Growth, recovery forecast for Hawaiʻi, but Maui County expected to lag behind

Construction activity, including the rebuilding of wildfire devastated Lahaina town, will overcome relative weakness in tourism and help build a stable economic recovery, at a rate of 1.3%, for Hawaiʻi statewide, according to a forecast by economists with the Department of Business, Economic Development and Tourism.

“We expect the construction industry will continue to lead our economic recovery in the next few years,” said DBEDT Director James Kunane Tokioka. “The construction in the Lahaina area has started, and more than 14,000 affordable housing units are in the pipeline statewide. In addition, federal, state and county government agencies awarded nearly $10 billion in government contracts during the past two years, with majority of the projects in the construction area.”

In response to a Maui Now query, state economist Dr. Eugene Tian of the department’s Research and Economic Analysis Division, said in an email that he expects Maui County’s recovery will be “lagging other counties, and the full recovery will be one to two years behind.”

The department’s full economic report is available here.

One of Maui County’s few bright spots for quarterly economic indicators was private residential building permits up 99.3% from the 41,603 in the second quarter of 2023 to 82,912 in the same quarter this year.

Statewide, based on the state contracting tax base, the Hawai‘i construction industry generated $11.8 billion in 2023, representing a 9.8% increase from a year earlier, state economists reported. During the first four months of 2024, the contracting tax base increased 12.7%. The construction payroll job count reached 41,200 during the first seven months of 2024, a record level for this industry.

The value of private building permits increased 19.1% during the first seven months of 2024. The value of permits for additions and alterations increased by 29.4% and the value of residential permits increased by 24.2% while the permit value for industrial and commercial projects decreased by 31%. However, the value of industrial and commercial permits accounted for only 7.9% of the total private permit value.

Consistent with the value of the building permits, the number of residential units authorized during the first half of 2024 increased 54.4% as compared with the same period in 2023.

Comparing Hawai‘i’s economy to its pre-pandemic levels, the state has recovered 98% from the fourth quarter of 2019, state economists say. While the state’s non-tourism sector has fully recovered, the tourism sector (consisting of accommodation, transportation, retail trade, recreation and food services) has recovered only to 90%. By comparison, the US economy has fully rebounded from the COVID-19 pandemic since the first quarter of 2021, and the country has had an annual growth rate of 2.2% in the last three years.

Maui County is at the bottom of economic indicators. For example, the county’s job count in July is only 88.3% of the July 2019 level. Maui’s visitor arrival and daily census numbers were down around 20% in July, compared with the same month in 2023, and down even more (23-24%) compared with pre-pandemic July 2019.

Statewide, the level of visitor arrivals during the first seven months of 2024 was at 93% of the level experienced during the same period in 2019, DBEDT reported. Visitors from US markets continued to exceed 2019 levels (7.6% higher for US West market and 1.4% higher for the US East market), but the arrivals recovery rate from the Japan market was only 45.2%, the Canadian market recovery rate was 76.3%, and the recovery rate for all other markets was 80.7%. Visitor expenditures, measured in current dollars, decreased 3.9% year-to-date through July 2024.

According to data from the US Bureau of Economic Analysis, Hawai‘i’s economic growth, as measured by the growth of real gross domestic product, was 1.8% during the first quarter of 2024 as compared with the same quarter in 2023. This growth rate was healthy because the average annual economic growth rate in the previous 20 years (2003-2023) was 1.4%, according to state economists. 

During the first quarter of 2024, Hawai‘i personal income grew by 5.5%, which was also higher than the 4.3% average annual growth rate of the previous 20 years. The largest component of personal income – earnings, which include wages and salaries, supplements to wages and salaries, and proprietors’ income, and comprise more than 70% of total personal income, increased 7% compared to the first quarter of 2023. The largest earnings percentage increases occurred in Transportation and Warehousing (16.3%), Management of Companies and Enterprises (12.1%), Health Care and Social Assistance (10.7%), and State and Local Government (10.1%). The increases in earnings were due to increases in job counts and/or increases in wages.

Due to the stagnation of tourism this year, DBEDT expects that both GDP growth and personal income growth will be slowing down after the first quarter.

