The impact of Hawaii’s weakening economy has affected the entire spectrum of the employer community here, HEC President & CEO Tim Ho reported at HEC’s 65th Annual Meeting. Just a year ago, employers were concerned about a labor shortage and worrying about having enough workers to fill positions; now, this is the “worst time ever to be unemployed,” he said.

Employers could also have a rough road ahead with the new Democrat-dominated Congress anxious to please their constituents, according to keynote speaker Aric Newhouse, National Association of Manufacturer’s Senior Vice President for Policy and Government Relations. The economy “sets the stage” for the direction of the Congress and newly-elected President Obama, but Newhouse foresees a push for regulatory reform in the financial industry, more private rights of actions against employers, and a debate over federally mandated sick leave.

Over one-third of the participants in HEC’s 2008 Salary Adjustment Survey have revised their salary budget projections for 2009, according to a recently completed follow-up survey.

The 2008 Salary Adjustment Survey was conducted at the end of summer, and companies had initially reported an average projected salary increase in 2009 of 3.1 percent. HEC conducted a follow-up survey from late October to early November to evaluate whether participating companies had changed their plans due to the recent economic downturn. The average projected salary increase for 2009 is now 2.3 percent, according to the follow-up survey.

Although 65 percent of the respondents said they did not intend to change their planned 2009 salary increases at the present time, the decline in the average salary adjustments and the number of companies planning some budget changes point to uncertainty in the business community for future salary increases.

The Consumer Price Indexes in Honolulu for 2007 and the first half of 2008 is available here or under What’s New. Honolulu has seen an increase in the CPI-W (Urban Wage Earners and Clerical Workers) of 5.1 percent in the first half of 2008 compared to the first half of 2007, and a 4.9 percent increase in the CPI-U (All Urban Consumers) in the same period. According to the latest Bureau of Labor Statistics Pacific Cities report, the CPI-W for the West, including Hawaii, was 6.0 percent for the year ending July 2008. The U.S. city average for the same period was 6.2 percent.

What's New:

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 1.1 percent in June, the Bureau of Labor Statistics reports. The June level was 5.6 percent higher than in June 2007.

On a seasonally adjusted basis, the CPI for all urban consumers advanced 1.1 percent in June, following a 0.6 percent increase in May. The index for energy rose sharply for the second straight month, increasing 6.6 percent in June following a 4.4 percent increase in May. The increase in the energy index accounted for around two-thirds of the overall increase in the all items index in June.

The CPI-W for Pacific Cities (including Honolulu) averaged 5.4 percent in June, a 1.1 percent increase over May.

While the state’s economy is slowing, it is not in a recession, Bank of Hawaii Senior Vice President and Chief Economist Paul Brewbaker told HEC members on June 10. His address was the second in HEC’s 65th Anniversary Distinguished Speaker Series. Although the airline cutbacks and declining passengers have affected Hawaii’s tourist industry, it’s “not as big as 9/11,” Brewbaker said, drawing an analogy between driving on the freeway and Hawaii’s economy—going from 45 miles per hour to 5 miles is “hard braking” but not a recession, which is going backwards. He projects that the state is likely to see about a 2.5 percent growth in 2009. For more on his economic forecasts, see the BOH Economics homepage.

Honolulu leads the West in Consumer Price Index increases, according to the latest figures from the U.S. Bureau of Labor Statistics. Honolulu saw a 4.8 percent change in the CPI-U (All Urban Consumers) from the second half of 2006 to the second half of 2007. Anchorage in comparison saw a 2.9 increase from the second half of 2006 to the second half of 2007. HEC’s CPI summary is available to members here or under What’s New at our home page.

The Emergency Economic Stabilization Act of 2008 may represent “an unprecedented level of activism by the federal government” in executive compensation, according to Littler, a national law firm.

One provision of the new law prohibits institutions that benefit from government aid from providing certain types of compensation to certain executives. Another provision uses the Internal Revenue Code to prohibit deductions by these institutions and to tax their employees in the event certain compensation practices are not followed. The Littler analysts say that the legislation is significant because the federal government has rarely strayed into the arena of directly regulating what types or levels of compensation may be paid, as opposed to regulating compensation by imposing tax sanctions or penalties.

According to Littler, since the penalties apply only to financial institutions that are assisted by the government under the bailout plan, the lead decision makers of a troubled financial institution may be tempted to consent to an acquisition or investment by private investors that is less favorable to shareholders than a transaction that includes federal assistance.

Hawaii businesses can tap into the resources of the Hawaii Business Research Library, part of the Hawaii Small Business Development Network. The Library provides free research services for small business needs via a research request or email at library@hawaii-sbdc.org. Research services include economic data and how to do a background check using available public data sources. The Network also provides free business counseling via appointment; see their online registration form.

Citing “another record-breaking year” for Hawaii’s visitor industry, the Dept. of Business, Economic Development and Tourism releases its 2006 Annual Visitor Research Report, which presents the final audited tourism statistics for 2006 and provides a comparison to 2005. The report also includes visitor characteristics and expenditures by major market areas (U.S., Japan, Canada, Europe, Oceania, Other Asia and Latin America), by first-time/repeat visitor status, and by island. Detailed spending categories by major market areas and by island are also reported.

Many employers will be handing out smaller-than-expected pay raises and bonuses to employees in 2009, and a significant number of employees can expect to see reduced bonus payouts in 2008 as well, according to a new Hewitt Associates survey.

Hewitt asked 411 large companies whether they plan to make changes to their compensation budgets in light of the recent economic situation, and 42 percent are revising their salary budgets and variable pay spending strategies related to the economic downturn or because of increasing cost pressures. For these companies, pay raises will decrease by an average of one percent in 2009. In addition, almost half of companies making changes to their salary budgets (49 percent) plan to reduce variable compensation payouts, with two-thirds (66 percent) cutting bonuses by more than 10 percent in 2008, and 42 percent of companies planning to do so in 2009.

Hewitt's survey found that 38 percent of companies are reserving a portion of their salary increase budget for their highest performers, and almost a quarter (23 percent) are creating supplemental, discretionary incentive pools for these workers. Another 20 percent are offering employees retention bonuses for a specified period of employment.

Some 92 percent of employees say financial worries are keeping them up at night, according to a poll released by ComPsych Corporation.

Employees were asked whether financial worries kept them up at night and if so, what was their biggest concern. ComPsych reports that 30 percent said the cost of living was their biggest concern; 29 percent said credit card debt; 14 percent said mortgage payment; 13 percent said retirement account; 3 percent said kids' tuition; and 3 percent said health care costs.

Eight percent said they are not worried.

Two Bureau of Labor Statistics researchers are attempting to lay to rest some myths about the Consumer Price Index in a detailed article for the Monthly Labor Review.

The myths addressed: that BLS lowers the CPI to reflect consumers’ substitutions of “hamburger for steak”; that the use of “hedonic” (pleasure) quality adjustment has distorted the CPI growth rate; that the 1983 change in the way homeowner costs are measured lowers the CPI rate increase; and that Social Security payments are indexed to a CPI that does not include food or energy. The researchers say the aim is to increase public understanding of how the CPI is constructed and what its strengths and limitations are.