DBEDT ECONOMISTS LOWER HAWAI‘I ECONOMIC GROWTH PROJECTIONS
News release from DBEDT, May 28, 2025
HONOLULU – The Department of Business, Economic Development and Tourism (DBEDT) released its second quarter 2025 Statistical and Economic Report today. In the report, DBEDT lowered its economic growth projections for 2025 to 1.2 percent from the previously estimated 1.7 percent. This adjustment reflects the impact of tariffs on international imports, a slowdown in tourism, persistent consumer inflation and increasing uncertainty in both national and international economic policy. DBEDT forecasts Hawai‘i’s economy to grow by 1.5 percent in 2026, with steady growth to 1.8 percent in 2028. The state’s labor market is expected to remain stable, with only modest impacts on the unemployment rate.
Looking ahead, Hawai‘i’s economic resilience will depend on sustained strength in construction, real estate, health care and professional services, while tourism is projected to recover at a slower pace.
Economic Recovery Status at the End of 2024
As of the fourth quarter of 2024, Hawai‘i’s real gross domestic product (GDP) rebounded to 1.9 percent above the pre-pandemic levels recorded in the fourth quarter of 2019. The overall economy had returned to pre-pandemic performance by the third quarter of 2023. By contrast, the national economy reached full recovery by the first quarter of 2021, with U.S. GDP growing 12.2 percent above its 2019 level over the same period. Hawai‘i ranked as the second-slowest state to recover from the 2019 COVID-induced recession.
Tourism-related sectors — including accommodation, transportation, retail trade, recreation and food services — had only reached 94.3 percent of their pre-pandemic GDP levels by the end of 2024. In contrast, non-tourism sectors grew by 4.4 percent over the same period. Notably, the Information sector expanded by 40.0 percent; Professional, Scientific, and Technical Services by 27.4 percent; Non-durable Manufacturing by 21.9 percent; and Health Care and Social Assistance by 14.7 percent. However, sectors such as Wholesale Trade, Utilities, Accommodation and Food Services, and Other Services remained below their pre-pandemic GDP levels.
One of the Best Labor Markets in the Nation
During the first four months of 2025, Hawai‘i’s labor market was one of the best in the nation with its unemployment rate ranked fifth-lowest based on the seasonally adjusted rate and ranked second-lowest based on the not seasonally adjusted rate. Hawai‘i payroll job growth ranked the fourth-highest in the nation during this period.
In April 2025, the most recent data available at this writing, Hawai‘i’s labor force, employment and labor force participation rate have all recovered to the April 2019 levels. Statewide weekly initial unemployment claims during the first 20 weeks (up through May 17) of 2025 numbered 1,043, lower than the 1,259 experienced during the same period in 2019. All of the counties saw decreased initial claims between the two periods.
Construction Industry Continues Booming
Construction continues to serve as a key driver of economic growth in Hawai‘i. In 2024, completed construction — as measured by the state’s contracting tax base — reached $14 billion, representing a 17.8 percent increase from 2023. In January 2025, the latest tax base data available, the contracting tax base increased 43.8 percent as compared with the same month a year ago.
The value of private building permits increased 39.9 percent during the first quarter of 2025 compared to the same period in 2024. The value of commercial and industrial permits surged 489.4 percent and the value of residential permits increased 67.8 percent; these increases offset the decrease in the value of additions and alterations of 27.6 percent.
The number of residential units authorized during the first quarter of 2025 increased 89.8 percent from the same period a year earlier. All counties saw increases in authorized residential units with Honolulu County leading the increase at 133.9 percent, followed by Hawai‘i County at 74.2 percent, Maui County at 23.9 percent, and Kaua‘i County at 10.6 percent.
Construction payroll jobs increased 2.1 percent during the first four months of 2025 and reached 40,000 payroll workers in April 2025.
Home Sales Down, But Prices for Single Family Homes Increasing
After increasing 15.1 percent in 2024, Hawai‘i home sales as recorded at the Bureau of Conveyances decreased 27.2 percent during the first quarter of 2025. Sales of single-family homes decreased 23.7 percent and sales of condominium homes decreased 30.4 percent. The average sale price of single-family homes was $1,225,797 during the first quarter of 2025, representing a 7.8 percent increase compared to the first quarter of 2024. The average sale price for condominium homes was $742,968, representing a decrease of 1.6 percent from the same quarter a year ago.
