Hawaii economic recovery seen picking up speed

Hawaii’s economy is improving at an accelerated pace and the state is now forecast to grow 3.5% this year as domestic visitor arrivals reach full recovery by the end of 2021.

The remarkable rebound from the devastating COVID-19 pandemic is attributed to $18.6 billion in federal aid to Hawaii for 2020 and 2021; improved visitor arrivals; increased air seats or frequency from Hawaiian Airlines, United Airlines and Southwest Airlines; fewer bankruptcy filings; more people returning to work; higher tax revenue primarily due to unemployment benefits; businesses reopening and a high vaccination rate in the state, according to a quarterly forecast released Wednesday by the state Department of Business, Economic Development and Tourism.

DBEDT’s latest forecast for inflation-adjusted gross domestic product, or the value of all goods and serv­ices, was revised upward from 2.7% and 2.1%, respectively, in its last two quarterly reports.

“It is encouraging to see the positive new developments taking place in our economy,” DBEDT Director Mike McCartney said in a statement. “The visitor industry recovery is accelerating from the domestic markets in the past few months. According to the estimate by our researchers, domestic visitor recovery is at about 100.9 percent during the first 24 days of May.”

DBEDT’s growth outlook is slightly less optimistic than the 4% real GDP forecast from the University of Hawaii Economic Research Organization in its own report earlier this month.

Visitor arrivals, which have been picking up speed with the state’s loosened travel restrictions, are now expected to hit 6.6 million this year, 8.6 million in 2022, 9.5 million in 2023 and 10.1 million in 2024. The all-time high was 10.4 million in 2019.

McCartney said the recovery of domestic visitors will help the neighbor island economies that are more dependent on U.S. mainland tourists. In 2019, domestic visitors accounted for 88.4% of Kauai’s total arrivals, 85.2% for Maui County and 77.2% for Hawaii County. Oahu, which is more dependent on international arrivals, saw only 57.1% of its visitors come from the U.S. mainland in 2019.

“Due to the lagging in tourism recovery from the international market, we expect the full recovery of our tourism industry will be beyond 2024,” McCartney said. “This is because international visitors accounted for one third of the total visitors and their daily spending is higher than U.S. visitors ($215.8 person per day for international visitors versus $188.3 for U.S. visitors in 2019).”

Total nonagricultural payroll jobs were 14.5% lower in April than in pre-pandemic January 2020, but all the industries have shown improvement in hiring back employees except for the federal government, mainly due to the completion of the 2020 census.

The construction industry was fully recovered by April and was 1.9% higher than the pre-pandemic level. The value of private building permits increased 2.3% during the first quarter, indicating that the construction industry has recovered and is stable, DBEDT said.

The hospitality sector — consisting of art, entertainment and recreation, accommodations, and food services industries — recovered in April to 67.7% of its pre-pandemic level after having just 46.8% of its jobs remaining in April 2020

“We need the tourism recovery to call back our laid-off workers,” McCartney said. “As of April this year, there were still 41,000 workers waiting to be called back in the hospitality sector alone.”

DBEDT projects nonagricultural payroll jobs to rise 8% this year and then increase 3.4% in 2022, 1.6% in 2023 and 1.4% in 2024. However, DBEDT said the jobs won’t return to pre-­pandemic levels until after 2024.

The state unemployment rate is seen gradually improving as economic growth returns. The jobless rate is projected to be 7.7% in 2021, 6.3% in 2022, 5.6% in 2023, and 5.0% in 2024. These projected rates are better than the ones forecast last quarter but are much higher than the average Hawaii unemployment rate of 2.5% between 2017 and 2019.

Even with the economy improving, inflation-adjusted personal income is expected to fall 2.7% this year and decline 4.2% in 2020 due to reduced unemployment benefits before rising 1% in 2023 and 1.6% in 2024.

Inflation, as measured by the Honolulu Consumer Price Index, is expected to increase in 2021 to 2.5% from 1.6% in 2020 and remain above the 2% level for the next three years.