Sunday, May 10, 2009


I attended a workshop on the Federal Stimulus package in Hilo this week provided to interested community members by the County of Hawaii. I left thinking about the question Bill Kenoi, Hawaii County’s Mayor, asked about our economy, “How bad is it going to get and how long is it going to last?” He said he had asked the Experts and they shrugged and said they didn’t know.

We are always looking for correlations between leading economic indicators in hopes of gaining some insight into and tracking the current economic “situation”. Billy Kenoi’s questions got us thinking about correlating national economic indicators with local Hawaii economic data in hopes of predicting the future. We picked “visitors to Hawaii” since that seems to be a popular metric, but the State of Hawaii has a great number of other metrics that we hope to investigate later.

The external economic indicator that correlated the most with Hawaii visitors was US stock prices, specifically the S&P500 index which represents 500 large companies on US stock markets. We used percent change as the unit of measurement for graphing purposes and we used only visitors counts from the mainland US, since presumably they would be most impacted by the S&P500. Knowing that both the US stock market and visitors to Hawaii are highly seasonal, we removed seasonality from both the S&P500 index and visitors to Hawaii by comparing the percentage of change year to year between the same quarters, rather than quarter to quarter of the same year. This removed the large seasonal variations in the graph and shows more clearly the overall trends.

The graph shows a long lag time between negative changes in the S&P500 index and subsequent negative changes in visitors to Hawaii. We have heard that most people make their travel plans well in advance of their actual trip; six months is not an uncommon lead time and it can be several years for business conventions. If we assume about a three quarter lag (9 months) between reservations and travel, then there is a fairly strong relationship between change in the S&P500 and change in the number of visitors to Hawaii from the US mainland.

The S&P500 may indicate the health of major US employers, personal investment portfolios, and 401Ks, perhaps making targeted visitors feel confident enough to take a vacation to Hawaii. We are not economists, but our take on the graph is that the number of visitors to Hawaii from the mainland may continue to drop for the next two to three quarters at least. And that assumes that the recent recovery of the stock market continues.

We wondered if a similar correlation might be true for Japan. We created a graph with visitors from Japan to Hawaii and the NIKKEI-225, a common Japanese stock market index.

The Japanese version of the graph seems to show similar trends, about a three quarter lag of increasing and decreasing tourism based on increases and decreases in the NIKKEI. From this graph we think it is likely that the numbers of tourists from Japan will continue to increase.

In this time of shrinking State income and smaller Hawaii tourism advertising budgets, it makes sense to tightly target visitor populations that are more likely to come to Hawaii. Correlating Hawaii State and individual County metrics with external economic indicators that are likely to produce higher rates of increased visitors may be one way to maximize the number of visitors we get with our State Tourism advertising dollar.


Keahi Pelayo said...

It will be interesting to see how the shift in Governmental philosophy will change tourism. The sucking of dollars out of the private sector could have a significant negative impact.

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