UHERO Forecast for the State of Hawaiʻi: No respite from storms or oil prices

from UHERO, Sept 25, 2026

Hawai‘i’s economy has slowed this year under the weight of war-driven oil prices and an unusually active storm season, including two hurricanes within three weeks. Real GDP growth will fall to about half a percent in 2026, from more than 3% last year, and payroll employment will edge lower. We expect gradual relief as energy prices ease and storm recovery proceeds, with growth and hiring firming in 2027 and 2028. An aging, shrinking population will keep job gains modest. Continued AI investment offers upside potential for incomes, although the extent remains uncertain.

Executive Summary

Hawai‘i’s economy has slowed this year under the weight of war-driven oil prices and an unusually active storm season, including two hurricanes within three weeks. Real GDP growth will fall to about half a percent in 2026, from more than 3% last year, and payroll employment will edge lower. We expect gradual relief as energy prices ease and storm recovery proceeds, with growth and hiring firming in 2027 and 2028. An aging, shrinking population will keep job gains modest. Continued AI investment offers upside potential for incomes, although the extent remains uncertain.

The US economy continues to grow about 1.5-2%, supported by higher-income households benefiting from AI-related wealth gains and to some extent by the AI buildout. High fuel and other prices strain lower-income families. With core inflation above its 2% target, the Federal Reserve began to raise the federal funds interest rate at their September meeting. Long-term rates have already surged, pushing mortgage rates higher. Growth abroad remains soft, with Canada facing new US tariffs, China growing at its slowest pace since the pandemic, and high oil prices weighing on many trading partners.

Hawai‘i tourism faced dual headwinds this year from surging fuel costs and a parade of storms. Hurricane Lowell’s September brush with Kaua‘i will cut that county’s arrivals by more than 6% for the year. Statewide visitor arrivals will decline just over half a percent for the year as a whole, while a sharp drop in reported length of stay will pull the average daily visitor census down more than 6%. Maui tourism continues to recover, and we expect modest statewide arrivals growth to resume in 2027 and 2028 as energy prices ease and storm effects fade.

Hawai‘i’s job growth has stalled, with Maui the only county that will see net gains this year. Weak labor demand, rather than a shortage of workers, is the main story: job postings are down and the unemployment rate has edged up to a still-low 2.7%. Real wage gains have been modest and uneven across industries. Statewide payroll employment will contract slightly this year before a small 2027 rebound, and income growth will slow before recovering.

Honolulu inflation reached 5.6% over the twelve months ending in July, driven by the energy price surge and continued shelter cost increases. We expect inflation to average 4.8% in 2026, easing to 3.3% in 2027 as these pressures fade.

Construction remains a significant contributor to the state economy, supported by ongoing large federal military projects, the Honolulu Skyline rail project, the Kapalama port upgrade, and private condominium development. Construction employment has flattened but should remain above 40,000 workers for some years to come, even as the public infrastructure cycle gradually passes its peak. Changes to federal law and a potential new local financing tool will support more housing development.

Housing affordability remains strained even though prices have stayed largely flat this year. High mortgage rates—now about 7%—have pushed up monthly payments, and Hawai‘i’s already-high condo fees could rise further under new federal funding rules. Rebuilding from this year’s storms adds near-term costs for the State and counties, particularly because of long lags in the release of federal recovery funds.

Overall, we expect 2027 to bring gradual economic improvement to the state as energy prices and storm effects recede, although the persistent Middle East conflict remains a primary risk, together with election-related policy uncertainty. Slowly declining population will mean a tepid trend employment path, while AI adoption could provide a potential upside income surprise in the years ahead.

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