DBEDT Forecasts Economic Growth of 1.5 Percent in 2026

News Release from DBEDT, December 5, 2025

HONOLULU—The Department of Business, Economic Development and Tourism (DBEDT) released its 2025 Quarterly Statistical and Economic Report today, raising its economic growth projections to 1.6 percent for 2025 and 1.5 percent for 2026.

(CLUE: Every year, DBEDT and the Council of Revenues invent these numbers for the purpose of manipulating the legislative session.  In March or April, there will be a 'dramatic' shift in the numbers designed to pressure legislators into hiking taxes.  They do this EVERY year.)

Despite the 43-day federal government shutdown, robust visitor expenditures, lower-than-expected inflation and a healthy labor market, as well as stronger-than-expected national economic performance, contributed to the improved outlook. Near-term growth remains subdued due to the impacts of tariffs, overall policy uncertainty and sluggish visitor arrivals.

Hawaii GDP Expands in the Second Quarter of 2025

Hawaii’s real GDP increased by $2.3 billion (2.5 percent), compared with the same quarter in 2024. Sectors that showed strong growth in the second quarter of 2025 included Non-durable Goods Manufacturing (7.2 percent); Information (5.7 percent); and Finance and Insurance (4.9 percent). 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 percent and Arts, Entertainment and Recreation increased 6.5 percent compared to the second quarter of 2024. Accommodation and Food Services (0.8 percent) and Retail Trade (0.2 percent) were relatively flat.

Inflationary Pressures Ease

Inflation, as measured by the Honolulu Consumer Price Index for Urban Consumers (CPI-U), decreased from 4.1 percent in January 2025 to 2.3 percent in July to 2.2 percent in September. DBEDT revised its 2025 inflation projection slightly downward to reflect these cooling trends. Tariffs are still expected to exert inflationary pressures through early 2026.

Hawaii’s Labor Market Conditions Improve

Due to the federal shutdown, the most recent data available on Hawaii’s labor force, unemployment and job growth, is through August 2025. Based on this data, Hawaii’s labor market continues to improve. The unemployment rate (not seasonally adjusted) in August was 2.6 percent, 0.6 percentage points lower than August 2024. Hawaii has the third lowest unemployment rate in the nation.

Hawaii’s labor force grew to 683,250 (0.2 percent) in August 2025 compared to August 2024, and the labor force for year-to-date August 2025 was 1.2 percent higher than the same period in 2024. Non-agricultural wage and salary jobs reached 644,200 in August 2025, 2.0 percent higher than in August 2024. The number of year-to-date August 2025 jobs was 2.1 percent 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 percent in the third quarter of 2025 compared to the same quarter of the previous year. Domestic visitor arrivals were down 74,441 (3.7 percent) and international visitor arrivals were down 4,459 (1.1 percent) over the third quarter of 2024. By major markets, third quarter arrivals from the U.S. West decreased 56,804 (4.4 percent) and U.S. East arrivals declined 10,149 (1.7 percent) over the same quarter of the previous year. On the positive side, Japan visitor arrivals increased 4,710 (2.3 percent) over third quarter of 2024.

Overall airline capacity declined by 70,821 seats (2.1 percent) in the third quarter, with domestic down 3.3 percent and international down 3.0 percent. The average daily visitor census decreased 6,814 visitors per day (3.0 percent) 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 percent compared with October 2024. However, total visitor spending was up 6.7 percent, which indicates Hawaii is attracting a higher-spending visitor demographic. Year-to-date spending was 5.0 percent higher in October 2025 compared to the same period in 2024.

Construction Sector Maintains Momentum

Hawaii’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 percent 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 Hawaii County increased 14.9 percent 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 U.S. economy remains healthy with steady real GDP growth of 2.0 percent and 2.1 percent 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 U.S. is expected, albeit at a slower pace. According to the November 2025 “Blue Chip Economic Indicators,” U.S. real GDP growth is forecast at 1.9 percent for 2025 and 1.8 percent for 2026 — both below the 2024 growth rate of 2.8 percent.

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 percent in 2025 and 0.7 percent in 2026; the Euro Area at 1.3 percent in 2025 and 1.1 percent in 2026; Canada at 1.1 percent in 2025 and 1.0 percent in 2026; and South Korea at 1.0 percent in 2025 and 1.8 percent in 2026. On the other hand, China is expected to continue brisk growth at 4.8 percent in 2025 and 4.3 percent in 2026.

Forecast Summary: Gradual Growth in 2026 Followed by Steady Recovery

DBEDT projects Hawaii’s real GDP to grow by 1.6 percent in 2025, decrease slightly to 1.5 percent 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 percent in 2025 and then gradually decrease to 2.3 percent 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 percent in 2025 to 2.7 percent 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.

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

Statement from DBEDT Director James Kunane Tokioka

In 2025, Hawaii’s economy navigated several significant challenges, including a softening of visitor arrivals, the federal government shutdown and uncertainty related to global trade and tariffs. 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 percent is expected in 2026, rising to 1.9 percent by 2028. I remain optimistic about Hawaii’s economic future and look forward to a year of opportunity and progress in 2026. On behalf of the entire DBEDT ohana, I wish everyone a joyful and prosperous holiday season.

# # #

KHON: Hawaiʻi tourism both expanded and contracted: New report