Hawaii economists ‘upbeat’ despite rising costs

Labor market improving, visitor arrivals increasing in tourism-reliant state

Economists are “relatively upbeat” about Hawaii’s future, which includes better labor market conditions and businessand travel-related gains, though rising costs of gas as well as a drop in income growth might slow progress.

With the COVID-19 pandemic slowly fading away as more resources and mitigation strategies become available, the University of Hawaii Economic Research Organization forecasts a broader economic recovery for the state.

“Our outlook for Hawaii is relatively upbeat. The anticipated retreat of COVID-19 will clear the way for a more complete visitor industry recovery,” UHERO said in its first-quarter report, which was published Sunday. “The easing of COVID-related restrictions, and of public concern about infection risk, will also support recovery.”

Despite the positives, economists are not closing the door on COVID-19 and its abilities to be disruptive just yet, and Russia’s invasion of Ukraine could cause higher energy costs and slower global growth, which would impact Hawaii tourism and local inflation rates.

Visitor industry takes flight

The two waves of COVID19 variants — delta and omicron — since last summer caused “a pullback” in Hawaii tourism and a pause in labor market recovery, but it’s safe to say that domestic travel and the visitor industry is bouncing back.

After a slow start to 2022, arrivals to Hawaii are now projected to surpass the 2021 summer peak by the second quarter and reach more than 8.7 million visitors total — 90 percent of the pre-pandemic level — by the end of the year due to the lessening of restrictions and the anticipated drop of the Hawaii Safe Travels program for domestic travelers, which required proof of vaccination or a negative COVID-19 test prior to traveling.

Visitor arrivals are forecast to reach 9.5 million in 2023. To compare, Hawaii welcomed nearly 6.8 million visitors last year, which is about two-thirds of the numbers seen at the 2019 peak.

Still, bookings by Asian visitors remain at zero. The number of visitors from Canada has slightly improved since the summer, reaching 5 percent of all visitors in December.

Gov. David Ige announced last week that the Safe Travels program will remain in effect for international travel.

“While we are concerned by the recent surge of COVID-19 in some Asian countries, we expect travel restrictions to ease in coming months, permitting a significant return of international visitors,” UHERO said.

Domestic visitor arrivals by air into Maui County are forecast to increase to around 2.9 million arrivals by the end of this year, which is about a 26 percent rise from the 2.3 million arrivals last year. In the early stages of the pandemic, total air arrivals to Maui County in 2020 were just over 800,000.

A small 3 percent jump is forecast for 2023 in Maui County.

The number of visitor days in the county are also anticipated to increase about 17 percent to 23,906 days in 2022, drop by 0.7 percent in 2023, and then see no significant changes thereafter.

The report states that hotels and other accommodations in Hawaii are “still struggling and recovering” since the pandemic, but the demand for rooms and surging room prices have raised revenue returns, with the biggest gains on the Neighbor Islands, according to the report.

Maui County occupancy rates should reach 72.7 percent this year, an increase from last year (59.9 percent) and in 2020 (27.9 percent).

Hawaii home prices surged 18 percent last year, too.

Higher prices and rising mortgage rates are being addressed on the state and county level to bring back more affordable opportunities. Maui County, for example, has been tackling an affordable housing goal of building 5,000 rental and for-sale units over the next five years, with 36 “priority projects” already drafted that would account for over 4,000 units.

Fueling up is getting costly

Energy prices have also surged in recent months, with oil pushing to its highest level since 2014, UHERO said.

According to the American Automobile Association, Maui County’s current average gas prices are $4.69 per gallon for regular fuel and $5.16 per gallon for premium. A year ago, it was $3.50 and $3.91, respectively.

Now with Russia invading Ukraine, UHERO said this could push oil and gas prices even higher, as well as increase prices for economic goods and materials.

“While at present these events appear unlikely to derail Hawaii’s recovery, we will of course be tracking them closely in coming weeks,” the report said.

For Hawaii, higher energy costs could impact airfares and local inflation rates, which are anticipated to hit 5.5 percent this year, an increase from 3.9 percent in 2021 and 1.6 percent in 2020. Weaker global economies could also impact tourism, UHERO said.

With energy and other raw material cost pressures, this will keep near-term inflation above normal, the report said. Supplyside issues are expected to ease over the coming year, which is projected to return overall U.S. inflation to the 3 percent range by 2023 and drop back to 2 percent the following year.

Jobs are recovering, income not so much

The pandemic has had “unusual effects” on labor markets nationwide, including recordhigh rates of business formation, a surge in worker absences, high rate of retirements and changes in career paths, UHERO said.

Job recovery in Hawaii is at an incline this year as business stabilizes, although a smaller labor force and lagging tourism industry will cause some delay.

The reports are optimistic, though.

“Just as the loosening of travel restrictions will boost tourism, locally the extension of vaccinations and acquired immunity will reduce COVID19 concerns and permit a return to more normal patterns of work, shopping and recreation,” the report said.

By 2023, job growth will have absorbed most of the slack in the labor market, driving the unemployment rate down to 3.3 percent statewide. The state’s payroll base will see slow, but increasing gains as the year progresses and expand by 4.5 percent for the year as a whole, according to UHERO.

Maui County’s employment rate is forecast to drop down to 5.9 percent this year, an improvement from 10.3 percent in 2021 and 18.1 percent in 2020.

Total income growth for the counties, however, is expected to take a hit. Throughout the pandemic, the state was supported by extensive federal stimulus and unemployment claims that have since ended.

By December, the U.S. had recovered nearly 86 percent of jobs lost during the pandemic, while Hawaii had recovered just 57 percent of lost jobs.

Real personal income will drop 4.7 percent this year for the state. Maui County’s real personal income is estimated to drop from about $8.8 million in 2021 to about $8.5 million this year, a reduction of 4.3 percent — declines come from those who work in health care or assistance services and government, according to the report.

Kauai County is forecast to drop by 5.3 percent, Hawaii County by 6.2 percent and Honolulu County by 4.5 percent.

But, financial gains in employment and wages will enable the beginning of income recovery as the year progresses.

Maui County will see more jobs added to the market in several industries, including accommodation and food (15.7 percent); transportation and utilities (11.6 percent); finance, insurance and real estate (6.7 percent); manufacturing (4.3 percent); construction and mining (2.4 percent) and more.

“In many ways the path ahead appears clearer than it has in a long time,” UHERO said. “COVID-19 is receding as a forecast risk, in part because the disease appears set to become a manageable endemic risk, rather than a debilitating pandemic.

“Economic impacts from limited flare-ups are also lower, because people are now less likely to interrupt normal activities because of the virus, and because the political will to reimpose restrictions has clearly ended.”