The number of home sales recorded at the Hawai‘i Bureau of Conveyances increased 25.2% during the first half of 2024. These sales include homes sold through multiple listing services, homes sold by developers and homes sold among friends and relatives without listing their properties. Average sale prices increased 10.1% for single-family homes but decreased 1.5% for condos.

Of the total home sales during the first half of 2024, 27.8% were sold to out-of-state buyers, the highest percentage since 2011.

Three indicators suggest that Hawai‘i’s labor market is stabilizing: (1) Hawai‘i unemployment rates (not seasonally adjusted) have been varying between 2.3% and 3.5% during the last two years. During the first seven months of 2024, Hawai‘i’s unemployment rate averaged 2.9% and ranked as the seventh lowest among the states in the nation. As of July 2024, Hawai‘i’s unemployment rate was 1.5 percentage points lower than the national average. (2) Hawai‘i’s statewide average of weekly initial unemployment claims during the first eight months of 2024 was at 1,123, lower than the average weekly claims of 1,200 in 2019. (3) Job vacancies are declining. During the second quarter of 2024, the average number of job vacancies was 2,300 per month, much lower than the vacancies of 7,700 per month in 2019.

Since November 2023, Hawai‘i consumer inflation has been higher than the nation and, in May 2024, Hawai‘i’s consumer inflation was at 5.2%, 1.9 percentage points higher than the nation. In July 2024, Hawai‘i consumer inflation decreased to 4.5%, still 1.6 percentage points higher than the nation. The high inflation was mainly driven by higher home rental costs which increased 12.4% in May and 10.8% in July 2024 as compared with costs a year earlier.

According to the most recent (August 2024) economic projections by the top 50 economic forecasting organizations published in Blue Chip Economic Indicators, US economic growth is expected to be 2.5% in 2024 and 1.8% in 2025. Economic growth in Canada, in Japan, and in the European countries are expected to be better in 2025 than 2024. The Japanese exchange rate is projected to be around 138 yen per dollar in 2025, which will encourage more Japanese visitors to travel to Hawai‘i. 

The Federal Reserve has left interest rates unchanged at its meetings for a year. Most of the economists believe the first interest rate cut will occur at its meeting this month.

Overall, DBEDT predicts that the economic growth rate for Hawai‘i, as measured by the year-over-year percentage change in real gross domestic product, will remain at 1.3 percent in 2024, the same as predicted in the previous quarter. Economic growth is expected to reach around 2% in 2025 and will continue at that rate through 2027.

Visitor arrivals are projected to decrease by 1% in 2024 and will improve starting in 2025 as the Japanese visitor market recovery accelerates. Full recovery in arrivals will not happen until 2027 when 10.3 million visitors will come to the state. Visitor spending is projected to be $20.7 billion in 2024 and is expected to increase to $23.9 billion by 2027.

As currently scheduled, total air seats are expected to increase by 2.6% during the September–November 2024 period, compared to the same period of the previous year. The increase in air seats is smaller than was expected in the previous quarter, which led to the lower projections on visitor arrivals.

Non-agriculture payroll jobs are expected to grow at 0.8% in 2024 and then increase to 1.3% in 2025, 1.2% in 2026, and 1% in 2027. A full recovery of non-agriculture payroll jobs is expected to occur in 2027, when the total will reach 659,700 jobs, surpassing the 2019 total of 658,600.

The state unemployment rate is expected to be 2.8% in 2024 and will improve to 2.7% in 2025 and 2.5% in both 2026 and 2027. 

Personal income is expected to grow at rates of around 4% in the next few years, similar to projections in the previous quarter. 

Hawai‘i consumer inflation is expected to decrease to 2.4 percent by 2027.

Hawai‘i’s population is expected to decrease by 0.1% in 2024, remain flat in 2025, and then increase by 0.2% in 2026 and by 0.2% in 2027. These numbers are largely the same as projections in the previous quarter.

“It is important to understand that the current slowdown in Hawai‘i’s economic growth is temporary,” Tokioka said. “While growth levels are below those seen a year ago and nationally, the state of the economy is robust. Construction, healthcare and private education continue to show strength — and the overall job count is increasing.”

“Tourism recovery has been slower than expected and is impacted by factors beyond our control such as foreign exchange rates and natural disasters,” he said. “Typhoon Ampil caused flight cancellations from Japan in August of this year, and a few thousand visitors had to cancel their trips to Hawai‘i.”