Hawai‘i’s Economy Continues on Favorable Path
According to the latest public edition of the University of Hawai‘i Economic Research Organization’s annual Hawai‘i Forecast with Asia-Pacific Outlook entitled Moderation Ahead as Business Cycle Matures, Hawai‘i’s economy remains on a favorable path, with record-high visitor numbers, record-low unemployment, and ongoing—if unimpressive—income gains.
As expected, the economy’s rate of expansion has slowed as the business cycle has matured, and risks to the external environment have increased. But at present there are no signs of an imminent downturn. Instead, further growth at a restrained pace is the most likely outcome for the next few years at least.
- The global economy is having its best year since 2011, boosted by the US fiscal expansion, healthy labor markets, and high business and consumer confidence. However, it appears that the cycle has now peaked. Early signs of slowing are apparent in a number of countries, and the downside risks are magnified by trade tensions, high debt levels, and volatile equity markets.
- The US economy will gradually slow from this year’s tax-supported growth pickup. Canada and Mexico are benefiting from US strength, and progress on a NAFTA replacement reduces the chance of escalating trade tensions within the region. In Asia, Japan’s economic prospects have softened recently, and labor force decline will hinder long-term performance. China’s economy, which was already on a slowing track, is feeling the effects of the US trade conflict. That spells trouble for the many trade-dependent developing economies in the Asia-Pacific region.
- Despite significant local damage from natural disasters, Hawaii’s tourism industry is having another record year, supported by a strong global economy, abundant airline seats, and ready access to non-traditional accommodations. Sufficient growth in industry capacity will accommodate incremental gains in visitor arrivals, but inflation-adjusted visitor spending growth will fall off over the forecast horizon.
- The dominant US market will remain the main driver of visitor growth, but gains will slow after this year’s strong showing. Shrinking population will keep a lid on Japan’s market share, and the recent oil price slump will weigh on Canadian arrivals. There are no signs of a pickup in the Chinese market, which has failed to grow as many had hoped. Still, emerging markets overall will account for a significant share of arrivals growth.
- Departure of a large number of military personnel and dependents suppressed population growth last year. Demographic factors are gradually slowing the pace of labor force expansion, which will limit gains in nonfarm payrolls to just over half a percent per year. The unemployment rate bottomed out in late spring, but labor market tightness will ease only gradually in coming years.
- Growth in personal income has been lackluster, despite the record low unemployment rate. Because of the prevalence of lower-wage jobs, per-capita income is falling short of the national average, and income inequality has also risen. Aggregate real personal income will continue to expand at a roughly 1% annual pace in coming years. Inflation will remain moderate, forestalling a significant erosion in purchasing power in the Islands.