No new clouds are forecast to rain on Hawaii’s expected economic growth in the next two years, according to the latest state assessment.
The state Department of Business, Economic Development and Tourism released a new quarterly forecast for the local economy earlier this week, and anticipates no change from its previous projection for 2023 and 2024 made in August.
“Since the last DBEDT economic forecast in August of this year, the state’s economy has remained firm, with improvements in major indicators,” Mike McCartney, the agency’s director, said in a statement. “We are optimistic for the future of our economy.”
The steady outlook followed significant downward revisions for the next two years from DBEDT’s August report that projected high inflation, along with rising interest rates intended to curb inflation, would push down Hawaii economic growth to 1.7% in 2023 and 2.1% in 2024 instead of 2.5% and 2.2% as previously expected. The local economy this year is on pace to expand by 2.6%.
Expressed in dollars spent on goods and services statewide, DBEDT’s downward revision in August amounts to $1 billion less in each of the next two years.
This is a fairly modest reduction in growth, given that the value of all goods and services adjusted for inflation, otherwise known as real gross domestic product, was almost $75 billion statewide in 2021. But it prolongs Hawaii’s rebound from the downturn triggered by COVID-19 two years ago.
DBEDT is now forecasting that full recovery in state gross domestic product, as well as major components of it including tourism and jobs, will occur in 2025.
The agency said in its latest assessment that the stable outlook is partly driven by a decreasing rate of consumer inflation, continued strong recovery in tourism, rising state tax collections and continued improvement in labor market conditions.
On the downside, the national economy is likely to enter a recession in early 2023, and local construction activity and home sales are declining, according to DBEDT.
“The main drag is the U.S. economy,” Eugene Tian, the state’s chief economist, said in an interview.
Hawaii’s construction and real estate industries are being hurt by rising interest rates, which make it more costly to finance construction and buy homes. Rising material and labor costs also make it more challenging to make construction projects feasible.
McCartney said one bright spot in this sector is that record levels of government construction projects have been awarded during the past 10 months and will help the industry near-term.
Hawaii’s main economic driver, tourism, is expected by DBEDT to maintain its rebound. The industry is on pace to welcome about 9.3 million visitors this year, and arrivals are projected to hit 9.8 million in 2023, followed by 10.2 million in 2024, and then top the record of 10.4 million by about 100,000 in 2025.
Visitor spending, meanwhile, already has reached record levels in part because of inflation.
Inflation in Hawaii, which the federal government estimates based on an assessment of consumer product prices on Oahu, is on pace to rise 6.5% this year. DBEDT expects the rate to fall to 3.1% in 2023 and then reach a more historically normal level of 2.3% in 2024.
On the job front, DBEDT projects the state’s unemployment rate will edge down to 3.5% in 2023 from what is expected to be 3.6% this year, and then continue improving to 3.2% in 2024.
Tian said that only a slight improvement is projected for 2023 due largely to negative impacts from the U.S. economy, but he noted that Hawaii’s unemployment rate is already below its 20-year average of roughly 4%.
In 2019 before the pandemic, Hawaii’s unemployment rate was 2.4%. In 2020 it spiked to 12%, and then improved to 5.7% in 2021.
The number of nonagricultural payroll jobs statewide is expected by DBEDT to rise 3% in 2023 to 627,100 from an expected 608,900 this year. In 2023 the count is expected to rise 2.3% to 641,300.
