ECONOMIC GROWTH REMAINS STABLE DESPITE INCREASED UNCERTAINTY
News Release from DBEDT, August 23, 2019
HONOLULU—The Department of Business, Economic Development and Tourism (DBEDT) released its third quarter 2019 Statistical and Economic Report today. In the report, DBEDT lowered its economic growth forecast by one-tenth of a percentage point from the second quarter forecast to 1.1 percent for 2019 and between 1.2 and 1.3 percent for the next few years.
“Though we are facing increased uncertainties, we are pleased to see that our tax revenue growth is still strong,” said DBEDT Director Mike McCartney. “We had a record first seven months in calendar year 2019 with tax revenue of $4.4 billion that was deposited into the general fund, which represented a 6.8 percent increase from the same period a year ago.”
The trade war between the U.S. and China has had an impact on consumer prices and visitor arrivals from China. However, these impacts were offset by the decrease in oil prices and the increase in visitors from the U.S. Mainland, especially from the U.S. West market.
The impact of the vacation rental ban on Oahu has not yet been seen in visitor arrivals. For the first three weeks of August, total passenger count has grown by 4 percent from the same period a year ago. For Oahu, passengers from the U.S. mainland increased 8.7 percent during the first three weeks of August 2019.
Labor market conditions have been stable in the state with the unemployment rate in Hawaii still the fifth lowest in the nation, year-to-date through July,
“After eight months of consecutive declines in visitor spending, we saw an increase in visitor spending in in June. We project visitor spending will increase by 2 percent during the second half and will offset the 2 percent decrease during the first half, leaving the total visitor spending flat for 2019,” said State Economist, Eugene Tian.
According to the most recent data from the U.S. Bureau of Economic Analysis, Hawaii’s real gross domestic product (GDP), the most comprehensive measure of economic activity, increased by 1.6 percent during the first quarter of 2019, which was the highest quarterly growth rate since the 4th quarter of 2017.
Volumes of home sales in Honolulu have been recovered from the declines at the beginning of the year, and median sale prices are rising and setting new records.
One of the biggest challenges facing the state now is the declining private building permit value. Through June 2019, the value of private building permits decreased by 13.2 percent, with residential permit values decreasing by 18.2 percent, commercial and industrial permit values decreasing by 56.9 percent, while value for additions and alterations increased by 6.6 percent. The decrease in value of private building permits may indicate a future slowdown in construction activity. Currently, the construction industry is still adding jobs and as of June 2019, the industry has added 700 more jobs as compared with the same period in 2018.
Despite the low unemployment rate, Hawaii’s personal income growth rate was only 2.9 percent in 2018 and remained at 2.9 percent during the first quarter of 2019. During the past 20 years (1998-2018), Hawaii’s average personal income growth rate was 4.4 percent.
In its August 2019 report, Blue Chip Economic Indicators (the consensus of 50 economic forecast organizations) lowered the U.S. economic growth rate for 2019 to 2.4 percent from 2.6 percent in May 2019, and lowered 2020 U.S. economic growth rate to 1.8 percent from 1.9 percent in May. Most countries in the world will experience slower growth in 2019 and 2020, according to the report.
The recent inversion of the yield curve between the 10-year Treasury note and 2-year note worried many investors since the inversion had been a leading indicator for U.S. economic recession for the last 60 years.
Given the above developments in the economy, DBEDT lowered its economic growth projection for Hawaii to 1.1 percent for 2019, and between 1.2 and 1.3 percent for the next three years.
Given that visitor arrivals grew 4.2 percent and expenditures decreased 2 percent during the first half of 2019, and air seats will continue to grow during the second half of 2019, DBEDT projected that visitor arrivals will increase by 3.5 percent for 2019 to 10.3 million visitors, higher than the previous projection of 2.6 percent. However, visitor expenditures is forecast to decrease by 0.2 percent in 2019, mainly due to the decrease that occurred during the first half of 2019.
Visitor arrivals are forecast to increase between 1.5 percent to 2 percent for the next few years. Visitor spending growth is forecast to be between 1.9 and 2.3 percent for the next few years, lower than previously projected due to the changing in market shares between international and domestic visitors.
The forecasts for nominal personal income and real personal income growths were both lowered. The projection for payroll job growth was also lowered to 0.4 percent for 2019 and at the similar growth rate for the next few years.
The forecast for consumer inflation as measured by Honolulu consumer price index (CPI-U) was revised upward. Inflation is now projected to rise from 2 percent in 2019 to 2.5 percent by 2022.
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.
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