Report predicts low 2024 economic growth rate due to fires’ recovery, projected global slowdown

The fourth quarter report of the Hawaiʻi State Department of Business, Economic Development and Tourism has revised its economic growth projections upward to 1.9% for 2023, but slightly lowered the economic growth rate to 1.3% for 2024 due mainly to the projected global economic slowdown and recovery from the Maui wildfires.

The increase for 2023, driven by the strong growth during the first half of the year. Data released by the US Bureau of Economic Analysis indicated that Hawai‘i’s economic growth during the first half of 2023 was at 2.4%, higher than the national growth at 2%.

But due to the Maui wildfires, the state expects that economic growth for the second half of 2023 will be at 1.4%.

Hawai‘i was hit hard by the COVID-19 pandemic in 2020 and 2021. By 2022, Hawaiʻi’s economy recovered to 95.8% of the 2019 level, while the U.S. economy has fully recovered and grown since 2021.

The current forecast indicates that Hawai‘i’s economy will be fully recovered to the 2019 level in 2025.

The Aug. 8, 2023 Maui wildfires have had a significant impact on the state’s economy, especially in Maui County.

Between August 2023 and October 2023, air travelers to Maui County decreased 51.4% compared to the same period in 2022, reflecting a 52.3% decrease in domestic flight visitors and a 41.3% decrease in international flight visitors. 

But visitor arrivals on the other major islands from August to October increased to offset most of the decrease on Maui, translating to an overall state decline of 6.2%. During the period, visitor arrivals increased 12.7% on Oʻahu, 6.5% on Kauaʻi and 1.9% on the Big Island.

During this time, spending by air travelers to the state was down 7% compared to the same three months in 2022. Spending by visitors by air to Maui County was down 41.4% during this period. Month-over-month, the visitor industry on Maui started to improve in October in terms of visitor days and expenditures.

During the three months between August and October, state general excise tax collection decreased 1.7% from the same period in 2022.

The job market performed better during the three months after the Maui wildfire, mainly due to the increase in visitors in other counties and the recovery of other industry sectors.

The number of unemployed persons (not seasonally adjusted) in Maui County increased by 87.1% for the period August 2023 through October compared to the same period in 2022. In October it was at 7.1%.

In terms of total payroll jobs, the state had a net gain in jobs every month during the first 10 months of 2023 as compared with the same months in 2022, though Maui County lost jobs since August. Other counties have been adding jobs and the increases have offset the decrease in Maui. 

In October, the unemployment rate (not seasonally adjusted) in the state was 3.1%, a half a percentage point lower than the national average. 

Average weekly initial unemployment claims were down to 1,183 during the month of November, slightly lower than the average weekly unemployment claims of 1,200 in 2019. The average weekly initial unemployment claims during the August-October 2023 period was 2,280, with about 60% of the claims coming from Maui County.

Another indicator of the labor market is the income tax withholdings from payroll. During the three months after the Maui wildfire, income tax withholdings on wages increased by 11 percent as compared with the same period a year ago.  

“The Maui wildfires have had clear impacts on our state’s economy,” said James Kunane Tokioka, director of the state economic and tourism agency. “DBEDT continues to work with federal, state and county agencies as well as private organizations, with an emphasis on recovery and rebuilding efforts to support the affected residents on Maui. We encourage everyone to support our local businesses and communities, especially during this holiday season.”

The impacts of the Maui wildfires on the state’s economic indicators for 2023 to date are mitigated by Hawai‘i’s strong economic performance through July 2023. Total visitor arrivals for the first 10 months of 2023 increased by 5.5% compared to the same period in 2022 and represent 93.4% of the 2019 level.

Domestic visitor arrivals by air during this period decreased 3.6% compared to the same period of 2022, however, international visitor arrivals increased 56.1%. Total visitor expenditures for the first 10 months of 2023 increased 7.1% relative to the same period in 2022.

“While we see visitor arrivals from the U.S. mainland continue weakening, we expect international arrivals will pick up in 2024,” Kunane Tokioka said. “During my recent visit to Japan with Gov. Josh Green, we were encouraged by leaders in both the government and private sectors that travel to Hawai‘i will increase in the near future.”

