ECONOMIC OUTLOOK

Guam's economy taketh in 2011 and giveth back in 2012

By Maria Claret M. Ruane

Courtesy of Guam Business Magazine

 

FeatureIn early December 2013, the Bureau of Economic Analysis under the U.S. Department of Commerce released its estimates of Guam's Gross Island Product for 2011 and 2012, which show that Guam's economy slowed in 2011 but regained momentum in 2012 to be back at the 2010 level of $4.06 billion (in real terms, using 2005 prices). With the BEA estimating Guam's population at 159,800 in 2012, this translates to a per capita income of $25,388.

The BEA collaborated with the U.S. Department of the Interior to estimate the GIP for Guam and other U.S. territories from 2002 to 2012. Before this collaboration, our latest GIP in September 2010 would have been that for 2002, which would have represented eight years of not having a reliable measure of our overall economy. This absence of data would make prospective foreign businesses and investors wonder if and how we plan and make decisions on our island. For some of them, "haphazard" or "arbitrary" would come to mind, which is far from the truth if you ask our local business community. Such a negative image could easily carry over into everything else we do here on island.

Local economists look at the same data but have different interpretations. Some might consider the Guam economy "stuck" since GIP estimates between 2002 and 2012 have been around $4 billion a year, with some fluctuations. Since it has been 11 years — 13 years if brought to 2014 — that the economy has been at the same level, it appears to be "stuck." I can't say I completely disagree with this interpretation, but I tend to lean toward using the term "stable" to describe the same flat trend.

What's the difference? "Stuck" has a negative connotation while "stable" allows for a positive spin. How can anyone find anything positive about an economy that has not grown in 11 years? Indeed, one can, if you put Guam's economic realities into perspective with the many challenges it faces year after year, making it almost very easy for the Guam economy to deteriorate every year compared to the year before. Working off of that expectation, the fact that Guam's economy has, year after year, managed to come out okay and sustain being a $4 billion economy is, in fact, a positive outcome.

No one will deny that it would be better if Guam's economy showed positive growth every year, but judging from data going back to 2002, this has not been the case. The next best option is to maintain where we are, which is better than the remaining alternative, i.e., experiencing a declining economy.

In the meantime, while maintaining a "stable" economy, we welcome opportunities to grow our economy, and there is never a shortage of discussions and ideas on what this would entail. Also, as a community, we reserve the right to discuss the cost and benefits of our growth prospects, as we did so energetically on the topic of military buildup. This type of discussion, along with the fiscal realities in Washington, D.C., and Tokyo and the strategic realities that the U.S. faces in Asia-Pacific, have shaped the military realignment plan toward one that would continue to have a positive effect on Guam but within a timeframe that would be more manageable, given the demands on our island's resources.

Until such time when the opportunity to grow our economy becomes a reality, we will enjoy it being stable and will support the economic drivers that contribute to this overall stability: tourism, federal government (including military) and our local economy.

With Guam's economy being stable at $4 billion since 2012, it is safe — almost a no-brainer — to start any forecast at $4 billion and then introduce some slight upward and downward variations from there. For example, even though 2013 is done, we still do not have an estimate for it, so my forecast would be that Guam's economy was slightly better than that of 2012. In fact, I expressed this in the first line of the First Hawaiian Bank Economic Forecast 2013, "2013 is promising to be at least as favorable for Guam's economy as 2012 — and potentially a better year."

This forecast is based on the strong performance of one of our economic drivers, tourism, in calendar year 2013, when we welcomed 1.334 million tourists to our island. This total number masked some undeniable changes in our visitors' composition, as arrivals from Japan declined. Fortunately, this decline was more than made up for by strength in numbers from our other tourist markets, with the strongest growth brought on by the Korean and Russian markets. The strong performance of tourism, along with a stable local economy, compensated for the $14 million (11%) reduction in overall federal government spending on Guam in 2013 compared to 2012.

This slight growth in Guam's economy in 2013 was recently confirmed by the Guam Department of Labor's release of employment statistics for September 2013, which shows a 1.3% increase in private jobs compared to a year ago, with most of these jobs in construction. This is hardly surprising as I drove around the island to see construction site preparations taking place and signs of new residential and commercial structures being built.

For 2014, most would agree that it is too early to tell how Guam's economy will perform, but there are early signs that promise a stable economy this year with slight growth. In tourism, just observations of the full flights to and from our tourist markets, the long lines of tourists clearing through immigration when they arrive and the long lines going through the security gate when they depart Guam, suggest a likely repeat of, or a better performance than, last year's.

GVB's recent unveiling of Tourism 2020 and the confidence reflected in its target of two million tourists in six years point to serious efforts toward supporting tourism as well as developing strategies to address those concerns that create negative images or experiences for our tourists during their visit. The Japanese yen to U.S. dollar exchange rate could be a possible wildcard if the yen continues to weaken due to the Bank of Japan's efforts to increase money supply to stimulate Japan's economy and ensure that it is out of the "deflation" woods it had been for the past 12 years, except in recent months.

Nonetheless, our ultimate strong tourism performance in 2013, despite the yen weakening 18% between 86.72 JPY per USD on Jan. 1 to 105.32 on Dec. 31, proves the resilience of our tourism industry and the merit of continuing to diversity our tourist markets in order to reduce heavy reliance on visitors from Japan.

On the federal spending front, we start the year with $163.4 million worth of funding, with the top recipients being the Social Security Administration ($37 million), Department of Education ($35 million), Department of Health and Human Services ($30.8 million), Department of Veterans Affairs ($19 million) and Department of Agriculture ($15.7 million). Note that the Department of Defense is not yet on this list, which leaves room for more economic stimulus resulting from military-related activities, independent of any spending directly related to the military realignment plan, to which both the U.S. and Japanese governments continue to be committed.

On the possible contribution of the local economy, we continue to look into the economic stimulus effect of the millions of tax refunds already released to local taxpayers (including the $10 million released at the end of January), with more expected through October, consistent with the court mandate that refunds be paid within six months of filing of income tax returns.

From past observations, we know that most of these refunds find themselves financing purchases of a wide array of goods and services provided by our local businesses. At least in the short run, the increase to some government of Guam employees' salaries along the recommendations of the Hay Study will fuel further spending on goods and services and perhaps a small increase in employment in retail and other service industries.

In short, I expect Guam's economy to continue to sustain its $4 billion worth of economic activities in the year 2014, and then some.

 

Maria Claret M. Ruane, is a professor of economics at the School of Business and Public Administration and the resident development economist at the Pacific Center for Economic Initiatives at the University of Guam. She holds a Ph.D. in international economic development from the University of California in Riverside and a master's and bachelor's in economics from San Jose State University. She has more than 20 years of economic development expertise in general with a focus on the Asia-Pacific region in particular. She can be reached at mcruane@uguam.uog.edu.