As a community-engaged bank, the SF Fed seeks out real-time information on economic conditions by engaging with and learning from businesses, community organizations, and local leaders. These conversations are one of the many inputs into the decisions and policymaking at the Federal Reserve as we pursue our mission.
Here’s a snapshot of the Bankers Roundtable in Hawai’i where the SF Fed engaged with community bank CEOs in the Twelfth District.
In a recent Bankers Roundtable held in Hawai’i, our President and CEO Mary C. Daly sat down with local community bank CEOs to discuss the current state of the economy and its impact on various sectors. The dialogue was moderated by SF Fed Senior Vice President Mongkha Pavlick. The conversation revealed a mixed outlook from the participants, reflecting both cautious optimism and notable challenges facing the local economy. Here are the key takeaways from the discussion:
Economic Outlook: Mixed Signals
The CEOs agreed that while the overall economy is showing signs of improvement, significant challenges remain. They highlighted consumer and small business health as areas of concern, with early indications of weakening. Despite these signals, participants said the levels are not alarming yet; for example, they noted that consumer loan delinquencies are rising but not approaching pre-Covid levels. They also shared that tourism is rebounding, though spending has been subdued compared to previous years, and said that small business lending is also experiencing a slowdown due to factors such as family ownership succession issues and rising operational costs.
Deposit Behavior and Interest Rate Environment
Participants indicated that deposit behavior has largely remained stable, and depositor behavior has largely held constant. However, they have noticed a shift in demand towards interest paying and higher yielding accounts over the past year and a half, reflecting a broader trend in consumer preferences.
Regarding the interest rate environment, the CEOs discussed the potential long-term effects on the local economy. They noted that higher interest rates can strain both businesses and consumers, potentially slowing economic activity further. Prolonged high interest rates could pose challenges, but they shared that there are other challenges that pose greater immediate impact to the Island economy, such as housing affordability, supply shortages, and skilled labor gaps.
Growth Challenges and Resilience
Participants shared that growth in Hawai’i is currently facing several hurdles. The leaders noted that local residents are anticipating a decline in interest rates before making refinancing decisions, so meaningful refinancing or new mortgage activity is yet to return. At the same time, they shared that home sales are still holding strong due to the low supply of housing and the length of time to obtain permits exacerbating the supply challenge.
They also noted that military related construction and the ongoing efforts to rebuild Maui after the devastating 2023 Lahaina wildfire are expected to impact the labor supply. While these developments could put pressure on local labor markets, they may also spur activity in the service sector due to an influx of workers.
Housing and Labor Market Concerns
Leaders all agreed that housing supply remains a critical component of housing affordability. They noted that the current permitting rate for urban building stands at just 5 percent, with much land held but not zoned for development. They shared that this discrepancy between available land and regulatory hurdles continues to stymie efforts to address the housing shortage.
They also said that the skilled labor gap in small businesses is a significant concern, and that many small, family-owned businesses struggle to find successors, as younger generations are often seeking a different career path.
Listening and Learning
The SF Fed is committed to listening and learning to the businesses in our district and by extension, the citizens they serve. The feedback we receive is paramount in ensuring a healthy financial system with financial institutions of all sizes, including community banks. Through active dialogue with community bankers, we better understand the state of their business, the concerns of their customers, and the economic trends of the future.
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The views expressed here do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.