Hawai‘i’s consumer inflation, as measured by the Urban Hawaiʻi consumer price index, averaged 3% during the first nine months of 2023, higher than the 1.7% experienced during the same period in 2019, but much lower than the national level of 4.4%.

As a comprehensive measure of economic activity, general excise tax revenue collections increased by 5.1% in the first 10 months of 2023 compared to the same period in 2022.

The near-term outlook for construction is favorable. In the first 10 months of 2023, the average level of construction jobs increased 2.4% over the same period of 2022 and exceeds the average level in 2019 by 0.9%.

Several large construction projects were approved during the November 2022 to October 2023 period, including three affordable housing projects, three large-scale renewable energy projects and five large hotel projects.

Among the projects approved for Maui are the Kuihelani Solar + Storage Project ($26.3 million), Maui Bay Villas ($76.2 million), Grand Wailea ($36.3 million), a new hotel planned for the old Maui Palms site in Kahului ($34.8 million) and Kapalua Bay Villas ($32.2 million).

Government contracts awarded in the state over the first nine months of 2023 totaled $4.3 billion, close to the amount awarded over the same period in 2022. The value of government contracts awarded during the first nine months of 2022 and 2023 set records and were the highest since at least 1960. The largest government contract awarded during the past 12 months was the Navy shipyard improvement project at Pearl Harbor valued at $2.8 billion.

According to the November 2023 economic projections by the top 50 economic forecasting organizations published in Blue Chip Economic Indicators, U.S. economic growth is expected to be 2.4% in 2023 and 1.2% in 2024.

These growth rates exceeded prior expectations as strong consumer spending and inventory investment led to a much higher than expected third quarter increase in seasonally adjusted real gross domestic product. But it is expected to slow in the fourth quarter of 2023 and through 2024.

Following seven interest rate hikes in 2022 and four interest rates hikes in 2023, with the last rate increase in July 2023, the Federal Reserve left interest rates unchanged at its last two meetings. Seventy-nine percent of the economists in the Blue Chip Economic Forecasting panel believe that the Federal Reserve will not increase interest rates further. Eighty-six percent of the economists believe that the first rate cut will not occur until the second quarter of 2024 or later.

While the state continues to recover, more residents may decide to move out of state. Hawai‘i’s declining population continues to be a concern.

Labor force growth slowed over the last three quarters of 2023 and began to decrease in the third quarter. The shortage of labor remains a challenge for Hawai‘i’s economy.

Although it appears that the Federal Reserve may not increase rates further, interest rates and mortgage rates may remain high for some time. This will cause sales in the real estate market to remain low. The number of home sales in the first nine months of 2023 decreased by 32.1% compared to the same period of 2022.

Bankruptcy filings continue to increase. In the first three quarters of 2023, bankruptcy filings increased by 9.8% compared to the same period in 2023.

In 2024, economic growth is expected to reach 1.3% for the state, increasing to 1.9% in 2025 and 2% in 2026 as reconstruction activities on Maui begin.

Total air seats from international destinations are expected to increase by 22.4% during the next three months (December to February 2024), with scheduled air seats from Japan expected to increase by 60.8%. Total scheduled air seats from all sources are expected to increase by 0.5% during the next three months.

Non-agriculture payroll job counts are expected to increase by 1.6% in 2024, 1.6% in 2025 and 1.4% in 2026.

The state unemployment rate is expected to be at 3 in 2023, improving to 2.8% next year.

Personal income is expected to grow by 4.5% in 2023, higher than the projection made in the previous quarter. Personal income will grow by 3.8% in 2024, 4% in 2025 and 4.2% in 2026.

As measured by the Honolulu Consumer Price Index for Urban Consumers, inflation is expected to be 2.8% in 2023, which is still lower than the projected U.S. consumer inflation rate of 4.1% for the same year. Hawai‘i consumer inflation is expected to decrease to 2.2% by 2026.

Hawai‘i’s population is expected to decrease by 0.2 percent in 2023, decrease by 0.1 percent in 2024, and increase by 0.1 percent in 2025 and in 2026.