Economic bottom line: ‘Buckle up for the years ahead’

Hawaiʻi’s economic expansion continues, but slowly.

According to the University of Hawaiʻi Economic Research Organization’s fourth quarter forecast for 2024, the incoming Trump Administration introduces broad uncertainty into the outlook.

Because of uncertainty surrounding Trump Administration policies — and Congressional and legal challenges — the economists at the organization are adopting policy assumptions of limited magnitude.

The Tax Cuts and Jobs Act will be extended, and the corporate tax rate will be reduced.

Tariff hikes will be more limited and targeted than many expect, resulting in a 5 percentage point increase in the effective tariff rate. Other countries will retaliate with similar tariff hikes.

Trump and his administration will be able to reduce the number of unauthorized immigrants by 350,000 people per year through deportations.

Those policies — as a whole — will provide a moderate near-term U.S. economic boost, but result in higher inflation and slower growth in the medium term.

Hawaiʻi will also see a short-term boost to mainland tourism and local income, but there will be medium-term supply challenges and the state will see an uptick in inflation just as the mainland.

State tax cuts will provide local support, and Maui rebuilding will add to an already buoyant construction cycle even as home affordability woes continue.

Here are some other key takeaways from the economic forecast.

Hawaiʻi tourism, which flattened this year, will show modest improvement in 2025 as visitor arrivals expand nearly 3%:

• Mainland travel will strengthen, aided by federal tax cuts, but international markets might suffer from trade tensions and a stronger dollar.
• Tourism revenue will be constrained by stagnant per-person spending.

Maui’s recovery continues to face challenges:

• Visitor numbers remain subdued, with occupancy rates at historic lows and labor force participation constrained by post-wildfire disruptions and outmigration.
• Maui has regained more than half of the jobs lost to the wildfires, but employment remains well below pre-fire levels.
• Rebuilding efforts will provide ongoing support, but a full tourism recovery is years down the road.

Hawaiʻi’s overall labor market has softened, with statewide job growth just more than a half-percent this year:

• Job gains have been uneven throughout the counties, with Oʻahu and Hawaiʻi County outpacing Maui and Kauaʻi.
• With the direct negative wildfire effects now behind the state, Maui job growth will turn upward in 2025, while labor market gains will slow statewide.
• Long-term job growth will be limited by an aging population and a slow-growing labor force.

Construction activity remains a bright spot, supported by government contracts and Maui rebuilding efforts:

• Resource constraints and escalating costs are a concern for the industry.
• Employment in the sector will peak in early 2026 before this building cycle begins to wane.

Housing affordability continues to deteriorate:

• The median price of a single-family home is up 9% statewide and 15% on Maui this year, and mortgage rates hover near 7%.
• Rising homeowner insurance premiums, driven in part by climate risks, are another headwind to housing affordability and housing market recovery.
• These challenges are compounded by slow progress in addressing Maui’s post-fire housing needs.

Honolulu inflation remains elevated, as higher housing costs finally feed through to the consumer price index:

• While a slight moderation is expected in 2025, higher U.S. tariffs and deportation actions will push inflation higher in the medium term, eroding to some extent real income gains for households.

The outlook remains largely in line with the previous forecast, but policy uncertainty adds significant risks.

Trade and immigration policies that are much harsher than we currently assume could have broader negative fallout in Hawaiʻi.

“The bottom line is that despite a steady local forecast path so far, we should buckle up for the years ahead,” said the organization in its fourth quarter outlook.