Hawaii Economy at Slower Growth in 2020, Improvements in 2021

Posted on Mar 12, 2020 in News

For Immediate Release: March 12, 2020

HONOLULU—The Department of Business, Economic Development and Tourism (DBEDT) released its first quarter 2020 Statistical and Economic Report today. In the report, DBEDT lowered Hawaii’s economic growth forecast for 2020 to 0.5 percent from the 1.2 percent projected in the 4th quarter of 2019. The forecast was revised downward mainly because of the COVID-19 outbreak that started in January 2020.

After declined growth in 2020, DBEDT expects that the economic growth rate will increase to 1.5 percent in 2021 before leveling to 1.3 percent for 2022 and 2023.

The COVID-19 outbreak impacted Hawaii’s tourism significantly since late February. Due to the additional day associated with leap year, total passenger count in February increased 7.5 percent. Passengers on flights from the U.S. mainland increased 12.1 percent and those on international flights decreased 5.2 percent. However, passengers from international flights decreased 33.1 percent during the first 11 days of March and passengers that arrived on flights from the U.S. mainland decreased 0.8 percent during the same period. The total passenger count decreased by 8.4 percent.

A few airlines have announced temporary suspension of flights to international destinations. China Eastern airlines ceased Shanghai-Honolulu operations since early February this year. Hawaiian Airlines suspended Seoul-Honolulu flights between March 2 and April 30, 2020. Hawaiian Airlines will temporary suspend the three weekly flights between Tokyo’s Haneda and Kona, as well as the four flights per week from Haneda to Honolulu between March 28 and April 29. Delta Airlines has reduced the daily flights from Nagoya-Honolulu and Osaka-Honolulu to three flights a week effective March 7 to April 30. United Airlines will cancel the Sunday flights from Guam to Honolulu between April 5 and April 26.

With all these changes, DBEDT expects that visitor arrivals for 2020 will decrease by 3.3 percent for 2020 to 10.1 million visitors. Visitor expenditures will decrease by 3.8 percent in 2020 due to lower daily spending. Both visitor arrivals and expenditures will recover in 2021 with 4 percent increase in arrivals at 10.5 million and 4.4 percent increase in expenditures at $18 billion.

Current airline schedules still show that total air seats to Hawaii will increase by 6.0 percent in 2020 after adjusting the flight changes due to the breakout of the COVID-19. In 2019, total air seats to Hawaii increased 2.9 percent and visitor arrivals increased 5.4 percent.

The U.S. economy is still on an expansion path. As of March, the expansion is in its 129th month of continuous economic growth. This expansion is the longest in U.S. history and Hawaii’s economy has been following the U.S. business cycle since 2000. 59.7 percent of Hawaii visitors were from the U.S. mainland in 2000 and that number increased to 66.9 percent in 2019.

According to an estimate by the U.S. Bureau of Economic Analysis (BEA), Hawaii’s economy grew by 1.1 percent during the first three quarters of 2019 while the U.S. economy growth was 2.3 percent during the same period.

In its March 10, 2020 report, Blue Chip Economic Indicators (the consensus of 50 economic forecast organizations), the U.S. economic growth rate projection for 2020 has been revised downward slightly from 1.8 percent in its November 2019 report to 1.7 percent in the March 2020 report. For 2021, the consensus for the U.S. economic growth was at 2.0 percent. Most countries in the world will experience slightly slower growth in 2020 but better growth in 2021. The economic forecast organizations noted the coronavirus as a significant risk for growth but did not take into consideration the impact in the February 10, 2020 economic forecast for most of the countries.

“We face a globally driven COVID-19 event that is dynamically evolving,” said DBEDT Director Mike McCartney. “We remain focused on controlling and preventing the spread in our state. At the same time we are planning for a recovery action plan when Hawaii’s communities are ready and the visitors in our major markets are ready to visit Volatility in the market will likely continue until COVID-19 becomes controlled.”

On the fiscal year basis (fiscal year 2020 started in July 2019), the state general fund tax revenue increased 7.5 percent during the first eight months of fiscal year 2020. On a calendar year basis, state general fund revenue increased 6.2 percent in calendar year 2019. The annual average growth for the general fund revenue during the past 20 years (calendar year 1998-2018) was 4.5 percent. General excise and individual income taxes accounted for more than 85 percent of the state general fund revenue.

“The $858.9 million tax collection in the state general fund in January 2020 was the record high monthly level in Hawaii’s history. Since tax filing lags the activity by a month, the tax increase in January 2020 reflected the economic activities of December 2019,” said State Economist Eugene Tian. “Due to the additional day in February this year and the strong visitor growth in February, tax revenue collection in March this year is expected to be good.”

The lower pace of Hawaii’s economic growth projection also came from a few areas that show slowing or negative growth. Among them is the value of private building permits issued during 2019. The value of private building permits decreased 1.4 percent in 2019, indicating a slowing down in private construction activity in 2020. The value of residential permits decreased by 13.2 percent; the value of commercial and industrial permits decreased by 12.3 percent. Although the value of additions and alterations permits increased by 12.7 percent, it could not offset the decrease in other two categories. However, additions and alterations accounted for 51.4 percent of the total private building permit value. It is expected that more construction activities will be in this category.

The total residential units permitted during 2019 decreased by 1,252 units or 26 percent.

Value of government contracts awarded also decreased by 69.5 percent in 2019, however, this may not indicate a decrease in government construction since government contracts usually take multiple years to complete. The contracts awarded few years ago may still be in construction this year. Government contracts awarded peaked in 2018 with $1.9 billion worth of projects awarded. Also, some of the government projects are waived from the bidding process and are not in the awarded data.

