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Monday, March 1, 2021
Hawaii Economy Projected to Grow 2.7% in 2021
By News Release @ 2:06 PM :: 2504 Views :: Economy, COVID-19


News Release from DBEDT, March 1, 2021

HONOLULU—The Department of Business, Economic Development and Tourism (DBEDT) released its first quarter 2021 Statistical and Economic Report today. DBEDT projects that Hawaii’s economy will experience improvement in 2021, with a projected 2.7 percent increase in real gross domestic product (GDP). This is higher than the 2.1 percent GDP growth projected in December 2020. While final estimates of economic growth have not been released yet, DBEDT estimates that Hawaii’s real GDP fell by approximately 7.5 percent in 2020, a smaller decline than the 11.7 percent contraction forecast in the previous quarter.

The improvements in the economy were attributed to the following facts and expectations:

Public, private, non-profit entities and individuals in Hawaii were allocated more than $10.6 billion in federal funds in 2020.

The second federal economic stimulus package of $900 billion provided qualified individuals with a $600 stimulus check, extended the supplemental $300 weekly unemployment benefit, and allocated additional funds for the Paycheck Protection Program. Furthermore, legislation is being considered for a third stimulus package of $1.9 trillion, that includes an additional $1,400 stimulus checks for qualified people. Hawaii is expected to receive more than $7 billion federal funds in 2021.

The Safe Travels Program brought in 496,186 visitors in the fourth quarter of 2020, representing a recovery of about 20 percent from the same period in 2019. By comparison, visitor arrivals between April and September 2020 were only 1.8 percent of the same period a year earlier.

Visitor industry recovery continued into 2021 with 20 percent recovery in January (average daily visitors at 5,550) and 30 percent recovery in February (average daily visitors at 8,760) as compared with the same month in 2019.

The total number of bankruptcy filings in Hawaii declined 8.5 percent in 2020 from 2019, and decreased 24.8 percent in Jan. 2021.

Initial unemployment claims during the week ending Feb. 20, 2021 was 2,891, the lowest since Mar. 21, 2020.

The U.S. economy is expected to recover faster in 2021 with an economic growth rate projected at 4.9 percent in the February 2021 Blue Chip Indicators, which is higher than the projection made in December 2020 for 2021 at 4.0 percent.

Hawaii remained the lowest per capita new COVID-19 cases in the nation as of Feb. 28, 2021 and both the national and Hawaii new cases have declined over 50 percent in the past 30 days.

As of Feb. 28, 2021, 17.5 percent of Hawaii’s population had been vaccinated at least with one shot, higher than the U.S. average at 15 percent.

Current economic conditions

According to the Bureau of Economic Analysis (BEA) recent estimates, Hawaii’s real gross domestic product fell by 8.2 percent in the third quarter of 2020, from the same quarter of the previous year. Compared to the second quarter decline of 13.9 percent, this was a substantial improvement.

While tourism is projected to recover as vaccine distribution increases, conditions remain challenging. This was reflected in the real GDP decline for tourism-related industries in the third quarter compared to the same quarter of the previous year: GDP for Arts, Entertainment and Recreation declined 50.9 percent, Accommodation and Food Services declined 43.7 percent, Transportation and Warehousing declined 21.7, and Wholesale Trade declined 11.1 percent.

Retail Trade fared better than other tourism-related industries, with a decline of 3.5 percent in the third quarter. One area of strength in retail was home-related spending. It appears that, as consumers spent more time at home, they focused on home improvement. According to U.S. Census Bureau’s latest monthly retail data, home-related store sales showed significant gains in October 2020 over the same month of the previous year; particularly in Furniture and Home Furnishings (+19.3 percent), Building Materials (+16.1 percent), and Electronics and Appliance were (+8.8 percent). Consumers also spent more on dining at home, with Food and Beverage store sales up 28.3 percent in October over the same month of the previous year.

The construction industry held firm in the third quarter, with a comparable GDP level to the same quarter of the previous year (-0.1 percent). At the end of the year, the value of building permits picked up, increasing 21.9 percent in December over the same month of the previous year. The December increase in building permit values was led by Residential (+43.3 percent); followed by Commercial and Industrial (+32.0 percent) and Additions and Alterations (+6.5 percent).

Despite the pandemic, Utilities had strong GDP growth in the third quarter, increasing 10.2 percent over the same quarter of the previous year. Other industries that grew in the third quarter were Finance and Insurance (+7.3 percent), Military (+3.3 percent), and Federal Civilian (+2.7 percent).

