Hawai‘i’s Economy to Grow at Slower Pace
The Hawai‘i Department of Business, Economic Development and Tourism (DBEDT) released its third quarter 2017 Statistical and Economic Report, which shows Hawai‘i’s economy continues positive growth but at a slower pace.
After two years of consecutive growth above 2%, Hawai‘i’s economy, as measured by the real (inflation adjusted) gross domestic product (GDP), grew by 0.9% during the first quarter of 2017, according to data released by the U.S. Bureau of Economic Analysis. This is the lowest quarterly growth rate since the first quarter of 2015.
“Hawai‘i’s economic fundamentals are still positive, although growth has slowed down,” said DBEDT Director Luis P. Salaveria. “We have the second lowest unemployment rate in the nation during the first half of 2017, and our visitor industry is performing well, with 4.6 million visitor arrivals during the first half of the year.”
There were 7,200 non-agriculture payroll jobs added during the first half of 2017, 78% of them were added by tourism related industries such as accommodation, food services, retail trade and recreation.
Labor force and employment created new record high levels and non-farm payroll jobs showed a historical best in the first six months of 2017.
In addition, Hawai‘i’s unemployment rate (not seasonally adjusted) was the second lowest among all the states in the nation. Visitor arrivals increased 4.3% and visitor expenditures jumped 8.7%.
Hawai‘i’s economic growth, however, is not evenly allocated. There are still a few industries that lost jobs during the first half of 2017. Construction lost 500 jobs, manufacturing and health care each lost 400 jobs and the wholesale trade lost 300 jobs.
The job loss in construction is mainly due to the decrease in the value of building permits issued during the first half of 2016, which usually shows about one year from the time building permits are issued and the start of construction. During the first half of 2016, the total value of private building permits decreased by 29.6% from the same period in 2015. That decrease is reflected in actual construction activities in the first half of this year.
After five years of continuous job growth, the manufacturing industry started to lose jobs since the fourth quarter of 2016, and during the first half of 2017, this industry lost 2.9% of its jobs from the same time a year ago. Compared with the job count from 1990 in the manufacturing industry, the first half of the 2017 job count was 66% of what it was then.
Wholesale trade is another industry struggling during this business cycle. In its peak year of 2008, this industry had 18,750 payroll jobs. During the first half of 2017, this industry averaged 17,400 jobs. Wholesale trade is one of the industries that hasn’t recovered to its pre-recession job level.
The private healthcare and social assistance sector had been continuously adding jobs for the last three decades, however, this sector started to lose jobs since the first quarter of this year. Though the magnitude is small, this is the first showing of a decrease in these areas since 1996.
As an indicator of the unparalleled growth across the industries, initial unemployment claims increased by 1.7% during the first seven months of 2017.
The good news in the construction industry is that the value of private building permits increased 15.6% during the first half of 2017. The value of residential permits increased 32.8%, commercial and industrial permit value increased 120.1% and value of additions and alterations decreased by 14.2%. The increase in building permit value will be reflected in construction activities next year.
The most recent economic forecast for the U.S. and the world indicates that most of the economies of the world, especially those where our visitors are coming from, will experience continued economic growth in 2017 and 2018. The U.S. economy is expected to grow by 2.2% in 2017 and 2.4% in 2018. Both are higher than the growth rate of 2016.
The DBEDT revised the visitor industry forecast upwards with visitor arrivals now growing at 3.2% for 2017, 1.4% for 2018 and 1.5% for 2019 and 2020. Visitor expenditures will be at 6.5% for 2017, 2.2% for 2018 and 3.6% for 2019 and 2020.
Projections on Hawai‘i’s economic growth were lowered for 2017, from 1.9% projected in the previous quarter to 1.4%, and between 1.3% to 1.5% between 2018 and 2020.
“The increase in visitor spending is mainly due to the price increase. For example, during the first half of 2017, hotel room rates increased 6%. Apparel prices increased 5.8% and gasoline prices increase 20.4%. Visitors spent much of their money on these items while visiting Hawai‘i,” said Chief State Economist Dr. Eugene Tian. “When calculating the economic growth, the price effect is removed, so you end up seeing the visitor industry booming, while economic growth is slowing down. The real growth in the tourism industry is not large enough to offset the downturn of the few industries.”
The DBEDT kept its projection on non-farm payroll job count unchanged at 1% in 2017 and falling to 0.8% in 2020. The unemployment rate projection is also kept unchanged at 2.9% in 2017 and will gradually increase to 3.4% by 2020.
The nominal personal income growth rates were lowered from the previous quarter, forecast in the neighborhood of 3.3 and 3.5%. Real personal income projections were also revised downward to below 2% for the next few years.
The DBEDT kept its projections on the Honolulu consumer inflation rates unchanged from the forecast in the previous quarter at 2.5% for 2017, and 2.3% for the outer years. Consumer inflation rate for Honolulu during the first half of 2017 was 2.5%.
The DBEDT Quarterly Statistical and Economic Report contains more than 120 tables of the most recent quarterly data on Hawai‘i’s economy as well as narrative explanations of the trends in these data.
The full report is available online.