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Thursday, June 1, 2023
DBEDT: Economic Recovery Continues in Hawaii
By News Release @ 5:16 PM :: 1680 Views :: Economy, Hawaii Statistics

ECONOMIC RECOVERY CONTINUES IN HAWAI‘I DESPITE POSSIBLE ECONOMIC RECESSION IN THE NATION

News release from DBEDT, May 31, 2023

HONOLULU – The Department of Business, Economic Development and Tourism (DBEDT) released its second quarter 2023 Statistical and Economic Report today. As compared with the first quarter forecast, DBEDT revised its economic growth projections for 2023 slightly upward, from 1.7 percent to 1.8 percent, and slightly downward for 2024, from 2.1 percent to 2.0 percent. 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, U.S. economic growth in 2023 is expected to be at 1.1 percent and 0.7 percent for 2024, both lower than previously forecast.

The U.S. has been slowing down in the past few quarters mainly due to sluggish consumer spending and fixed investment. Many economists believe that the U.S. 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 (GDP), real GDP recovered by 95.2 percent as compared with 2019. Real GDP in tourism related sectors (transportation, retail, arts, entertainment and recreation, accommodation, and food services) recovered at 83.8 percent while non-tourism sectors recovered at 98.7 percent. The total non-agriculture payroll job count recovered 98.9 percent in 2022 and the unemployment rate in 2022 (3.5 percent not seasonally adjusted) was one percentage point higher than the level in 2019 (2.5 percent).

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 percent in March 2023 from 5.2 percent two months ago.

(2) Continued recovery in tourism. During the first four months of 2023, visitor arrivals recovered to 97 percent compared with the same period in 2019 and visitor expenditures, as measured by nominal dollars, were 22 percent 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 percent as compared with the same period a year ago. Permit value for additions and alterations increased by 24 percent and permit value for commercial and industrial projects increased by 11.3 percent, while residential construction value decreased by 3.9 percent during the first four months of 2023. The construction job count increased by 4.9 percent 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 Hawaii 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 percent and employment recovered to 98.6 percent compared with the same period in 2019. The non-agriculture payroll job count recovered to 96 percent 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 percent 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)   U.S. 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 percent during the first quarter of 2023. The number of home sales decreased by 38.8 percent 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 percent not seasonally adjusted) is the same as the first quarter of 2022 and remains higher than Hawaii’s average unemployment rate of 2.5 percent for the period 2017-2019.

(5)   Slow growth in population. Hawaii has experienced a net out-migration in the past few years. According to the U.S. Census Bureau, Hawai‘ilost over 15,000 in resident population between April 2020 and July 2022, with the majority of the loss due to movement between Hawaii and the U.S. mainland.

(6)   Increased bankruptcy filings. After four years of consecutive declines, bankruptcy filings increased by 7 percent 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 (GDP), will increase 1.8 percent 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 percent, 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 percent in 2023, lower than the 3.7 percent projected in the previous quarter. The payroll job counts will increase by 2.1 percent in 2024, 1.8 percent in 2025, and 1.5 percent 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 percent, lower than the U.S. average of 3.6 percent. The state unemployment rate will continue to improve as economic recovery continues. The rate is projected to be 3.0 percent in 2023, 2.8 percent in 2024, 2.6 percent in 2025, and 2.5 percent 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 percent. Personal income is expected to grow by 3.4 percent in 2023 and the pace of growth will accelerate to 3.8 percent in 2026. As a comparison, the average annual personal income growth between 2009 and 2019 was 3.7 percent.

As measured by the Honolulu Consumer Price Index for urban consumers, inflation is expected to be 3.1 percent in 2023, still lower than the projected U.S. consumer inflation rate of 4.0 percent for the same year. Hawai‘i consumer inflation is expected to decrease to 2.1 by 2026.

Statement of DBEDT Director James Kunane Tokioka

It is encouraging to see our state’s tourism sector continue to welcome back workers. About 52 percent 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 percent lower than the same period in 2019. Our economic recovery still has a few miles to go.

Hawai‘i’s economy is currently facing many challenges with the U.S. 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.

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

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