RISING PANDEMIC UNCERTAINTY DELAYS HAWAII’S ECONOMIC GROWTH
News Release from DBEDT, August 26, 2021
HONOLULU—The Department of Business, Economic Development and Tourism (DBEDT) released its third quarter 2021 Statistical and Economic Report today. DBEDT revised its economic growth projection for 2021 to 2.7 percent, down from the 3.5 percent projected in May this year. The lower projected growth is mainly caused by the rising of uncertainty caused by the surge in Delta variant infections and the higher inflation expectations.
Major factors of concerns include the following:
New COVID-19 cases surged since late July this year. As of the week ending August 25, 2021, the average seven-day daily new infections were 49.2 cases per 100,000 population in Hawaii and ranked the 17th highest among all the states. The U.S. 7-day average daily new cases were 43.1 cases per 100,000 population. For the entire duration of the pandemic, March 7, 2020 through August 21, 2021, Hawaii continues to have had the lowest infection rate and the lowest death rate in the nation.
Visitor arrivals started to slow down in August. Daily visitor count during the first 25 days of August was 24,890; lower than the average daily arrivals of June at 26,368,and July at 28,737.
The U.S. economic growth rate for 2021, as projected by Blue Chip Economic Indicators, revised down to 6.2 percent in the August issue of the publication, from 6.6 percent projected in May this year.
U.S. consumer inflation rate is now projected to be 4.0 percent for 2021, the highest since 1991. Hawaii’s consumer inflation rate was 2.6 percent during the first half of 2021, the highest since the fist half of 2012. Hawaii’s consumer inflation rate is expected to be higher in the second half of 2021.
Data from the U.S. Bureau of Economic Analysis showed that Hawaii’s real gross domestic product (GDP) decreased 5.2 percent during the first quarter of 2021. For 2020 full year, Hawaii’s economic growth rate as measured by the growth of real GDP was down 8.0 percent.
Current Economic Conditions
Hawaii’s economic recovery has been increasing during the first seven months of 2021 (based on the latest available data). Labor markets continued to improve with the unemployment rate (not seasonally adjusted) at 6.9 percent in July, the lowest since the break of the COVID-19 pandemic. Total non-agriculture payroll job count in July 2021 was 575,000, representing 87.2 percent of the January 2020 (pre-pandemic) level. Hawaii was still short by 84,200 non-agriculture payroll jobs as of July 2021 when compared with January 2020.
The construction industry led the way to recovery with 103.8 percent of job count in July 2021 as compared with January 2020, followed by finance and insurance at 102.4 percent, utilities at 100 percent. All other industries are still recovering with the wholesale trade at 99.4 percent, professional and business services at 94.1 percent, and healthcare and social assistance at 93.8 percent. Hospitality sector has recovered 76 percent of job count as of July 2021 as compared with January 2020.
Initial unemployment claims during the week ending August 14, 2021 was 2,102, the 16th consecutive week that initial unemployment claims are below 3,000. In 2019, the average weekly initial unemployment claims were 1,186.
Hawaii nominal personal income increased 16.4 percent during the first quarter of 2021 as compared with the same period in 2020. The increase in personal income was mainly from the increase in unemployment insurance compensation which increased 2,810.5 percent between first quarter of 2020 and first quarter of 2021.
Hawaii bankruptcy filings continued declining through July 2021 with total bankruptcy filings dropping 17.6 percent from the same period in 2020. For the full year 2020, Hawaii bankruptcy filings decreased 8.6 percent from a year earlier.
Total value of private building permits increased 45.4 percent during the first half of 2021 as compared with the same period in 2020, reflecting the current increase in construction jobs and busier construction activity next year.
Residential real estate continues to boom during the first seven months of 2021 with home sales and median sale prices all increasing at double digits on all the major islands for both single family and condo homes, except Oahu where the median condo price increased by 6.7 percent (single digit).
During the first seven months of calendar year 2021, State general fund tax revenue increased 18.2 percent from the same period a year ago. As the major components of the general fund revenue, general excise tax increased 7.3 percent and individual income tax increased 32 percent.
After allocating $12.5 billion in 2020, and $7 billion so far in 2021, the Federal government is planning to allocate another $2.8 billion to Hawaii from the Infrastructure Bill passed in August 2021.
In the current report, DBEDT predicts that Hawaii’s economic growth rate, as measured by real domestic product (GDP), will increase 2.7 percent over the previous year. The economic expansion path will continue with a 2.8 percent increase in 2022, 2.1 percent in 2023 and 2.0 percent in 2024.
Visitor arrivals are now projected to reach 6.8 million in 2021, about 65 percent recovery from the 2019 level. This visitor arrival projection is about 130,000 more than the projection in the previous quarter. As of June 2021, 2,751,849 visitors have already visited the islands. Visitor arrivals are projected to increase to 8.8 million in 2022, 9.6 million in 2023, and 10.2 million in 2024.
Non-agriculture payroll jobs are forecast to increase by 4.9 percent in 2021, then will increase by 6.4 percent in 2022, 1.9 percent in 2023 and 1.3 percent in 2024.
The state unemployment rate will gradually improve as economic growth returns. The rate is projected to be 7.6 percent in 2021, 6.4 percent in 2022, 5.4 percent in 2023, and 4.7 percent in 2023. These rates are much higher than the average Hawaii unemployment rate of 2.5 percent between 2017 and 2019.
Nominal personal income is expected to increase in 2021 by 0.9 percent, following a 6.9 percent increase in 2020. Normally, GDP and personal income move in tandem. However, in 2020, personal income surged due to unemployment insurance payments and other CARES Act funds, which more than offset declines in wages and salaries.
As measured by the Honolulu Consumer Price Index for urban consumers, inflation is expected to increase in 2021 to 3.1 percent, from 1.6 percent in 2020 and will drop to 2.3 percent in 2022 before it falls to the long term average of 2.0 percent. During the first half of 2021, Honolulu consumer inflation was 2.6 percent; the categories that increased the most were transportation (+7.2 percent), other goods and services (+4.8 percent), food & beverage (+4.1 percent), education and communication (+3.6 percent), and housing (+1.8 percent). The categories that decreased include apparel (-5.5 percent), and recreation (-0.4 percent). The price increase in transportation was mainly caused by the increase in oil prices. During the first half of 2021, crude oil price as measured by the New York Mercantile WTI Future price increased by 67.1 percent from the same period in 2020, increased from $37.1 per barrel to $62 per barrel between the two periods.
Statement by Director Mike McCartney
“Hawaii’s economy was on a clear path towards recovery and was gaining momentum over the first seven months of 2021. Due to the rapid spread of the Delta variant, this new spike in COVID -19 cases has created economic uncertainty. Our time and attention have shifted to focusing and responding to public health needs which has diverted our efforts to recovery and growth. It’s clear that Hawaii’s economic prosperity is dependent upon effective public health practices.
“Our economic momentum is still strong with domestic visitors at about 20 percent above the 2019 level; our labor market continues improving and our job growth in July 2021 was the highest among all the states in the nation at 10 percent over-the-year growth. Our unemployment rate decrease in July was the second fastest drop in the nation in terms of over-the-month decrease, according to the most recent U.S. Bureau of Labor Statistics data.
“In order to regain our economic momentum and to Mālama Hawaii (to care for) with mutual respect and aloha, I humbly ask for everyone’s help and cooperation to follow our public health protocols by getting vaccinated and wearing a mask. If we do just this, our economic future will be much brighter, balanced, sustainable with more certainty and diversity.”
The full report is available at: dbedt.hawaii.gov/economic/qser.
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SA: Economists lower Hawaii growth forecast as delta variant dampens outlook