UHERO Economic Forecast For First Quarter of 2022 Optimistic
A University of Hawaiʻi organization is optimistic about the state’s economic recovery from the COVID-19 pandemic, predicting a broader recovery in the first several months of 2022 in its March report.
The University of Hawaiʻi Economic Research Organization in a press release provided a relatively upbeat economic forecast for the first-quarter of 2022 following the end of the Omicron variant surge, with improving labor market conditions and the anticipated return of international visitors.
“The path ahead appears clearer, but there remain big risks,” according to UHERO.
The expected transition of the virus to an endemic disease sets the stage for easing of travel restrictions and the long-awaited return of international visitors, according to UHERO. However, considerable risks remain, including COVID surprises, Federal Reserve tightening and economic fallout from the Russian invasion of Ukraine.
The Omicron wave of the COVID pandemic dealt a blow to global growth. The rapid retreat of this wave and likely evolution to endemic status are good news, said the press release. Still, lingering struggles with the virus, the weight of fiscal retrenchment and ongoing supply and price pressures have moderated the outlook for 2022.
Russia’s invasion of Ukraine and the resulting international sanctions add new uncertainty to the U.S. and global outlook.
Hawaiʻi’s visitor industry recovery was halted by the Delta variant wave of the pandemic in summer 2021, and the Omicron variant caused another setback at the end of the year. According to the UHERO press release, bookings by U.S. visitors have bounced back to their pre-pandemic pace, although bookings by Asian visitors remain essentially zero.
While there are concerns about the recent surge of COVID-19 in some Asian countries, UHERO expects travel restrictions to ease in coming months, permitting a significant return of international visitors. After a weak start to the year, UHERO forecasts arrivals to surpass last summer’s peak by the second quarter of 2022 and reach 90% of their pre-pandemic level by the year’s end. Visitor numbers are expected to reach 9.5 million in 2023.
The pandemic has had unusual effects on labor markets, including record rates of business formation and a surge in worker absences. Job recovery in Hawaiʻi, which was proceeding at a healthy clip, paused after the Delta wave hit. UHERO expects employment gains to resume this year, although a reduced labor force and lagging tourism will delay a full recovery.
Hawaiʻi home prices also surged 18% last year, roughly in line with the U.S. overall. Higher prices and rising mortgage rates will further erode housing affordability throughout the islands, according to the economic research organization. Initiatives to address affordability are ongoing at the state and local levels.
Robust construction activity continues. Federal spending under Hawaiʻi’s share of a massive $8 billion Navy contract and the Infrastructure Investment and Jobs Act will support the industry in coming years. The possibility of a moratorium on new water meters because of the Red Hill water crisis, however, is a concern for new residential development on O’ahu.
The state’s payroll base will also see increasing gains as the year progresses and expand by 4.5% for the year as a whole. By 2023, job growth will have absorbed most of the slack in the labor market, driving the unemployment rate down to 3.3%.
Income growth in Hawaiʻi, which has been supported by extensive federal stimulus, unfortunately will take a hit this year as the direct support to families ends. Real personal income is forecast to drop 4.7%; however, UHERO said gains in employment and wages will enable the beginning of income recovery as the year progresses.
Despite gains, COVID-19 still has the capacity to be very disruptive, the press release said. Federal Reserve interest rate hikes could cause more slowing than desired, and Russia’s invasion of Ukraine could cause higher energy costs and slower global growth, which would impact Hawaiʻi tourism and local inflation.
Read more of the report on UHERO’s website.