DBEDT Keeps Hawaii Economic Growth Rate at 2.0 Percent for 2025

News Release from DBEDT, December 4, 2024

HONOLULU—The Department of Business, Economic Development and Tourism (DBEDT) released its fourth quarter 2024 Statistical and Economic Report today. In the report, DBEDT raised its economic growth projections for 2024 to 1.6 percent and kept the 2025 economic growth rate at 2.0 percent, the same as projected in the previous quarter. The increase in 2024 growth was based on the first half of 2024 economic data which demonstrate better-than-expected economic performance. Data from the U.S. Bureau of Economic Analysis showed that the economic growth rate, as measured by the growth of real gross domestic product (GDP), increased 1.8 percent during the first half of 2024 and nominal personal income growth was 5.6 percent during the same period. These growth rates were higher than previously expected, though slower growth is still expected for the second half of 2024. DBEDT anticipates that the state’s economic growth will remain steady at around 2.0 percent through 2027.

The main drivers for economic growth in 2025 will be construction, real estate and the continued recovery of tourism.

Economic Recovery Status

As measured by real GDP, Hawaii’s economy rebounded to exceed pre-pandemic (fourth quarter of 2019) levels by 0.7 percent as of the second quarter of 2024. Hawaii’s overall economy was fully recovered to pre-pandemic levels by the third quarter of 2023. By comparison, the U.S. economy has been fully recovered since the first quarter of 2021.

While tourism-related sectors (Accommodation, Transportation, Retail Trade, Recreation, and Food Services) have only recovered to 93 percent of pre-pandemic levels as of the second quarter of 2024, non-tourism sectors have shown firm growth. Compared to real GDP in the last quarter of 2019, the Information sector has grown by 38.4 percent; the Professional, Scientific, and Technical Services sector by 25.5 percent; the Agricultural sector by 21.5 percent, and the Health Care and Social Assistance sector by 11.6 percent. The Wholesale Trade, Utilities, Accommodation and Food Services, and Other Services sectors are still below fourth quarter 2019 real GDP levels.

Compared with October 2019, statewide non-agriculture payroll jobs were still short by 21,000 jobs in October 2024 (the latest month data are available as of this writing). Other than in Construction, Private Educational Services, and Health Care & Social Assistance, job counts in all other sectors were still lower than the levels in October 2019. Retail Trade lost the most jobs at 6,400, followed by Accommodations at 4,600 and Financial Activities at 3,400.

During the first 10 months of 2024, total visitor arrivals recovered 92.8 percent from the same period in 2019. Visitors from the U.S. increased 6.4 percent; international visitor recovery was 64.0 percent. The recovery rate of Japanese visitors was 45.0 percent and for Canadian visitors, the recovery rate was 77.9 percent.

Visitor arrivals to Maui Island during the first 10 months of 2024 were 75.2 percent of the level for the same period in 2019. Arrivals to Oahu were at 94.0 percent and arrivals to Hawaii Island at 98.4 percent of the same period 2019 levels. The visitor count to Kauai was flat between the two periods.

Construction Industry Continues Booming

Hawaii’s construction industry has been growing continuously in the past 10 years and the total value of construction as measured by the contracting tax base reached $11.8 billion in 2023. During the first half of 2024, the contracting tax base totaled $6.5 billion or a 14.8 percent increase from the same period in 2023.

Construction payroll jobs reached 43,300 (not seasonally adjusted) in October 2024. This is a historic record high level for Hawaii. The value of private building permits increased 28.6 percent during the first 10 months of 2024. The $9.8 billion government contracts awarded in calendar years 2022 and 2023 will have lasting effects for several years into the future. It is expected that private residential and government construction will be leading the construction activity in 2025 and will be one of the main drivers for economic growth in the next few years.

Home Sales and Prices Are Increasing

After declining 26 percent in 2023, Hawaii home sales as recorded at the Bureau of Conveyances increased 18 percent during the first nine months of 2024 as compared with the same period in 2023. Sales of single-family homes increased 14.6 percent and sales of condominium homes increased 21.2 percent. The average sale price of single-family homes was $1,104,714 during the first nine months of 2024, representing an 8.9 percent increase from the same period in 2023. The average sale price for condominium homes was $750,938, representing an increase of 2.4 percent from the same period a year ago.

