‘NMI economy continues to lack promise’

Weak tourism numbers further aggravated by the earthquake and tsunami in Japan last March, coupled with increasing labor costs and rising fuel and shipping prices, have conspired to further weaken an already struggling CNMI economy, according to a new First Hawaiian Bank economic analysis of Guam and the CNMI.

The report was prepared for the bank by Dr. Maria Claret M. Ruane, resident development economist at the University of Guam-Pacific Center for Economic Initiatives.

“The economy of the Commonwealth of the Northern Marianas Islands continues to lack promise,” Ruane said.

“Tourism, which has been on a decline for some time, took a turn for the worse as a result of the earthquake and tsunami in Japan, the main source of CNMI tourists. Local businesses face weak demand, a 66-percent rise in labor costs since 2007, and increased fuel and shipping costs,” she added.

In key measures of the CNMI economy, the report noted:

– The CNMI’s Gross Island Product declined by almost 20 percent between 2008 and 2009, and by more than 9 percent on an annual basis from 2002-09. “This translates to a more than 4 percent annual decrease in per-person real income between 2002 and 2009,” Ruane said.

– Based on preliminary U.S. Census estimates, the CNMI’s population in 2010 was 53,883, a loss of 22 percebr since 2000.

– CPI inflation for 2010 was 6.4 percent. Overall, the rate has been increasing since 2007.

Steep tourism decline

“Unfortunately, tourism in the CNMI trended down for several years, declining 30 percent from 2005 to 2009 when 353,956 tourists visited CNMI,” Ruane said.

This number increased to 379,091 in 2010. Between January and August 2011, tourism declined 13.8 percent compared to the same period in 2010.

“As in Guam, the largest factor affecting tourist arrivals to the CNMI in 2011 was the earthquake and tsunami in Japan in March,” Ruane said.

She said reduced flights from Korea reduced the tourist flow from there, but “additional flights and upsizing of airplanes by Asiana Airlines in coming months are expected to lead to a recovery in the number of Korean tourists during the balance of 2011 and into 2012.”

Minimum wage increases

As a precursor to implementation of the federalization law in 2009, CNMI minimum wages have increased significantly since 2007, from an hourly rate of $3.05 to the current $5.05. The original plan was to increase the minimum by $0.50 every year until it reaches the prevailing federal level (currently $7.25) by 2015.

“Many local businesses have struggled with the 66-percent wage increase since 2007 while facing weak product demand and low revenues,” Ruane said.

The planned September 2011 increase was postponed and “there is support for postponing future increases until the CNMI economy is able to accommodate such changes,” she said.

A June 2011 study by the U.S. General Accountability Office found that:

– Employment in all sectors in the CNMI decreased by 13 percent from 2008-2009, while employment in tourism decreased by 8 percent.

– Earnings of all employed during 2008-2009 increased by 3 percent above and beyond the inflation rate for that year, while earnings by minimum-wage earners who kept their employment and work hours in 2008-2009 increased by 9 percent.

– 73 percent of those working in tourism had an increase in wages following the September 2010 minimum wage increase.

– By early 2012, tourism employers representing 62 percent of workers have plans to lay off workers, although none indicated the action to be a result of minimum wage increases.

– CNMI workers surveyed indicated that they would like raises but worry about losing their jobs or reducing their work hours.

Uncertainty in Guam

The fallout from the Japan earthquake and ongoing discussions in Tokyo and Washington over the scope and timing of Guam’s pending military buildup, meanwhile, have created uncertainty for Guam’s economic outlook in 2012, according to the same report from First Hawaiian Bank.

“A year ago, economic signals for Guam were upbeat, but subsequent developments have dampened some of that optimism and generated doubts about short-term prospects for two of the island’s main economic drivers, tourism and the military,” Dr. Ruane said. “Current and future developments will test the Guam economy and provide it with an opportunity to show its resilience.

In key sectors of the Guam economy, the report noted:

– Tourism was down 4.8 percent between January and October 2011, owing to the March earthquake in Japan, the main source of Guam’s visitors. Fortunately, there has been some rebound in tourist arrivals from Japan since June, other tourist markets show promise and the weakening of the U.S. dollar makes Guam vacations more affordable.

– The terms, size and timing of the long-planned relocation of troops from Japan to Guam have become the subject of increasing speculation due to fiscal problems in Japanese and U.S. governments and a delay in releasing the Master Plan. The Navy Secretary says the plan will likely look “much different” than had been envisioned earlier.

– Employment on Guam is down 1.35 in 2011, with decreases in both private and local government jobs. Unemployment is at double-digit levels.

– The inflation rate inched up from 2010 but continues to be low.

– The real estate market sent mixed signals, with both strong sales volume and large median price declines

“2011 started off with a lot of promise,” Ruane said. “Tourism looked like it could repeat its strong performance of 2010 when almost 1.2 million tourists visited Guam. The military buildup was relatively on track; the Record of Decision, signed in September 2010, signaled for many the start of large-scale construction and creation of thousands of new jobs.”

For the full Economic Report, visit fhb.com. (Saipan Tribune)