UHERO forecasts a lagging Maui recovery and slower overall Hawaiʻi growth : Maui Now
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Maui’s economy will only gradually recover from its post-wildfire downturn while visitor industries in other counties across the state will continue to operate at high levels, according to the University of Hawaiʻi Economic Research Organization’s (UHERO) third quarter forecast for 2024.
The newly released forecast notes that Hawaiʻi’s trend growth is now slower than in past decades. That will continue to be the case because of limited population and labor force growth in coming years, according to UHERO.
The report notes that the aftermath of Maui’s wildfires continue to disrupt the local labor market. “Coupled with the Valley Isle’s ongoing housing crisis, this has driven some residents to leave,” the report states, noting that data on out-migration is extremely limited. “The county’s labor force has fallen by 5%, implying a loss of approximately 4,200 workers. When activity picks up, labor shortages will be a problem,” according to UHERO.
Housing affordability is a challenge across the islands, “but nowhere worse than on Maui,” the report states.
“Full Maui home rebuilding will take many years, and in the meantime rents have shot up,” UHERO notes. Economists note that uncertainty remains about the proposal to turn 7,000 short-term rental units into long-term housing. Meanwhile, condos across the state face a crisis in obtaining master policy insurance, prompting the state to intervene. Pending interest rate declines are expected to 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 report notes.
As for tourism, “the post-wildfire recovery on Maui has essentially stalled for now,” according to the UHERO report, and Maui hotels are seeing falling occupancy rates as displaced residents are moved to other housing. After stabilizing in 2025, statewide real visitor spending will be essentially flat through the end of the decade, UHERO reports.
Other takeaways from the Sept. 20 UHERO forecast include the following:
- 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. 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.
- Global economic conditions remain broadly favorable, with considerable variation across countries. The US has remained strong longer than expected, and disinflation progress and softer labor markets now set the stage for the first Federal Reserve interest rate cut. The Bank of Canada has already gone down that road, after the economy slowed significantly. Japan also slowed sharply in 2023, but forward-looking indicators are more positive. The Australian economy continues to languish, with less progress reducing inflation. China continues to underperform, reflecting a weak property market, stagnant consumer spending, and falling prices.
- After tracking UHERO’s forecasts for several years, the Japanese visitor recovery has slowed, and their number remains at roughly half their pre-COVID level. The weak yen has weighed heavily on daily spending. The currency has regained some lost ground as the Bank of Japan has begun to raise interest rates. Further appreciation should help to boost this market, although it will not play as large a role in Hawaiʻi as it has in the past. Visitors from other countries will add to growth.
- While the 2024 elections remain six weeks down the road, we can already evaluate the potential economic effects of major policy proposals. In Hawaiʻi, we also take a look at the effects of the recent substantial income tax cuts.
- Inflation has proven more persistent in Hawaiʻi than in the continental US, 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.
- Hawaiʻi has long seen dismal growth in per capita income, hampering our ability to attract in-migration of new families or to provide opportunities that would prevent out-migration of Hawaiʻi residents. As our society ages and young peoples’ preferences have shifted, the “natural” growth of the population from births being higher than deaths is ending. We will need net in-migration if we are to see significant future labor force growth sufficient to meet looming challenges.
- These long-term shifts make efforts like the recent Pre–K program expansion and childcare tax credits key to bolstering labor force participation. Even with such support, we see unfavorable demographics holding down long-term growth. Annual additions to the job base will drop toward 0.5%, and real income growth will decelerate to 1–1.5% over the next five years. Real gross domestic product will pick up to 2.8% in 2025, as the drag from soft overall tourism numbers eases and Maui rebuilding kicks into higher gear. Longer term, real per capita income growth will slow towards a trend of about 1% by 2029.
- 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 US economy into a recession. That would be bad news for a Hawaiʻi economy that is heavily reliant on tourism revenue and that needs companies to be able to undertake investment and expansion plans.
The full report is available online at: https://uhero.hawaii.edu.