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Inflation to weigh heavily on Hawai‘i economy

LIHU‘E — Inflation is projected to hinder economic growth in the Hawaiian Islands in 2023, but the belated recovery of a key visitor market and public sector construction should ward off recession, officials said.

That was the main outtake from the University of Hawai‘i Economic Research Organization’s fourth quarter forecast.

“It’s kind of interesting. This forecast is not really all that different than our last one, or for Hawai‘i,” said Carl Bonham, executive director of the research organization more commonly known as UHERO, during a Zoom conference on Thursday, Dec. 15, held to discuss the forecast findings.

”And there’s a lot going on. … The last time we were talking quite a bit about the recovery of Japanese visitors that has really just barely begun,” he said.

“And so we’ve lowered our forecast for when we’ll see more recovery of Japanese visitors, and you would think that that would make our overall forecast more pessimistic or less optimistic, and yet the U.S. market has sort of continued to surprise to the upside and come in a little bit stronger than we had anticipated.”

Bonham stated the overall path of tourism isn’t that different going forward, as the islands are projected to have declining visitor numbers and spending in particular with respect to the latter half of 2023 and into 2024.

What that translates to for the island of Kaua‘i is a slight drop in visitor numbers by air to an estimated 1,341,300 in 2023 from 1,341,800 in 2022. The overall count is forecast to creep lower yet in 2024 to 1,315,800, or roughly 1.9 percent to the downside.

But with the bad, there is some good, and that lies years ahead in that the visitor count is projected to rebound to 1,344,000 in 2025, which would be a high for the Garden Island.

On the labor market front, the outlook is brighter, as the unemployment rate is forecast to drop to 3.8 percent in 2023 from 4.6 percent in 2022.

The jobless rate is also estimated to fall in the years ahead to 3.6 percent in 2024 and 3.0 percent in 2025, as the island economy grows on the back of more visitor arrivals.

Additionally, the decrease in the unemployment rate should coincide with a rise in nonfarm payrolls, which are projected to climb to 31,200 in 2023 from 30,400 in 2022. That growth should continue in following years with the estimate at 31,600 in 2024 and 32,200 in 2025.

Neighboring islands outlook

Projections for visitor counts by air, the unemployment rate and nonfarm payrolls also track, for the most part, along the same lines for the neighboring islands over the next three years, albeit in numbers that reflect the size of each of those economies.

Honolulu County (O‘ahu) is forecast to show growth in its visitor count by air to 5,494,100 in 2023 from an estimated 4,917,900 in 2022. The visitor count is projected to hit 5,519,900 in 2024 and 5,648,400 in 2025.

The jobless rate is forecast to stay in a narrow range, dipping to 3.5 percent in 2023 from 3.7 percent in 2022. The rate is forecast to rise to 3.9 percent in 2024, and then fall to 3.4 percent in 2025.

Nonfarm payroll growth should be steadier, as it is estimated to be at 452,900 in 2023 from 442,900 in 2022. The number is projected at 454,900 in 2024 and 459,500 in 2025.

Maui County is forecast to see a dip in its visitor count to 2,958,900 in 2023 from an estimated 2,962,500 in 2022. Visitor count should drop to 2,925,200 in 2024 before rebounding to 3,011,800 in 2025.

The unemployment rate is projected to ease to 4.2 percent in 2023 from an estimated 4.5 percent in 2022. The forecast calls for the jobless rate to fall to 3.9 percent in 2024, and then to 2.9 percent in 2025.

Nonfarm payroll growth is projected to climb to 75,200 in 2023 from 73,700 in 2022. That number is estimated to continue its ascension to 76,000 in 2024 and 77,200 in 2025.

Hawai‘i Island should experience an uptick in visitor count to 1,779,000 in 2023 from 1,692,500 in 2022 before falling to 1,735,000 in 2024. That figure is forecast to rebound to 1,778,800 in 2025.

The jobless rate is pegged at 3.4 percent in 2023, down from an estimated 3.9 percent in 2022. The unemployment is then forecast to decrease to 3.3 percent in 2024 and 2.9 percent in 2025.

Nonfarm payroll growth should rise to 69,800 in 2023 from 68,500 in 2022. The number is estimated at 70,200 in 2024, and then up to 70,900 in 2025.

The quarterly forecast banks on the Federal Reserve continuing to battle inflation with aggressive interest rate hikes, something it has signaled it will keep doing in 2023. Those moves will lead to a marked slowdown of the United States economy, in large part because it makes financing everything from cars to houses more expensive.

But, at least for the state of Hawai‘i economy, large federal contracts and hotel projects will prop up the construction sector, in turn offsetting a slower residential side and helping hold off a recession.

“You couldn’t call our forecast a soft landing,” Bonham said.

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Wyatt Haupt Jr., editor, can be reached at 808-245-0457 or whaupt@thegardenisland.com.
Source: The Garden Island

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