DBEDT forecasts economic growth of 1.5 percent in 2026

The Hawaiʻi Department of Business, Economic Development and Tourism has updated its statewide economic forecast, projecting real gross domestic product growth of 1.6% in 2025 and 1.5% in 2026, according to its latest Quarterly Statistical and Economic Report released Friday.

The improved outlook comes despite this year’s 43-day federal government shutdown. State economists attribute the improved outlook to robust visitor spending, lower-than-expected inflation, a strong job market as well as better-than-expected national economic performance.

Near-term growth, however, remains subdued due to the impacts of tariffs, overall policy uncertainty and sluggish visitor arrivals, the department said.

Hawai‘i GDP expands in the second quarter of 2025

Hawai‘i’s real GDP increased by $2.3 billion (2.5%) in the second quarter in 2025, compared with the same quarter in 2024.

Sectors with strong growth included Non-durable Goods Manufacturing (7.2%); Information (5.7%); and Finance and Insurance (4.9%). Non-durable goods manufacturing includes the manufacturing of food and beverage products as well as apparel and printing.

Some tourism-related industries also performed well. Transportation and Warehousing grew by 6.8% and Arts, Entertainment and Recreation increased 6.5% compared to the second quarter of 2024. Accommodation and Food Services (0.8%) and Retail Trade (0.2%) were relatively flat.

Inflationary pressures ease

Inflation in Honolulu declined from 4.1% in January 2025 to 2.2% in September, prompting DBEDT to slightly lower its inflation projection for 2025. Tariffs are still expected to exert inflationary pressures through early 2026.

Hawai‘i’s labor market conditions improve

Hawaiʻi continues to report one of the lowest unemployment rates in the country at 2.6% (not seasonally adjusted). This number was recorded in August 2025, the most recent Data available due to the federal shutdown that took place.

Hawai‘i’s labor force grew to 683,250 (0.2%) in August 2025 compared to August 2024, and the labor force for year-to-date August 2025 was 1.2% higher than the same period in 2024. Non-agricultural wage and salary jobs reached 644,200 in August 2025, 2% higher than in August 2024. The number of year-to-date August 2025 jobs was 2.1% higher compared to the same period in 2024. Job gains in the private sector and in state and local government continued to offset federal job losses.

Visitor spending remains robust despite softening visitor arrivals

The total number of visitor arrivals by air decreased by 78,900 or 3.2% in the third quarter of 2025 compared to the same quarter of the previous year. Domestic visitor arrivals were down 74,441 (3.7%) and international visitor arrivals were down 4,459 (1.1%) over the third quarter of 2024. By major markets, third quarter arrivals from the US West decreased 56,804 (4.4%) and US East arrivals declined 10,149 (1.7%) over the same quarter of the previous year. On the positive side, Japan visitor arrivals increased 4,710 (2.3%) over third quarter of 2024.

Overall airline capacity declined by 70,821 seats (2.1%) in the third quarter, with domestic down 3.3% and international down 3%. The average daily visitor census decreased 6,814 visitors per day (3%) in the third quarter over the same quarter of the previous year.

In October 2025, total visitor arrivals by air and cruise ship were 749,095, down 2.9% compared with October 2024. However, total visitor spending was up 6.7%, which indicates Hawai‘i is attracting a higher-spending visitor demographic. Year-to-date spending was 5% higher in October 2025 compared to the same period in 2024.

Construction sector maintains momentum

Hawai‘i’s construction sector continues to grow. The total value of construction, as measured by the contracting tax base, reached $14.0 billion in 2024. During the first half of 2025, the contracting tax base totaled $7.4 billion, a 12.7% increase from the same period in 2024.

Construction payroll jobs reached a record 41,300 (not seasonally adjusted) in August 2025 (latest data available). Total private building permit values for Honolulu, Maui County and Hawai‘i County increased 14.9% through the first nine months of 2025 compared to the same period last year. The $8.4 billion in government contracts awarded in 2023 and 2024 will help sustain construction, which is expected to support economic growth in the years ahead.  

Growth continues at the national and international levels

Overall, the US economy remains healthy with steady real GDP growth of 2% and 2.1% respectively in the first two quarters of 2025. Credit markets eased slightly as the Fed cut the Federal Funds Rate by 25 basis points in October. However, the government shutdown dampened consumer confidence in November, which fell by 6.8 points.

Continued growth for the US is expected, albeit at a slower pace. According to the November 2025 “Blue Chip Economic Indicators,” US real GDP growth is forecast at 1.9% for 2025 and 1.8% for 2026 — both below the 2024 growth rate of 2.8%.

International markets are expected to have softer growth due to global uncertainty. The November 2025 “Blue Chip Global Consensus Forecasts” projected 2025 growth for Japan at 1.1% in 2025 and 0.7% in 2026; the Euro Area at 1.3% in 2025 and 1.1% in 2026; Canada at 1.1% in 2025 and 1% in 2026; and South Korea at 1% in 2025 and 1.8% in 2026. On the other hand, China is expected to continue brisk growth at 4.8% in 2025 and 4.3% in 2026.

Forecast summary: Gradual growth in 2026 followed by steady recovery

DBEDT projects Hawai‘i’s real GDP to grow by 1.6% in 2025, decrease slightly to 1.5% in 2026, and then continue the path of expansion through 2028 with increased visitor arrivals, growth in service-related industries, and lower inflation.

Honolulu’s Consumer Price Index (CPI-U) is estimated to increase 2.8% in 2025 and then gradually decrease to 2.3% by 2028, reflecting easing inflationary pressures over time. Employment is expected to expand steadily, with non-agricultural wage and salary jobs rising from 648,100 in 2025 to 665,300 in 2028. The civilian unemployment rate is forecast to edge down from 2.8% in 2025 to 2.7% in 2027 and 2028. Personal income is projected to grow from $107.4 billion in 2025 to $121.9 billion in 2028, while real personal income will rise more modestly.

Visitor arrivals are forecast at 9.7 million in 2025, increasing to just shy of 10 million visitors by 2028. Visitor expenditures are projected to grow from $21.6 billion in 2025 to $23.4 billion in 2028.

Statement from DBEDT Director James Kunane Tokioka

“In 2025, Hawai‘i’s economy navigated several significant challenges, including a softening of visitor arrivals, the federal government shutdown and uncertainty related to global trade and tariffs,” said DBEDT Director James Kunane Tokioka in a statement Dec. 5. “Despite these difficulties, the economy demonstrated considerable resilience, supported by growth in non-tourism industries (such as Non-durable Goods Manufacturing, Information, and Finance and Insurance) and increased visitor spending, even as overall arrivals declined.”

“GDP growth of 1.5% is expected in 2026, rising to 1.9% by 2028,” Tokioka said. “I remain optimistic about Hawai‘i’s economic future and look forward to a year of opportunity and progress in 2026. On behalf of the entire DBEDT ʻohana, I wish everyone a joyful and prosperous holiday season.

The full report is available at dbedt.hawaii.gov/economic/qser/.