Cautious optimism on Guam economy: Did the new normal start in 2022?
As a private citizen, I shared my 2022 Guam Economic Report with our island community on Dec. 31, 2022. At that time and in that report, I opted not to provide an estimate for our overall economy (measured as real gross domestic product) during the year that just finished and a forecast for this year.
This was partly to allow me to meet my self-imposed deadline but, more importantly, I hesitated putting my professional reputation “out there” and taking the risk of my 2022 estimate and 2023 forecast being incorrect.
However, as an economist for decades, I had always done and enjoyed performing numerical calculations and quantitative analyses. So, what gives? Having agreed to be a panelist at the Guam Chamber of Commerce 2023 Economic Outlook Forum on Jan. 12, I was under pressure to produce my 2022 estimate and 2023 forecast, or to explain my thought process, and share them with business leaders, government leaders, news reporters and others who were at the chamber forum.
I started by clearly stating that I am cautiously optimistic about how our economy performed in 2022 and how I forecast it to perform in 2023. Then I proceeded to explain why.
A pattern seems to be emerging for Guam’s economy: an unusually strong year in 2019 when our economy grew at 2.6 percent, the highest rate since 2005 and which unfortunately was interrupted by the pandemic; a significant decline of 11.4 percent in 2020 as expected, followed by what could have been a stronger economic growth, perhaps a V-shape recovery, but rather a disappointingly slow recovery of 1.1 percent in 2021 based on the latest official estimate released by the Bureau of Economic Analysis on Nov. 2, 2022.
This put our economy at the end of 2021 still 10.45 percent below its pre-pandemic 2019 level, or only 89.55 percent of our pre-pandemic level. The remainder of the pattern is yet to be confirmed by official estimates, but my best estimate is that Guam’s economy continued to recover in 2022 more than it did in 2021, therefore it grew faster than 1.1 percent. However, I am not convinced that it grew more than 2 percent.
Conservative 2022 estimate. Why a conservative estimate between 1.1 percent and 2 percent for Guam’s economic growth in 2022? After all, didn’t 2022 pave the way to the “new normal,” which some view with much optimism and the promise of stronger economic growth?
I need more convincing whether or not last year started the “new normal.” The empiricist in me insists on waiting until the official estimate for 2022 is released in the fall. Until then, Guam’s past economic performance continues to be engraved in my mind and, for better or worse, affects my analysis and forecasts.
For too long, 10 to 15 years before the pandemic, Guam was a “stable” economy, with “stable” being a euphemism for our year-to-year economic growth at zero percent plus or minus 1 percent, or estimating/forecasting Guam’s economic growth per year within the range of – 1 percent to + 1 percent. In fact, our economy grew an average of 1.2 percent per year between 2010 and 2019. This is why our 2.6 percent growth in 2019 was comparatively fast, thanks to record performance in tourism, a large amount of federal spending including military, and a healthy local economy that year. It is too soon to tell if we would be able to replicate that performance.
In looking back at how our economy performed in 2022, I wanted to see how much our local families (consumers) and businesses spent that year. I had to rely on the latest estimate that we have, which was for the year 2021, and recalculate the BEA’s figures to focus on what consumers and businesses would have spent in 2021 if they did not receive federal pandemic assistance.
My calculations show that consumer spending in 2021 was 29 percent below its pre-pandemic, 2019 level and business spending in 2021 was 16 percent below its pre-pandemic level. With less pandemic assistance available to families and businesses in 2022, it is not likely that consumer and business spending would have returned to their pre-pandemic levels, especially knowing that prices of many items consumers and businesses bought in 2022 were, on average, 6 percent higher than they were in 2021.
In addition, our employment data show, except for construction and manufacturing, that we are still below the pre-pandemic level as of the latest report from the Guam Department of Labor for September 2022. It shows private-sector jobs at 5.6 percent lower compared to the figure in September 2019, while jobs in hotel and lodging and other services at 23.9 percent and 10.9 percent were below their pre-pandemic levels.
2023 economic growth forecast. Until the official estimates for Guam’s 2022 economic growth become available, my own estimate puts it between +1.1 percent and +2 percent as explained above. If the emerging pattern is correct, Guam’s economy will grow more quickly this year than it did in 2022; therefore, this year’s growth would definitely be higher than +1.1 percent and, hopefully, higher than 2 percent but probably not replicate the strength in 2019, therefore less than +2.6 percent.
To answer the question that many ask: when will Guam’s economy fully recover and return to its pre-pandemic, 2019 level? If we assume that our economy grew 2 percent last year, this means that we started this year with our economy still 8 percent below full recovery.
If we were able to grow an average of 2 percent per year in the coming years, it would take another four years for our economy to fully recover, so 2026 is the answer. Although a strange thing to say, I mean it when I say that I hope my forecasts will be proven incorrect in general and incorrectly conservative in particular.
Dr. Maria Claret M. Ruane is an economist who has been a longtime resident of Guam. She earned her B.S. (with Great Distinction) and M.A. in Economics from San Jose State University and her Ph.D. in Economics from the University of California-Riverside. Send feedback to firstname.lastname@example.org