB MAR APR MAY JUN

Hawaii’s post-COVID 2020 visitors: smaller parties of younger groups

with more seasoned travelers and 1950s average lengths of stays

Number

of trips

Age of party head

Average

party size

Neighbor Isles

OahuN

O

N

ONO difference

Sources: Hawaii Tourism Authority (https://www.hawaiitourismauthority.org/research/monthly-visitor-statistics/), Hawaii DBEDT (http://dbedt.hawaii.gov/economic/mei/).

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0

200

400

600

800

Monthly, thousands, s.a.

1990 1995 2000 2005 2010 2015 2020

Hawaii’s channel of transmission for leptokurtotic macroeconomic

event risk: visitor arrivals—it turns out not necessary for COVID-19

Operation

Desert

Storm

9/11

SARS

Aloha

ATA

Tohoku

seismic

event

COVID-19

Sources: HTA (https://www.hawaiitourismauthority.org/research/monthly-visitor-statistics/), Hawaii DBEDT (http://dbedt.hawaii.gov/economic/mei/), monthly data January 1966 – April 2020 with May and June 2020

estimates based on year-over-year percent changes in daily disembarking passenger counts through June 9, 2020; seasonal adjustment by TZE.

U.S. recessions shaded VR

Clampdown

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Constant-dollar tourism receipts were flat on Oahu through the 2010s,

growing on Neighbor Isles until Kilauea’s eruption, then Sudden Stop

0

100

200

300

400

500

600

700

800

Million constant, 2019$, s.a. (log scale)

2004 2006 2008 2010 2012 2014 2016 2018 2020

Aloha

pau

Tohoku

seismic

event

Kilauea

East Rift

COVID-19

Oahu

Neighbor Isles

H1N1-A

Sources: Hawaii Tourism Authority (https://www.hawaiitourismauthority.org/research/monthly-visitor-statistics/), Hawaii DBEDT (http://dbedt.hawaii.gov/economic/mei/), U.S. Bureau of Labor Statistics, retrieved from FRED,

Federal Reserve Bank of St. Louis (https://fred.stlouisfed.org/series/CPIAUCSL); data through April 2020, seasonal adjustment using X-13 ARIMA filter, deflation using U.S. CPI-U by TZ Economics

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Amazing real-time high-frequency data on economic activity

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-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

Percent of January 2020

Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20

High frequency (daily) data on Hawaii resident spending: credit/debit

cards, proportions of January 2020 (+“stay-at-home” highlights)

Groceries and food stores

Source: “How Did COVID-19 and Stabilization Policies Affect Spending and Employment? A New Real-Time Economic Tracker Based on Private Sector Data”, by Raj Chetty, John Friedman, Nathaniel Hendren, Michael

Stepner, and the Opportunity Insights Team (June 2020), available at: https://opportunityinsights.org/wp-content/uploads/2020/05/tracker_paper.pdf; affinitysolutions and Opportunity Insights

(https://tracktherecovery.org/, https://github.com/Opportunitylab/EconomicTracker and https://github.com/Opportunitylab/EconomicTracker/blob/main/data/Affinity%20-%20State%20-%20Daily.csv).

Arts, entertainment, recreation

Food service

Stay home Stay go

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Spending patterns in other categories reflected shutdown and post-

reopening rebound, not as much in transportation, still down 40%

-.6

-.4

-.2

.0

Percent of January 2020

Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20

Health care, social assistance

Transportation, communications

Total spending

Apparel

Stay home Stay go

Source: “How Did COVID-19 and Stabilization Policies Affect Spending and Employment? A New Real-Time Economic Tracker Based on Private Sector Data”, by Raj Chetty, John Friedman, Nathaniel Hendren, Michael

Stepner, and the Opportunity Insights Team (June 2020), available at: https://opportunityinsights.org/wp-content/uploads/2020/05/tracker_paper.pdf; affinitysolutions and Opportunity Insights

(https://tracktherecovery.org/, https://github.com/Opportunitylab/EconomicTracker and https://github.com/Opportunitylab/EconomicTracker/blob/main/data/Affinity%20-%20State%20-%20Daily.csv).

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Google anonymized mobile device data: still about 1/3 less park and

workplace use, +11% at home and −14% away from home vs. January

-.6

-.4

-.2

.0

.2

Percent of January 2020

Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20

Home

Stay home Stay go

Away from home

Workplaces

Parks

Source: “How Did COVID-19 and Stabilization Policies Affect Spending and Employment? A New Real-Time Economic Tracker Based on Private Sector Data”, by Raj Chetty, John Friedman, Nathaniel Hendren, Michael

Stepner, and the Opportunity Insights Team (June 2020), available at: https://opportunityinsights.org/wp-content/uploads/2020/05/tracker_paper.pdf; Google and Opportunity Insights (https://tracktherecovery.org/,

https://github.com/Opportunitylab/EconomicTracker and https://github.com/Opportunitylab/EconomicTracker/blob/main/data/Google%20Mobility%20-%20State%20-%20Daily.csv).