The good news in the construction area is that, after a few decades of planning, the Koa Ridge project started applying for building permits in mid-February to prepare for the site.

Statewide volume of home sales during 2019, including the ones through multiple listing services and the ones by other means, decreased 1.5 percent from 2018. The decrease was mainly due to the decline of condominium home sales at 7.3 percent while single family home sales increased 6.4 percent. The decrease in home sales in 2019 was mainly due to the out-of-state buyers. Home sales to local residents actually increased by 1.9 percent. Mainland buyers decreased by 5.3 percent and foreign purchases decreased by 41.8 percent.

According to data released by the BEA, Hawaii’s personal income increased 3.3 percent during the first three quarters of 2019, lower than the growth rate of previous 5 years (2014-2018) which averaged 4.5 percent per year.

Honolulu inflation rate as measured by the Consumer Price Index for Urban Honolulu Consumers was 1.6 percent in 2019, lower than expected, mainly due to a decrease in energy prices. Crude oil price as measured by the New York Mercantile Exchange WTI future price decreased by 11.9 percent in 2019 as compared with 2018.

The forecasts for nominal personal income also revised downward from the previous quarter projection. However, due to the lower inflation rate projection, real personal income growths are higher in the current projection at about 1.9 percent, higher than the 1.5 percent to 1.7 percent as projected in November 2019.

Projection for payroll job growth is now at -0.2 percent for 2020 and 0.4 percent for the next few years.

The DBEDT Quarterly Statistical and Economic Report contains 136 tables of the most recent quarterly data on Hawaii’s economy as well as explanations of the trends in these data.

The full report is available at: dbedt.hawaii.gov/economic/qser.

Economic Indicators 2018 2019 2020 2021 2022 2023
Actual Forecast
Total population (thousands) 1,421 1,416 1,419 1,422 1,426 1,430
Visitor arrivals (thousands) 1/ 9,889 10,425 10,081 10,484 10,673 10,844
Visitor days (thousands) 1/ 88,285 90,892 87,562 90,898 92,321 93,581
Visitor expenditures (million dollars) 1/ 17,643 17,890 17,211 17,972 18,344 18,689
Honolulu CPI-U (1982-84=100) 277.1 281.6 286.4 291.6 297.2 303.0
Personal income (million dollars) 2/ 78,721 81,513 83,796 87,148 90,372 93,716
Real personal income (millions of 2012$) 3/ 61,937 63,218 64,427 65,714 66,972 68,241
Non-agricultural wage & salary jobs (thousands) 656.6 660.1 658.8 662.1 664.7 667.4
Civilian unemployment rate 4/ 2.4 2.7 3.2 3.1 3.3 3.4
Gross domestic product (million dollars) 5/ 93,798 97,456 101,062 104,801 108,679 112,700
Real gross domestic product (millions of 2012$) 5/ 82,652 83,644 84,062 85,323 86,432 87,556
Gross domestic product deflator (2012=100) 5/ 113.5 116.5 120.2 122.8 125.7 128.7
Annual Percentage Change
Total population -0.3 -0.3 0.2 0.2 0.3 0.3
Visitor arrivals 1/ 5.2 5.4 -3.3 4.0 1.8 1.6
Visitor days 1/ 4.9 3.0 -3.7 3.8 1.6 1.4
Visitor expenditures 1/ 5.1 1.4 -3.8 4.4 2.1 1.9
Honolulu CPI-U 1.9 1.6 1.7 1.8 1.9 1.9
Personal income 2/ 4.0 3.5 2.8 4.0 3.7 3.7
Real personal income 3/ 2.3 2.1 1.9 2.0 1.9 1.9
Non-agricultural wage & salary jobs 0.5 0.5 -0.2 0.5 0.4 0.4
Civilian unemployment rate 4/ 0.0 0.3 0.5 -0.1 0.2 0.1
Gross domestic product 5/ 4.9 3.9 3.7 3.7 3.7 3.7
Real gross domestic product 5/ 2.4 1.2 0.5 1.5 1.3 1.3
Gross domestic product deflator (2012=100) 5/ 2.4 2.7 3.2 2.2 2.4 2.4
1/ Visitors who came to Hawaii by air or by cruise ship. Expenditures includes supplementary expenditures.
2019 supplementary expenditure was estimated by DBEDT.
2/ The 2019 values are estimated based on actual values in the first three quarters of 2019.
3/ Using personal income deflator developed by the U.S. Bureau of Economic Analysis and estimated by DBEDT.
4/ Absolute change from previous year.
5/ 2019 and later years are estimated by DBEDT, data for earlier years from U.S. Bureau of Economic Analysis.
Source: Hawaii State Department of Business, Economic Development & Tourism, March 11, 2020.

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About the Department of Business, Economic Development & Tourism (DBEDT)
DBEDT is Hawaii’s resource center for economic and statistical data, business development opportunities, energy and conservation information, and foreign trade advantages. DBEDT’s mission is to achieve a Hawaii economy that embraces innovation and is globally competitive, dynamic and productive, providing opportunities for all Hawaii’s citizens. Through its attached agencies, the department fosters planned community development, creates affordable workforce housing units in high-quality living environments, and promotes innovation sector job growth.

Media Contacts:
Dr. Eugene Tian
Research and Economic Analysis Division
Department of Business, Economic Development & Tourism
(808) 586-2470
Website: dbedt.hawaii.gov/economic

Charlene Chan
Department of Business, Economic Development and Tourism
Phone: (808) 587-9006
Website: dbedt.hawaii.gov