UHERO report: Hawaiʻi’s economy holding steady, but limited population growth a concern

While Maui’s tourism and overall economy continues to struggle during the long recovery from the August 2023 wildfire that destroyed much of Lahaina, the rest of Hawaiʻi’s economy is “holding up better than you might have expected” with the visitor industry maintaining strong levels and “broadly favorable” conditions in other parts of the economy.

This analysis is according to Carl Bonham, executive director of the University of Hawaiʻi Economic Research Organization. Today, UHERO released its third quarter forecast for 2024.

“When you look at the economy of the state, there’s sort of these two different stories,” Bonham said.

But throughout the state, Hawaiʻi’s current growth trend is slower than in past decades — and it is expected to continue to be slow due to limited increases in population and the labor force in coming years, the report said.

“Look really long-term … and all the islands, the whole state, faces a pretty serious challenge from the demographics,” Bonham said.

As society ages and people from younger generations are having fewer children, the report said the ‘natural’ growth of the number of births being higher than deaths is ending.

Dismal growth in per capita income over the years also has hampered Hawaiʻi’s ability to attract new families and working people to relocate to the islands or provide opportunities to prevent Hawaiʻi residents from moving out of state.

Hawaiʻi will need net in-migration to increase the labor force enough “to meet looming challenges,” the report said.

Hawaiʻi is one of only four states, along with Washington, D.C., that has not recovered the number of jobs it had in February 2020, just before the COVID-19 pandemic shut down much of the country and the world.

Hawaiʻi is still down 3.5% in total jobs from pre-pandemic levels. Only the Nation’s Capital is down a higher percentage of jobs, at 4.2%. Louisiana (-1.5%) and  Maryland (-.5%) are the only other states to have not fully recovered its employment market.

Bonham said even without Maui’s disaster, which is the primary reason for the island’s current loss of more than 4,000 jobs since the fires, Hawaiʻi’s job count would still be below pre-pandemic levels at 2.8%. And had Maui experienced the same 1.5% job growth as the rest of the state, Hawaiʻi’s jobs would be -2.7% from February 2020.

“Labor conditions in the rest of the state were largely unaffected in the fires’ aftermath, but there has been some statewide slowing of job growth since the middle of last year,” the report said. “This has eased an unusually tight labor market, although some businesses still face hiring difficulties. Job growth for many industries was weak this year, but will strengthen a bit in 2025.”

However, Bonham said: “The interesting thing to me is that Big Island and Kauaʻi actually are doing better in terms of population and labor force growth than any other island.”

The Big Island and Kauaʻi are the only counties in the state that are forecast to have a positive population growth over this decade, 2020-2029.

It’s not because both islands are having more babies compared to deaths. Bonham said it’s because more people are relocating to the Big Island and Kauaʻi than moving away.

“One of the things it tells you is that the conditions on the ground are perceived to be conducive for people to want to live there,” Bonham said. “Obviously, that could just be that, like on the Big Island, it’s relatively more affordable to buy a house.”

Bonham said UHERO is not advocating for a “mass in-migration to Hawaiʻi.” But workers are needed to grow the state’s economy.

Other takeaways from the report, according to UHERO:

• Pending interest rate declines will give the home resale market a lift. Overall construction will continue at a high level, supported by Maui rebuilding, other housing development, and the huge federal military projects. (The Federal Reserve on Wednesday lowered the interest rate by 0.50 percentage points in the first cut since 2020).

• Hawaiʻi stands to benefit as the Fed cuts interest rates over the next few years. But there is a risk that the Fed has waited too long to begin cuts, and that slowing already in the pipeline— and related financial fallout — might tip the U.S. economy into a recession. That would be bad news for an Hawaiʻi economy that is heavily reliant on tourism revenue and needs companies to be able to undertake investment and expansion plans.

• Inflation has proven more persistent in Hawaiʻi than in the continental United States because of a slower feedthrough of rents into the consumer price index. But pay raises have exceeded non-shelter inflation so that real purchasing power for many Hawaiʻi residents has grown. Total real personal income will rise 1.4% this year, with a slightly stronger gain in 2025.

• Housing affordability is a challenge across the islands, but nowhere worse than on Maui. Full Maui home rebuilding will take many years, and in the meantime rents have shot up 40 to 50% since January. There remains uncertainty about Maui’s proposal to turn 7,000 short-term rental units into long-term housing.

• Condos across the state face a crisis in obtaining master policy insurance, prompting the state to intervene. Pending interest rate declines will give the home resale market a lift. Overall construction will continue at a high level, supported by Maui rebuilding, other housing development, and huge federal military projects primarily on Oʻahu.