Personal income is expected to contract amid a weak labor market this year, UHERO forecasts

A shrinking population and a weak labor force will constrain Hawaii’s economy this year and cause inflation-adjusted personal income growth to slow along with broader measures of economic health.

That was the opinion of University of Hawaii Economic Research Organization Executive Director Carl Bonham, who discussed UHERO’s second-quarter forecast Thursday during a news conference.

UHERO expects Hawaii’s real personal income will slow below 1% this year and that real gross domestic product will drop from 3.6% growth in 2023 to 1.5%. GDP is the inflation- adjusted calculation reflecting the value of all the goods and services produced by an economy in a given year, so a decrease signals that an economy is shrinking.

Meanwhile, UHERO has raised its inflation forecast for the year to over 4% and is anticipating that the payroll job situation and tourism will be a bit worse than previously anticipated.

While UHERO is forecasting a slowdown, Bonham said its second- quarter forecast is “not dramatically different” from its first-quarter forecast.

“This is a reasonably optimistic report in the sense that I think things could be a lot worse given the complete pause in recovery on Maui for tourism and that being the primary source of weakness statewide,” he said.

Bonham said UHERO expects Hawaii’s economy will see some economic benefits from the rebuilding of Maui after the Aug. 8 wildfires, construction across the state and the slow recovery of international visitors to help offset the moderate pullback in domestic visitors. However, the downturn on Maui and the decline in international visitors across the state have continued to take a toll.

“As we have this weakness in the U.S. market with passengers and arrivals that are below where they were in 2023, we need to see that continued recovery particularly of Japan but other international markets, too,” Bonham said. “Total visitor arrivals are down 5% through March, and we know visitor spending is suffering. We think visitor spending for the whole year is going to be down about $ 1 billion, and then a gradual recovery thereafter.”

Bonham underscored the importance of international visitor arrivals, particularly from Japan, continuing to recover and offset weakness in arrivals from the mainland. He added that the economies of Hawaii’s major international markets are facing a strong dollar as they are weaker than the U.S. economy, which grew more than 4% in the second half of 2023.

“Overall, our primary international markets are dealing with about a 15% drop in their purchasing power,” Bonham said. “So that means even as they slowly return in numbers, their spending is going to be constrained, and so that acts as sort of a drag and not as much growth as we might have expected otherwise.”

Bonham said inflation also has picked up in the islands and now exceeds the national average. He said rising inflation in the islands is primarily due to “a delayed pass-through of higher rents.”