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Thursday, May 12, 2022
UHERO: Real income will decline 5% this year
By UHERO @ 3:00 PM :: 1963 Views :: Economy, Tourism, Cost of Living

UHERO Forecast for the State of Hawaii: Foreign visitors will provide lift, but risks have multiplied

UHERO, May 12, 2022

Executive Summary

Hawaii’s recovery has resumed now that the winter Omicron wave is behind us. Once the Asian COVID-19 wave recedes, the long-awaited return of international visitors will begin in earnest. Hawaii’s delayed recovery from the pandemic means that we expect moderately strong growth, despite clearly deteriorating conditions in the US and global economies. The worsening global economic environment poses substantial downside risks to our Hawaii forecast.

• Prospects for US and global growth have worsened markedly since our last forecast. The Russian war on Ukraine has pushed up energy and commodity prices, and supply chains are again threatened by spreading COVID-19 shutdowns in China. The Federal Reserve is pursuing a rapid pace of monetary tightening in the face of the highest inflation in decades. These factors will restrain global growth for the next several years and significantly raise recession risks.

• Hawaii’s tourism recovery quickly resumed after the Omicron wave receded. As of March 25, there are no COVID-related requirements for arriving domestic passengers. The recent BA.2 wave has pushed back our forecast for the return of Asian travelers. The yen’s weakness and rising travel costs will act as headwinds. Overall visitor arrivals will exceed 90% of prepandemic levels by year end, and real visitor spending will be a third higher than last year, aided by the return of higher-spending international visitors.

• After a second-half pause last year, the labor market has begun to edge upward again. The state’s labor force took a hit during the pandemic. While the proportion of working age people employed or looking for work has now largely recovered, declining population—mostly on Oahu—leaves the pool of available workers below 2019 levels, acting as a constraint on future growth. Hawaii’s nonfarm payroll job count will rise by more than 4% this year, continuing at a healthy pace in 2023.

Inflation in the Islands hit 7.5% in March, as measured by the Honolulu consumer price index, only a bit lower than for the US overall. Inflation has raised household costs by an average of $3,600 and has also raised business production costs. As a result, inflation will burden economic growth until it returns to trend over the next two years.

Real personal income has fallen with the end of pandemic-era fiscal support, and inflation will also take a toll. Real income will decline 5% this year and recover less than 1% in 2023. Employment gains and a tight labor market will support a return to moderate income growth by 2024. Real gross domestic product, the broadest measure of production, will rise 3.5% this year and approach its pre-COVID peak by the middle of 2024.

• Homebuyers are being squeezed both by surging home prices and mortgage rates that have risen by more than two percentage points since last summer. Rents in the Islands have also increased significantly. A potential moratorium on new water meters, resulting from the Red Hill Navy fuel groundwater contamination, threatens new home building. Public construction prospects are robust, owing to a significant volume of State and Federal projects. Labor shortages and material costs will be challenges.

• Were it not for the anticipated return of international visitors, we would be marking down our forecasts because of the combined effects of war, inflation, supply bottlenecks, and pending Fed interest rate hikes. While we think ongoing tourism recovery will offset these forces in Hawaii, they nevertheless represent an increasing recession risk.

read … Full Report

SA: Hawaii’s ongoing economic recovery in precarious spot

HTH: Report: Return of Japanese could protect Hawaii from global instability 

PBN: UHERO releases revised Hawaii economic outlook report for 2022


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