Hawaii tourism could soften with mainland pullback

Hawaii should see nearly 9.7 million visitors in 2023 but also some cooling in the state’s biggest economic driver.

“You still have declining visitor numbers and declining real spending, particularly in the latter half of 2023 and into 2024,” said Carl Bonham, executive director of the University of Hawaii Economic Research Organization.

Hawaii welcomed a record-high 10.4 million visitors in 2019 right before the COVID-19 pandemic, which resulted in just 2.7 million visitor arrivals in 2020.

A UHERO forecast scheduled to be released today predicts 9.28 million visitors by the end of the year, jumping to 9.65 million in 2023.

“By some measures, Hawaii visitor numbers have recovered to pre- pandemic levels,” according to UHERO. “The return of Japan visitors, which has been hindered by the late removal of travel restrictions and the weak yen, will offset a pullback of mainland arrivals next year.”

But so far, Japanese travel has failed to meet expectations. And Japanese visitor demographics have changed.

“The makeup of the Japanese visitor pool differs somewhat from its typical composition,” UHERO wrote. “The proportion of first time visitors and those traveling on package trips remains lower than in the past, with more independent and return visitors. During their trip, Japanese visitors are spending slightly more than before the pandemic, but they are staying longer, so that their daily spending is below that seen three years ago. A weak yen and the return to domestic inflation also constrains the purchasing power of the traditionally high-spending Japanese visitors.”

Plenty of other forces — particularly the forecast of a global recession starting in the second quarter of 2023 — also will push and pull on Hawaii’s economy.

“We still are making the case for Hawaii avoiding a recession, but the forecast is really for pretty much a complete pause in job growth … (starting) in first quarter 2023,” Bonham told reporters Thursday ahead of the report’s release.

He said island job growth in 2023 will “hit pause” and be “very, very flat” before seeing an uptick in the fourth quarter of 2023 and into 2024 — along with “not much of an increase in unemployment. … It’s really still a healthy and tight job market in 2023.”

Other economic forces, including yet another increase in interest rates this week, make for “a lot of uncertainty here,” Bonham said. “A lot of things could go wrong.”

UHERO wrote in its forecast: “Rising interest rates, dwindling pandemic era savings and the coming U.S. downturn will cause a pause in growth next year. But the belated recovery of the Japanese visitor market and surging public sector construction will prevent a recession in the islands. … While supply chain woes have receded, China’s COVID-19 struggles threaten further disruptions. The weak yen is weighing on Japanese consumer spending, including on vacations in Hawai‘i.

“The path ahead for prices remains uncertain. Inflation is widespread across many types of goods and services. Wages continue to rise at a rapid clip, with average hourly earnings up nearly 5% in the most recent data.”

New applications for home mortgages have fallen by half since the start of the year, triggering resale prices to fall, “although not dramatically so far,” according to UHERO. “Sales of new homes have fallen off to roughly the level seen in early 2019, and residential construction has begun to turn downward.”

The fallout from this year’s midterm elections — resulting in Democratic control of the U.S. Senate and Republicans controlling the U.S. House — also has economic ramifications.

“The incoming Congress will be one of the most narrowly divided in American history, limiting legislative options,” according to UHERO. “We expect the small Republican majority in the House to prevent Democrats from passing any new major legislation or spending bills. Senate Democrats, in turn, will refuse to hear most legis­lation from the House.”

In other words, congressional gridlock.

In local politics, Colin Moore — director of the UH Public Policy Center — wrote in the UHERO forecast, “Although Democrats continue to dominate politics in Hawaii, Republicans gained two seats in the House and one in the Senate. While small, Republican gains might enable them to be more active participants in all legislative processes. Hawaii would surely benefit from a more active opposition.”