Hawaiʻi gets ‘upbeat’ economic outlook, but higher inflation, COVID-19 risks loom

Hawai’i’s economy is showing sunnier signs, but risks of higher inflation and COVID-19 surprises are looming, according to the newest report by the University of Hawaiʻi Economic Research Organization. 

All the while, Maui County and other Neighbor Islands last year benefited economically from US Mainland visitor arrivals, and Maui hotels have drawn the highest room rates in the state.  

UHERO, a leading organization for Hawaiʻi and Asia Pacific economic research, pointed to omicron subsiding, an improving labor market and the expected return of international visitors as reasons for the “relatively upbeat forecast,” a news release said.  

“It’s a more optimistic outlook; it’s a little more upbeat,” Carl Bonham, UHERO executive director, said during a media event Sunday. “We got through omicron really quickly and we’re beginning to see the visitor numbers come back.” 

However, the first quarter forecast for 2022 published Sunday also said considerable risks remain, including possible COVID-19 spikes and variants, Fed tightening and economic fallout from the Russian invasion of Ukraine. 

“We’re going to see more inflation,” Bonham said. “We’re going to see higher gasoline prices, eventually higher electricity prices. So if you add in the effects of higher oil prices for the next three to six months, you get another 25 to 50 basis points increase in inflation.” 

Statewide the visitor industry took hits last year amid surges in the delta and omicron variants.  

Maui County and other Neighbor Islands, though, benefitted economically from strong US Mainland visitor arrivals last year, and Maui in July set a record for domestic arrivals, reports have shown. 

“The complete recovery of the US market has disproportionately benefited the Neighbor Islands,” UHERO’s latest report said. 

Also, Neighbor Islands have seen the biggest gains in hotel room prices and demand. 

Maui County hotel room prices spiked to the highest point in recent years – outperforming all counties in 2021 and driving past 2019, the year where the county and state saw its highest visitor volume.  

The UHERO report showed that Maui hotel room prices averaged about $500 per night, while Hawaiʻi island was $300 to $400, Kauaʻi was $300 and Honolulu was $200.  

“Also, the average daily rate for transient vacation rentals also ended the year on a record high,” the report said. “To be sure, hotel and other accommodation purveyors also face rising costs, but the gains in revenue are nonetheless encouraging signs of the recovery.” 

Statewide, county governments are looking to enforce stricter regulations on transient vacation rental operations. Honolulu is considering a bill to ban TVRs from operating in residential-zoned areas and new permits would be issued only in or next to resort-zoned areas.  

After seeing a faster-than-expected resurgence in visitor arrivals amid pandemic surges, Maui County Council is considering proposals to manage tourism, including a plan to cap transient accommodations on Maui.  

Council recently placed a moratorium on the construction of new visitor units, including hotels and transient vacation rentals, for two years or until a plan to manage tourism is enacted. 

Looking ahead, UHERO said visitor arrivals will reach 90% of the pre-pandemic level by year’s end and will hit 9.5 million next year. Also, a recent state forecast said Hawaiʻi could see 10 million visitors by 2024 and exceed in 2025 the historic high of 10.3 million visitors set in 2019. 

Oʻahu has historically relied on international visitors, but international travel had remained largely shut down in the wake of the pandemic.  

The expected transition of the virus to an endemic disease sets the stage for easing of travel restrictions and the long-awaited return of international visitors, according to UHERO.  

Job recovery in Hawaiʻi, which had proceeded at a healthy clip, paused after the delta wave hit, UHERO said in the report. Employment gains will continue this year, although a reduced labor force and lagging tourism will delay a full recovery. 

For the UHERO full report, visit “With Omicron in the Rearview Mirror, a Clearer Road Ahead?”