After a Great First Quarter, Tourism Faces Headwinds
The visitor industry performed well during the first quarter of 2025 with visitor arrivals increasing 1.7 percent and visitor expenditures increasing 6.5 percent compared to the first quarter of 2024. The increase came primarily from the U.S. market with arrivals increasing 3.9 percent and expenditures increasing 9.6 percent. All international markets experienced decreases in both visitor arrivals and expenditures. Arrivals from Japan decreased 5.4 percent and expenditures decreased 4.8 percent. Arrivals from Canada decreased 6.1 percent and expenditures decreased 2.4 percent. Arrivals from other international markets decreased 4.1 percent and expenditures decreased 1.5 percent.
According to the airline flight schedule, the total number of air seats to Hawai‘i is expected to decline by 0.5 percent in 2025. This decrease is primarily driven by fewer international flights, especially from Japan. International seat capacity is projected to drop by 3.5 percent overall, including a 6.6 percent decline from Japan, a 7.2 percent drop from Canada, and a 6.8 percent decrease from Oceania — namely Australia and New Zealand. However, air seats from the Other Asian market which includes Taiwan, Korea, China, Taiwan and Singapore will increase 14.5 percent.
Flights from the continental United States are expected to remain largely unchanged, with a marginal overall increase of 0.3 percent. Growth in air seats from the U.S. East will be up 2.1 percent and will be flat for flights from the U.S. West.
Consumer Inflation Diminished, But Expected to Rise
Honolulu’s consumer inflation rate, as measured by the Honolulu Consumer Price Index for Urban Consumers (CPI-U), was 4.1 percent in January 2025 and dropped to 2.6 percent in March 2025. Prices increased the most in Food and Beverages at 5.2 percent, while inflation for Housing dropped from 4.4 percent in January to 3.0 percent in March 2025. Inflation for commodities remained low at 2.1 percent in March 2025. Inflation for services declined from 5.0 percent in January to 2.9 percent in March 2025 but was still above the average inflation rate.
National and International Outlook
According to the most recent (May 2025) economic projections by the top 50 economic forecasting organizations published in Blue Chip Economic Indicators, U.S. economic growth is expected to be 1.2 percent in 2025 and 1.3 percent in 2026.
In May 2025, compared to April 2025, the Blue Chip International Consensus Forecasts for economic growth have been revised downward for 2025 for Japan (0.1 percentage point). Economic growth was also revised downward for Canada, Mexico, South Korea and China, and remained unchanged for the United Kingdom and Germany. The projected Japanese exchange rate was revised to 143.0 yen per dollar in 2025. The projected Euro exchange rate was revised to 1.14 dollars per euro in 2025.
At its May 6 -7 meeting, the Federal Reserve maintained its target federal funds rate between 4.25 and 4.50 percent. Market expectations for interest rate cuts have diminished in recent months, with inflation expectations trending upward.
Forecast Summary
DBEDT now forecasts Hawai‘i’s real GDP to grow by 1.2 percent in 2025, reflecting the impact of uncertain national policies and global economic conditions. Growth is expected to rebound modestly to 1.5 percent in 2026, steadily increasing to approximately 1.8 percent by 2028.
Visitor arrivals are projected to decline by 0.1 percent in 2025 and grow at about 0.7 percent in 2026, reaching 10.1 million visitors in 2028. Visitor spending is forecasted to reach $21.2 billion in 2025 and rise to $22.8 billion by 2028.
Non-agriculture payroll jobs are expected to grow by 0.9 percent in 2025, 0.8 percent in 2026, 1.0 percent in 2027, and 0.9 percent in 2028. A full recovery to pre-pandemic employment levels is expected by 2028, when total non-agriculture jobs will reach 661,300, surpassing the 2019 total of 658,600.
The unemployment rate is projected to remain at 2.9 percent in 2025 and 2026, declining to 2.8 percent in 2027 and 2.7 percent in 2028. Personal income is expected to grow at 4.6 percent in 2025 and at rates between 4.2 and 4.3 percent through 2028.
Inflation, as measured by the Honolulu CPI-U, is forecast at 3.8 percent in 2025. By 2028, Hawai‘i’s consumer inflation is expected to decline to 2.9 percent.
Population growth is projected at 0.1 percent annually in 2025, 2026 and 2027, rising to 0.2 percent in 2028.
Statement from DBEDT Director James Kunane Tokioka
Although Hawai‘i faces short-term economic challenges — including softening tourism, inflationary pressures and continued uncertainty in global markets — we remain confident in the state’s long-term economic resilience and are optimistic to see that most of our industry sectors are adding jobs. As of April 2025, our non-agriculture payroll jobs numbered 652,900, representing a 99.3 percent recovery from April 2019, the highest recovery rate since April 2020.
The growth in the construction industry will offset the stagnation in tourism this year and we expect the tourism industry will rebound starting in 2026.
The full report is available at dbedt.hawaii.gov/economic/qser/.
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