The Labor Market is Stable

The statewide unemployment rate (not seasonally adjusted) was 3.0 percent during the first 10 months of 2024 and ranked the eighth lowest in the nation among all the states. Hawaii unemployment has been below the U.S. since July 2021 and, in October 2024, Hawaii’s unemployment rate was 1.0 percentage point lower than the national average.

The average number of weekly initial unemployment claims was at 1,105 during the first 11 months of 2024, lower than the weekly average experienced in 2019 at 1,200. All counties have seen decreased and stable unemployment claims, but the average weekly unemployment claims for Maui County numbered 210 during the first 11 months of 2024, 45.8 percent higher than the 2019 level of 144.

Job vacancies during the first nine months of 2024 came down to 6,300, lower than the average monthly vacancy of 7,700 in 2019.

Consumer Inflation Remains High

Honolulu consumer inflation, as measured by the Honolulu’s Consumer Price Index for Urban Consumers (CPI-U), was 4.2 percent in September 2024, 2.0 percentage points higher than Hawaii’s inflation rate in September 2023. This is 1.8 percentage points above the 2.4 percent U.S. inflation rate.

In September 2024, Honolulu consumer inflation was mainly driven up by Housing which increased 6.6 percent compared to September 2023. Housing normally accounts for 50 percent of Honolulu consumer inflation.

National and International Economic Conditions

According to the most recent (November 2024) economic projections by the top 50 economic forecasting organizations published in Blue Chip Economic Indicators, U.S. economic growth is expected to be 2.7 percent in 2024 and 2.1 percent in 2025. Economic growth in Canada, in Japan, and in the European countries are expected to be better in 2025 than 2024. The Japanese exchange rate is projected to be around 137.1 yen per dollar in 2025, a level which will encourage more Japanese visitors to travel to Hawaii.

The Federal Reserve cut its fed funds rate (FFR) target by 25 basis points at its November 6-7 Federal Open Market Committee meeting as was widely expected. The Federal Reserve has cut its key interest rates twice this year, reducing the Federal Funds rate by 75 basis points to a range of 4.5%-4.75%.

Forecasting Results

In the newly released report, DBEDT predicts that the economic growth rate for Hawaii, as measured by the year-over-year percentage change in real GDP, will be 1.6 percent in 2024, incrementally higher than our 1.3 predicted value in the previous quarter. Economic growth is expected to reach around 2.0 percent in 2025 and will continue its stable growth to 1.8 percent in 2027.

Visitor arrivals are projected to decrease by 0.6 percent in 2024 and will improve starting in 2025 as the Japanese visitor market recovery accelerates. Full recovery in arrivals will not happen until 2027 when 10.4 million visitors will come to the state. Visitor spending is projected to be $20.6 billion in 2024 and is expected to increase to $23.2 billion by 2027.

Non-agriculture payroll jobs are expected to grow by 0.9 percent in 2024, with the rates of growth increasing to 1.2 percent each year in 2025 and 2026, and 1.0 percent in 2027. A full recovery of non-agriculture payroll jobs is expected to occur in 2027, when the total will reach 659,800 jobs, surpassing the 2019 total of 658,600.

The state unemployment rate is expected to be 2.9 percent in 2024 and will improve to 2.7 percent in 2025, 2.6 percent in 2026, and 2.5 percent in 2027. Personal income is expected to grow at 4.7 percent in 2024, 4.4 percent in 2025, and 4.1 percent each year in 2026 and 2027.

As measured by the Honolulu Consumer Price Index for Urban Consumers, inflation is expected to be at 4.3 percent in 2024, which is higher than the projected U.S. consumer inflation rate of 2.9 percent for the same year. Hawaii consumer inflation is expected to decrease to 2.6 percent by 2027.

Hawaii’s population is expected to decrease by 0.2 percent in 2024 and then increase by 0.1 percent each year in 2025, 2026 and 2027.

Statement of DBEDT Director James Kunane Tokioka

In addition to a firm performance in the construction industry, we are seeing growth in other industries including professional services, health care and agriculture. We expect that the tourism industry will continue to recover in the next few years, especially with the strong economic growth projected for the U.S. and moderate growth forecast for Japan in 2025.

With the income tax reform and the increase in the supply of affordable housing, we expect that living in Hawaii will be more affordable and our state’s outmigration will be mitigated in 2025 and will start to gain population in future years. And with more take-home money, residents are expected to spend more which will generate more economic activities in the state.

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

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