Presidents

Day

Memorial

Day

Independence

Day

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-100

−80

−60

−40

−20

0

+20%

3/1/20 4/1/20 5/1/20 6/1/20 7/1/20

ScottsdalePhoenixHoustonDallasHonolulu

Source: OpenTable (a unit of Booking.com) (https://www.opentable.com/state-of-industry)

Year-over-year percent changes in same-day seated diners in sample

of OpenTable network from all channels: online, phone, and walk-ins

Scottsdale

Honolulu

18

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Millions of units, s.a.a.r.

20

16

12

82000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

U.S. auto/light truck sales—conventional data—show overshoot in

durable goods consumption from the pandemic through June 2020

Source: U.S. Bureau of Economic Analysis, Light Weight Vehicle Sales: Autos and Light Trucks, retrieved from FRED, Federal Reserve Bank of St. Louis (https://fred.stlouisfed.org/series/ALTSALES) June 9, 2020.

9/11

Cash for

Clunkers

COVID-19

Zero

Percent

Financing

Tohoku

seismic

event

Lehman

Brothers

U.S. recessions shaded

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Hawaii unemployment rates: 12.4% Honolulu 1936; 11.0% Territory 1949;

9.4% statewide 1976; currently 22.6% (May) 23.8% (April) s.a.

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0

10,000

20,000

30,000

40,000

50,000

Initial weekly claims for unemployment insurance

19:Q3 19:Q4 20:Q1 20:Q2 20:Q3

Oahu

Maui

Hawaii

Kauai 4/4

Impact of economic sudden stop: catastrophic employment impulse

response, stagnation into current replication of weekly job loss

Sources:Hawaii DBEDT (http://files.hawaii.gov/dbedt/economic/data_reports/unemployment/Weekly_UI_Claims.xls), weekly data through July 4, 2020

21

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Hawaii unemployment rates—20.3% on Oahu, 28.2% on N .Isles (s.a.)

(May)—no precedent: Territory 11.0% in 1949, Honolulu 12.4% in 1936

0

5

10

15

20

25

30

Percent of labor force, s.a.

1990 1995 2000 2005 2010 2015 2020

U.S. recessions shaded

Iniki

9/11 COVID-19

Neighbor

Islands

Oahu

Source: Hawaii DLIR (https://www.hirenethawaii.com/admin/gsipub/htmlarea/uploads/LFR_LAUS_LF.xls); seasonal adjustment using U.S> Census X-13 ARIMA filter by TZ Economics

22

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0

4

8

12

16

Hawaii unemployment rates (percent)

2004 2006 2008 2010 2012 2014 2016 2018

NBER recession dates

U6

U5

U4, U3

U2, U1

Source: U.S. Bureau of Labor Statistics (https://www.bls.gov/lau/stalt.htm and https://www.bls.gov/lau/stalt_archived.htm); see also James Mak, Justin Tyndall and Carl Bonham (July 14, 2020) “Unemployment and

Underemployment in Hawaii: A Troubling Picture” UHERO Blogpost (https://uhero.hawaii.edu/unemployment-and-underemployment-in-hawaii-a-troubling-picture/)

Before the storm: unemployment and underemployment pre-COVID19

suggest mid-2020 will display problematic composition of joblessness

“The” unemployment rate, U3, is a convention excluding patterns of

involuntary underemployment which aggravate the costs of idled

productive capacity and of foregone human capital formation

U3

U6

23

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A final thought on asset valuations

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COVID-19 and residential valuations: monthly Oahu sales volumes

dropped but valuations largely remained resilient, pre-existing trends

Monthly sales, units, s.a. (log scale)

500

400

300

2002012 2014 2016 2018 2020

Closing prices 000 dollars, s.a. (log scale)

800

600

400

2002012 2014 2016 2018 2020

Source: Honolulu Board of Realtors, closed sales and median existing home prices through June 2020; seasonal adjustment, Hodrick-Prescott filter trend/cycle extraction from sales volumes, and regressions on logs of

median existing home prices through mid-2018 by TZ Economics.

Oahu existing home sales volumes Oahu median existing home sales prices

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A few overarching ideas from our rehearsal a few days ago

1. Valuations capitalize expectations on extent of adverse impacts—resilience in

equity markets, residential real estate encouraging; challenges to rental income

streams problematic for commercial real estate

2. Cares Act helped the industry bridge initial chasm, keeping people on payroll—

question still exists about Round 2

3. Should have had a recovery by now, but instead, we’ll go backwards and then will

have to start from scratch, build base for another shot at Groundhog Day recovery

4. Danger is that people have given up on leadership, feel compelled to go it alone—

people concerned about “individual liberty” do not understand externalities: the

unintended, uncompensated consequences of one’s economic activity on others

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Pau