March 10, 2023, 7:00 AM HST
According to the University of Hawaii Economic Research Institute’s forecast for the first quarter of 2023, Hawaii’s outlook continues to see an economic slowdown, but no recession.
International tourism will continue to recover, but domestic travel will soften as the US economy shrinks later this year. Combined with high interest rates and prices, this will cause him to weaken domestic growth through the first half of 2024.
Declining inflation in Hawaii and nationally is welcome news. But whether it continues to retreat will determine whether the Federal Reserve will push interest rates higher and longer, which could lead to a sharp slowdown in the state.
Highlights from the March 10th report:
- The outlook for the US and global economies has improved somewhat over the past few months. U.S. inflation is well underway and there are no signs of a sharp decline in economic activity. But still a tight labor market is challenging the Fed. In Europe, weaker than expected winter energy prices eased the economic slowdown. Globally, China’s reopening promises to boost trade next year. Still, the risk of recession remains in many countries.
- The tourism industry has made significant progress after the lull caused by Omicron last winter. Inflation-adjusted visitor spending had fully recovered by the second quarter, and he recovered by September in the Census daily average. The recovery in the Japanese market continues to fall short of expectations, rising to just a quarter of its pre-pandemic levels.
- Worsening macro conditions mean a tougher environment for Hawaii tourism this year. U.S. arrivals will decline slightly, even if a further recovery in international tourism will help offset the impact on overall tourism. Temporary vacation rental restrictions could limit traveler capacity and support already high hotel room rates and other tourism prices in the face of softening U.S. travel demand. I have. After expanding by more than 4% this year, the average daily visitor census will shrink by nearly 2% before rising slightly in 2024. Real visitor spending is also expected to decline slightly next year after a modest increase this year.
- After several years of economic expansion, Hawaii’s labor market continues to recover. Labor costs still lag pre-pandemic levels, but tourist-heavy counties of Kauai and Maui are now catching up to Oahu and the Big Island. While not as tight as it was pre-pandemic, labor shortages have deepened in some sectors. Recent wage increases have been the largest in tourism, and employment remains well behind pre-pandemic levels.
- Job growth will slow in many sectors over the next two years. Going into 2025, we can expect some growth. The construction industry has a particularly healthy outlook with a significant number of public construction projects underway. This strength will offset some of the drag on the weakening domestic tourism industry.
- The loss of education during the pandemic has disproportionately burdened students from low-income households and raised concerns about widening income inequality in the future. Many plans announced in the governor’s address address such concerns, including income tax reform and various housing initiatives.
- Inflation in the islands is not as severe as in the mainland United States, but it still hits purchasing power hard. Combined with the impact of the end of the pandemic assistance program, his real personal income is estimated to have fallen by more than 6% last year. As inflation continues to fall (averaging around 3% for the entire year), real incomes will pick up, pegging him to the 2% range by 2024-25.
“The short-term outlook is not risky, especially with a more aggressive Fed tightening,” said Carl Bonham, executive director of UH Economic Research Institute. “Nevertheless, our state has a relatively sound foundation that allows us to start working hard to meet long-term challenges. capacity issues, housing costs and availability, aging populations, and adaptation to climate change.”
Click here to view the full forecast.