UHERO forecast: Federal cuts raise risk of Hawaiʻi economic downturn
Hawaiʻi’s economic growth is threatened by federal disruptions, according to the first quarter forecast of 2025 released today by the University of Hawaiʻi Economic Research Organization (UHERO).
While tax cuts may provide some stimulus this year, the new administration’s actions—including tariffs, mass deportations and spending cuts—will impose significant drag thereafter, according to the UHERO report.
The clearest near-term risk is federal layoffs, which could result in a loss of more than 2,000 local jobs, fully offsetting growth in construction and the lift from local tax cuts. Together with other federal policies, this places the Hawaiʻi economy at risk of recession over the next few years, UHERO reports.
Key takeaways from the Feb. 28 UHERO forecast:
- US consumer spending continues to drive the US economy, expanding at a buoyant 4.2% annualized pace in the final quarter of last year. Business investment has been weaker, and hiring has slowed. While substantial disinflation gains have been made, some components have moved up in recent months, suggesting an extended pause in further fed rate cuts.
- Large-scale federal layoffs are now underway, initially targeting probationary workers, mostly those hired less than a year ago. Another 75,000 federal workers have accepted so-called “deferred resignations.”
- Planned federal payroll cuts will include an estimated 2,200 Hawaiʻi-based workers, and cuts to federal contracts will likely increase overall local job losses. The administration’s temporary halt to all contracting—stalled for now by the courts—would be damaging to UH and many charitable agencies. Cuts to federal programs and grants could also impact state funding.
- Visitor numbers are stable, but not growing. Maui’s recovery from the wildfires remains slow. The US market may benefit from federal tax cuts this year, but a weakening economy along with higher costs and prices will force a modest pullback in 2026–27. The Japanese market recovery will advance only very slowly. The recovery of other international markets will continue, although there is a risk that deteriorating global relations could hurt.
- Strong construction activity from both public and private sector projects, including Maui’s rebuilding, is driving employment toward a peak of nearly 41,000 construction workers in 2026. This remains the primary bright spot in the local economy. Tariffs on materials and potential labor shortages are looming concerns. There has been progress in efforts to build more affordable housing, although overall home building rates remain lower than in past decades.
“Overall economic growth in Hawaiʻi will feel the adverse effects of federal policies over the next several years, pulling job growth to zero and real GDP growth down to 1.6% this year,” the report said. “More extensive federal layoffs, tariffs or deportations could well result in a Hawaiʻi recession and undermine long-term growth prospects.”
UHERO is housed in UH Mānoa’s College of Social Sciences.
UHERO’s mission is to conduct rigorous, independent economic and policy research on issues that are both central to Hawai‘i and globally relevant. Over its more than 20-year history, UHERO research has informed decision making on issues facing the community, including the ever-changing economic outlook, challenges to the environment, and policies affecting water, housing, energy, and other areas.
The UHERO Forecast for the State of Hawai‘i is made possible by generous business and community support.
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