It’s been five years since Hawaii’s economy got broadsided by COVID-19 impacts, and about 18 months since state economic health surpassed its pre-pandemic level. Yet coronavirus aftereffects continue to play out.
The local economy, by its broadest measure encompassing the value of all goods and services adjusted for inflation, totally rebounded from the pandemic-triggered downturn in the fourth quarter of 2023, according to state data.
“The economy overall is fully recovered,” said Eugene Tian, chief economist for the state Department of Business, Economic Development and Tourism.
However, certain facets contributing to broad economic output have yet to completely rebound, including visitor arrivals and the size of Hawaii’s labor force.
Meanwhile, some financial strings tied to pandemic years are still playing out, including state and city spending of federal aid, hazard pay for many public workers, and an effort by the restaurant industry to obtain a general excise tax exemption for federal coronavirus relief grants.
Other continuing effects from the pandemic a half-decade later include dramatically fewer visitors from Japan, and lifestyle changes such as more prevalent self-service ordering in restaurants, virtual meetings and people working from home.
One thing that didn’t really change was the structure or diversity of Hawaii’s economy despite renewed focus on a long-held goal to reduce the state’s dependence on tourism by significantly growing other industries such as technology, agriculture and aquaculture.
Carl Bonham, director of the University of Hawaii Economic Research Organization, said the local economy today is no more resilient than before the pandemic, and likely would feel more pain from any downturn in the U.S. economy given that Hawaii’s share of visitor spending from mainland tourists increased to 77% from 66% in 2019.
“We’ve got even more of our eggs in one basket,” he said.
Stunted growth
Hawaii’s largely tourism-based economy on average has taken six years to recover from recessions before the pandemic, according to Tian, who said the amount of economic growth over the past five years has been pretty anemic compared with other states.
The U.S. economy as of September was 12.6% bigger than it was in 2019, according to the most recent available data cited by Tian. Growth for Hawaii’s economy during the same period, he said, was 1.5%, or second lowest among states. Only North Dakota was worse at 0.6%.
Hawaii’s weak growth is mainly due to impacts from the August 2023 Maui wildfire disaster, which Tian said inhibited what otherwise would have been a better rebound for tourism after setbacks from the pandemic.
“The wildfire is a major drag,” he said.
DBEDT forecasts that visitor arrivals won’t eclipse their 2019 level until 2028.
However, visitor spending has more impact on the local economy, and this metric after filtering out inflation was about $300 million higher in 2023 than in 2019, or $21.6 billion compared with $21.3 billion.
Employment is another facet of the local economy where the post-pandemic rebound hasn’t been uniform.
Total personal income adjusted for inflation didn’t drop during the pandemic, largely because of federal stimulus checks and additional unemployment compensation. But the statewide labor force remains smaller than it was in 2019.
During the last quarter of 2024, there were 682,300 people in Hawaii’s labor force, including those who were employed and unemployed. That was 10,100 fewer people than in the last quarter of 2019, representing a nearly 98% recovery.
Before government leaders imposed pandemic-mitigation business shutdowns, Hawaii’s unemployment rate was 2.1% in March 2020. The lowest it has been since then was 2.8% from May to June 2023 before the Maui wildfire disaster.
Still, the number of continuing weekly unemployment claims, which spiked to 72,828 in 2020 from 6,663 in 2019, dropped below the 2019 level in 2022.
Shutdowns and stimulus
During the early part of the pandemic, air travel restrictions were imposed and many businesses were barred from operating, while others faced limits on how many customers they could serve.
In September 2020, Oahu’s prohibited commercial operations included retailing of nonessential goods such as apparel and furniture, sit-down dining, bars, entertainment venues and golf courses.
Some businesses closed permanently, though DBEDT data indicates that by 2022 the number of business establishments had almost returned to the 2019 level of about 32,900 after dropping by about 400 in 2020 and 2021.
Massive federal financial aid prevented the local economy from collapsing, and flowed to state agencies, county governments, businesses, unemployed workers and individual taxpayers.
According to state Department of Budget and Finance data, federal coronavirus relief funding delivered to Hawaii totaled $21 billion.
The huge sum included $5.7 billion to state departments, $4.3 billion in unemployment compensation, $3.5 billion to individual taxpayers, $2.6 billion to businesses through the Paycheck Protection Program and $1.8 billion in business disaster loans.
Loose ends
The vast majority of federal aid provided to state and county governments has been spent, though some state and county agencies have until 2026 to use remaining funds.
For instance, the City and County of Honolulu has $44 million in unspent federal coronavirus aid left from the $773 million that it received. The unspent amount is obligated for projects that include $10 million for a desalinization plant in Kalaeloa, $8 million to replace waterlines in Kapahulu and $3.6 million to speed up building permit processing.
The city also is preparing to pay many employees more than $130 million in retroactive hazard pay for working during the pandemic. The other counties and the state also are in various stages of determining or distributing hazard payouts.
At the Legislature earlier this year, an attempt was made to reinstate former state employees to their jobs or an equivalent position, with back pay, if they resigned or were dismissed for not complying with COVID-19 vaccination or testing requirements.
The measure, House Bill 1241, was introduced by three Republicans in the House of Representatives, dominated by Democrats, and did not get a hearing.
One pending bill related to the pandemic would exempt restaurant owners from state general excise taxes on proceeds from a federal grant program, the Restaurant Revitalization Fund, that provided $416 million to 1,147 Hawaii restaurants in 2021.
The state Department of Taxation in 2023 decided that these grants, unlike other federal coronavirus relief payments for businesses, were subject to GET. HB 1278 would negate the move.
Garrett Marrero, founder and CEO of Maui Brewing Co., which received a $5 million grant, said in written testimony that he was blindsided by the department’s retroactive tax claim.
“This decision is unfair and inconsistent with the treatment of other federal relief programs,” he wrote.
Bill Comerford told a Senate committee March 12 that he was operating four Honolulu bars without debt when the pandemic unfolded and now has only two bars left, which have accrued debt. Comerford said he cannot afford to pay the $160,000 tax bill on his $3.1 million grant.
“I’m not making money,” he said. “I’m making nothing. I’m in debt. I continue to go in debt.”
The nonprofit Tax Foundation of Hawaii, in written testimony on the bill, urged lawmakers to correct what it called an injustice.
The Tax Department estimates that enacting the bill will cost the state $16.8 million. The bill passed the House unanimously Feb. 27, and is pending in the Senate.
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Bouncing back
A breakdown of Hawaii’s economic rebound from the coronavirus pandemic-induced downturn that began in 2020. The category and the year it eclipsed the 2019 level:
Real GDP* 2023
Visitor spending** 2023
Visitor arrivals, not yet
State general fund revenue 2021
Personal income** 2020
Continuing unemployment claims 2022
Labor force, not yet
*Gross domestic product adjusted for inflation (the broadest measure of the economy representing the value of all goods and services). **Adjusted for inflation.