Initial unemployment claims totaled 2,891 for the week ending Feb. 20, 2021, an increase of 181.5 percent from the same period a year earlier. The state ended 2020 with a 9.0 percent unemployment rate in December, which was an improvement over the 10.4 percent rate of November.

There were 92,400 fewer non-agriculture private payroll jobs in the fourth quarter of 2020 compared with the same quarter of 2019. The decline in jobs was the highest for Accommodation (-26,300 jobs or a 61.9 percent decrease), Food and Drinking Places (-23,900 jobs or a 33.9 percent decrease), Transportation, Warehousing & Utilities (-8,800 jobs or a 25.3 percent decrease), Professional & Business Services (-8,500 jobs or a 11.3 percent decrease), and Arts, Entertainment, and Recreation (-3,700 jobs or a 27.4 percent decrease).

While Hawaii’s economy is predicted to grow in 2021, the current DBEDT forecast projects that it will take a few years to fully recover to pre-pandemic levels and businesses will continue to face challenges. A survey conducted in December 2020 by DBEDT and 16 private partners indicated that 81.3 percent of Hawaii businesses expected loss of business revenues in 2021.

For the overall U.S. economy, initial BEA estimates indicate that the real GDP declined 3.5 percent in 2020 compared with the previous year. However, a strong rebound is expected for 2021. The Blue Chip Economic Indicator economist consensus report is forecasting a 4.9 percent increase in U.S. real GDP. For the global economy, all countries will have firm GDP growth in 2021 including Canada (+4.6 percent), Taiwan (+4.3 percent), South Korea (+3.4 percent), and Japan (+2.5 percent). The Euro area’s real GDP is predicted to increase at 4.4 percent in 2021 over the previous year.

Forecasting Results

For 2021, DBEDT predicts that Hawaii’s real gross domestic product (GDP) will increase 2.7 percent over the previous year. The economic expansion path will continue with a 3.3 percent increase in 2022, 2.3 percent in 2023 and 1.8 percent in 2024.

Hawaii is forecast to welcome 5.5 million visitors in 2021, an increase of 102.9 percent from the 2020 level. Visitor arrivals are projected to increase to 8.3 million in 2022, 9.2 million in 2023, and 9.8 million in 2024. Visitor arrivals are not expected to reach 2019 levels until 2025.

Non-agriculture payroll jobs are forecast to increase by 6.2 percent in 2021, then will increase by 3.1 percent in 2022, 1.6 percent in 2023 and 1.3 percent in 2024. As with GDP growth, non-agriculture payroll jobs are not expected to recover to pre-pandemic levels until 2025.

The state unemployment rate will gradually improve as economic growth returns. The rate is projected to be 8.2 percent in 2021, 6.9 percent in 2022, 6.2 percent in 2023, and 5.7 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 decrease in 2021 by 2.9 percent, following a 7.5 percent increase in 2020. Normally, GDP and personal income move in tandem. However, in 2020, personal income surged due to government transfers related 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 2.0 percent, from 1.6 percent in 2020 and remain around this level through 2024. During the second half of 2020, Honolulu consumer inflation was 1.6 percent; the categories that increased the most were Food & Beverage (+6.9 percent), Recreation (+4.5 percent), and Education and Communication (+4.2 percent). The categories that decreased the most were Apparel (-7.1 percent), Transportation (-5.2 percent), and Other Goods and Services (-1.8 percent).

Statement of Director Mike McCartney

“It has been one year since the onset of COVID-19 and it’s been a tough and challenging time for all of us. I can see positive and encouraging signs ahead for Hawaii’s economic prosperity with Hawaii’s Safe Travels program fully in place and the aggressive rollout of our statewide vaccination program, coupled with the fact that we have the lowest number of new COVID-19 cases in the country.

The emergence and resilience of our kamaaina economy is hopeful with Oahu now transitioned to Tier 3, which means more commerce and community activity and the expected infusion of $10 billion in federal stimulus available in 2021.We must continue on this path of attacking the virus, respecting and not fearing it, then reopening our public schools and welcoming visitors back to a different and refreshed Hawaiian Islands. It’s our opportunity to be open to candid community discussions, to co-create a new future, a Hawaii 2.0 that is more resilient, diversified and sustainable so the generations that come after us can also choose to call Hawaii home. Given all these signs, I am now more optimistic about Hawaii’s social, environmental, and economic prosperity in the future.”

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

# # # 

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