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Following a run of growth driven by increasing numbers of tourists and visitor spending, Hawaii’s economy showed signs of slowing down at the end of 2018, as visitor arrivals flattened and spending decreased markedly, University of Hawaii economists reported in their latest forecast.

“Deceleration is now well established in the Islands, posing significant downside risks to our forecast of continuing modest growth,” the University of Hawaii Economic Research Organization reported in its quarterly report for the first quarter of 2019.

“Across a number of dimensions, the year saw a flattening 
out or outright decline in activity,” UHERO said.

UH’s economists aren’t the only ones envisioning slower growth. Hawaii’s Council on Revenues, which forecasts tax collections, also foresees a softening in tax collection for the state’s general fund to a 4.2 percent growth rate in 2019 from 5.0 percent the previous year.

“The Council believes that the growth of Hawaii’s economy has come down from the previous year,” the organization reported in January. “While the economy is still performing well overall, the Council cited uncertainty about the future.”

The uncertainty is driven by forces far beyond Hawaii.

The Council on Revenues cited slowing in China’s economy caused in part by the trade war with the U.S., and problems in Europe. Germany, the European Union’s largest economy, is rapidly slowing. And uncertainties about Great Britain’s departure from the EU “raise the prospect of a European-wide recession,” the council reported.

Meanwhile, there are troubling signs in the U.S. overall.  The economy slowed down at the end of 2018, the Commerce Department reported Thursday. Gross domestic product – a measure of all goods and services produced – grew at just 2.6 percent for the quarter, down from a rate of 4 percent earlier in the year.

Kristi Maynard, chief financial officer with Finance Factors of Honolulu, said the GDP data have a silver lining: the growth rate was not as bad as some economists feared, she said.  “Still, it certainly feels like things are slowing down, which is a concern for me,” she said.

A more troubling sign, she said, is a flattening of the yield curve for U.S. Treasury securities. The yield for two-year notes is 2.52 percent versus 2.72 percent for 10-year notes.

The fact that investors are willing to park their money for 10 years at a rate of return not much higher than they would get by investing for two years suggests investors foresee the Federal Reserve lowering interest rates to stimulate the economy, and they want to lock in at 2.72, Maynard said.

The flatter the curve, the less confidence the market has that the economy can grow without the Fed trying to stoke it. And what if long-term rates dip lower than short-term ones, known as ?

“As it goes down, so that the two-year is higher than the 10-year, that almost always foretells a recession,” Maynard said.

That’s not happening yet, and might not happen at all this business cycle.

Still, a slowing national economy isn’t helping Hawaii’s No. 1 export: selling vacations to visitors. After a bump in the first quarter of 2018, “by the fourth quarter, spending was 2% lower than its level at the end of 2017,” UHERO reported.

And UHERO expects the slowdown in growth to continue as visitor growth slows. After growing by 5.2 percent in 2017 and 5.2 percent in 2018, visitor arrivals are expected to grow by 1.7 percent in 2019 and less than 1 percent by 2021, UHERO reports.

Overall employment also is slowing, producing a rise in unemployment. Unemployment dropped to as low as 2 percent in May, but creeped up to 2.5 percent in December. UHERO expects the unemployment rate could increase to 3.2 percent by 2021.

It is a decidedly downbeat forecast.

“Our more pessimistic outlook reflects both a clearer view of slowing in Hawaii as additional data has come in, as well as emerging negative indicators of conditions in the US and abroad,” the UHERO report said.

It concluded its forecast with a saying Hawaii’s visitors frequently hear as they arrive in the islands: “Fasten your seatbelts please.”