DBEDT: Hawaiʻi economic recovery continues despite possible recession in the nation

The state Department of Business, Economic Development and Tourism revised its economic growth projections for 2023 slightly upward, from 1.7% to 1.8%, and slightly downward for 2024, from 2.1% to 2%.

The revised forecast is part of the department’s 2023 Statistical and Economic Report. Department officials say the projected economic growth rates for Hawai‘i for both years are better than the expected growth rates for the nation.

According to the most recent May 2023 economic projections by the top 50 economic forecasting organizations published in Blue Chip Economic Indicators, US economic growth in 2023 is expected to be at 1.1% and 0.7% for 2024, both lower than previously forecast, according to DBEDT.

“It is encouraging to see our state’s tourism sector continue to welcome back workers,” said DBEDT Director James Kunane Tokioka. “About 52% of the total job gains (+21,700 payroll jobs) in the state were from the hospitality sector (+11,200) between the first four months of 2022 and first four months of 2023, and yet hospitality payroll jobs were still 8,000, or 6.3% lower than the same period in 2019. Our economic recovery still has a few miles to go.”

Tokioka said Hawaiʻi’s economy is currently facing many challenges with the US economy slowing down and international tensions worsening. “DBEDT will continue to work diligently toward diversifying our economy and creating an environment that supports clean energy, great job opportunities, and affordable workforce housing,” he said.

The US has been slowing down in the past few quarters mainly due to sluggish consumer spending and fixed investment, according to the update.

Department officials say many economists believe that the US economy will experience a recession during the second half of 2023. However, the Hawai‘i economy has not recovered from the recession caused by the COVID-19 pandemic.

As of the end of 2022, based on the data available on real domestic product, real GDP recovered by 95.2% as compared with 2019. Real GDP in tourism related sectors (transportation, retail, arts, entertainment and recreation, accommodation, and food services) recovered at 83.8% while non-tourism sectors recovered at 98.7%.

The total non-agriculture payroll job count recovered 98.9% in 2022 and the unemployment rate in 2022 (3.5% not seasonally adjusted) was one percentage point higher than the level in 2019 (2.5%).

Areas showing improvements during the first four months of 2023 include:

1. The continued declining inflation rate. Consumer inflation, as measured by the growth of the consumer price index (CPI) for urban consumers in Honolulu, dropped to 3.3% in March 2023 from 5.2% two months ago.
2. Continued recovery in tourism. During the first four months of 2023, visitor arrivals recovered to 97% compared with the same period in 2019 and visitor expenditures, as measured by nominal dollars, were 22% higher compared with the same period in 2019. After adjusting for inflation, real visitor spending was higher than the pre-pandemic level.
3. Stronger construction activities. The value of private building permits authorized during the first four months of 2023 increased by 7.7% as compared with the same period a year ago. Permit value for additions and alterations increased by 24% and permit value for commercial and industrial projects increased by 11.3%, while residential construction value decreased by 3.9% during the first four months of 2023. The construction job count increased by 4.9% during the same comparison period. Government contract awarded totaled $3.2 billion during the first quarter of 2023, of which $2.8 billion was awarded to Hawaiʻi firms for Pearl Harbor Naval shipyard replacement project. 
4. Improved labor market conditions. During the first four months of the year, the labor force (not seasonally adjusted) recovered to 98.9% and employment recovered to 98.6% compared with the same period in 2019. The non-agriculture payroll job count recovered to 96% of the pre-pandemic level. Average weekly initial unemployment claims were 1,148 during the first four months of this year, lower than the average of 1,267 during the first four months of 2019.
5. Continued increase in state general excise tax revenue. As a comprehensive measure of business activity, the state general excise tax (GET) increased 9.8% during the first four months of 2023 as compared with the same period a year ago. The highest historical monthly GET collection was $440 million in January 2023, with the second highest historical GET collection in April 2023 at $413.1 million.

Areas of concern include the following:

1. US and world economic slowdown in the next few years. Most of the countries, especially North America and Europe, will experience an economic slowdown in 2023 and 2024.
2. Continued Ukraine War. The Ukraine War created a high degree of uncertainty, and the war has no sign of ending anytime soon.
3. High interest rates and mortgage rates. Due to high interest and mortgage rates, the number of residential home units authorized decreased by 22.2% during the first quarter of 2023. The number of home sales decreased by 38.8% during the first four months of 2023.
4. Labor shortage accompanied with higher unemployment. Job vacancies remained higher during the first quarter of 2023 with an average of 13,000 positions unfilled per month during the first quarter of 2023. By comparison, the average of monthly vacancies in 2019 was 7,500. The unemployment rate for the first quarter of 2023 (3.1% not seasonally adjusted) is the same as the first quarter of 2022 and remains higher than Hawaii’s average unemployment rate of 2.5% for the period 2017-2019.
5. Slow growth in population. Hawaiʻi has experienced a net out-migration in the past few years. According to the US Census Bureau, Hawai‘i lost over 15,000 in resident population between April 2020 and July 2022, with the majority of the loss due to movement between Hawaiʻi and the US mainland.
6. Increased bankruptcy filings. After four years of consecutive declines, bankruptcy filings increased by 7% during the first four months of 2023.

Forecasting Results

In the current report, DBEDT predicts that the economic growth rate for Hawai‘i, as measured by the percentage change in real gross domestic product, will increase 1.8% in 2023 over the previous year. In 2024, economic growth is expected to accelerate to 2.0 for the state. In 2025 and 2026, economic growth for Hawai‘i is expected to be around 1.9%, similar to the average annual growth rate between 2009 and 2019.

Visitor arrivals are projected to be 9.9 million in 2023, higher than the number projected in the previous quarter. Arrivals are projected to increase to over 10 million from 2024 and by 2025, visitor arrivals will be fully recovered to the pre-pandemic level of 10.3 million. Visitor spending is projected to be $21.1 billion in 2023 and is expected to increase to $23.6 billion in 2026. 

Non-agriculture payroll jobs are forecast to increase by 3.4% in 2023, lower than the 3.7% projected in the previous quarter. The payroll job counts will increase by 2.1% in 2024, 1.8% in 2025, and 1.5% in 2026. For the current forecasting period (up to 2026), non-agriculture payroll jobs will recover to the pre-pandemic (2019) level by 2025.

In 2022, the Hawai‘i unemployment rate (not seasonally adjusted) was 3.5%, lower than the US average of 3.6%. The state unemployment rate will continue to improve as economic recovery continues. The rate is projected to be 3% in 2023, 2.8% in 2024, 2.6% in 2025, and 2.5% in 2026.

Federal government support for COVID-19 aid decreased significantly in 2022, but the state Constitutional Refund, which totaled $312 million, helped to keep personal income growth at 0.3%. Personal income is expected to grow by 3.4% in 2023 and the pace of growth will accelerate to 3.8% in 2026. As a comparison, the average annual personal income growth between 2009 and 2019 was 3.7%.

As measured by the Honolulu Consumer Price Index for urban consumers, inflation is expected to be 3.1% in 2023, still lower than the projected US consumer inflation rate of 4% for the same year. Hawai‘i consumer inflation is expected to decrease to 2.1 by 2026.