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Hawaii’s economy is expected to limp into 2024 without sliding into the mild recession expected for the rest of the U.S., thanks to a rebounded tourism economy and a construction sector buoyed by public projects, economists predict in a mid-year forecast.

Titled “Promise and Peril for the Hawaii Economy,” the report by the notes the state still faces risks from the U.S. Federal Reserve’s policy of keeping interest rates high, along with tighter lending conditions caused by recent mainland bank failures.

But the UHERO economists note Hawaii’s inflation rate is already starting to ebb as key industries remain strong.

“It was really the U.S. visitors who have helped us get out of the pandemic,” UHERO economist Peter Fuleky said during a call with reporters. 

Perhaps most remarkable, the study notes, Hawaii’s tourism has bounced back to nearly pre-pandemic levels despite a slowing global economy.

“In March, total visitor arrivals were 14% higher than in March 2022 and just 3% below their 2019 level,” the forecast notes. “Average daily visitor census, which takes into account the length of stay, fared even better, running only 1% below the level in 2019. The visitor industry benefited from strong spring break travel this year, which lifted weekly passenger counts in March above last year’s levels.”

In crafting the forecast, a half dozen UHERO economists relied on a range of data, including state and county payroll, unemployment, income numbers, visitor arrivals and spending, plus national data on things like food prices, U.S. outbound travel and housing prices.

The report included sidebars exploring the effects of climate change on Hawaii tourism – and the role the industry plays in causing climate change – and an exploration of Hawaii’s high cost of living, showing just how much higher it is than every other U.S. state.

The reports main authors were UHERO’s executive director, Carl Bonham; senior research fellow, Byron Gangnes; economists Steven Bond-Smith, Peter Fuleky, and research economist Rachel Inafuku. 

Although the authors explored variety of themes, the recurring theme was one touching on a central aspect of Hawaii’s economy: the numbers of tourists that flocked to the state in record numbers just before the pandemic – and vanished during the crisis — are back.

Japan Tourism May Never Be The Same

One thing that has confounded tourist executives is the failure of Japanese visitors to return to Hawaii. Fuleky said this seems partly the result of major demographic shifts in Japan, and not just the transitory effects of a weak yen. 

“It goes beyond the fact that the yen is weak,” Fuleky said. “Some Japanese say they’re not going to travel again.”

The forecast cited a survey of 15,000 adults from 15 countries by the research firm Morning Consult, in which a third of Japanese respondents said they will never undertake leisure travel again. This was the highest negative rate across the countries surveyed and twice as high as in the U.S. and South Korea.

Fuleky said the results could have to do with Japan’s aging population, including growing numbers of elderly people who don’t foresee themselves traveling again.

Is Tourism Degenerative, Not Regenerative?

At a time when much discussion about managing tourism in Hawaii centers on what advocates call “regenerative tourism,” the study also raises a sobering red flag.

The idea: side effects of tourism risk destroying the things that make Hawaii an attractive tourist destination, including beautiful beaches and coral reefs and a comfortable and predictable climate.

Put more bluntly: the tourism industry risks crushing itself under its own massive carbon footprint.

The report’s look at climate change and tourism is what Bond-Smith said is first in a series of analyses looking at climate change and the economy.

Tourism adds carbon emissions and is impacted by climate change, the report says. The tourism industry globally generates as much 8% of greenhouse gas emission, and in Hawaii tourism contributes about a quarter of energy sector emissions, the report says. 

“Destinations such as Hawaii are susceptible to strong climate impacts due to the interaction of sea level rise with coastal resort development,” the forecast says. “Climate change will affect tourism through direct and indirect means, including policy interventions, with social, ecological, and economic consequences.”

Tourism isn’t the only thing driving the economy. Government remains a big employer in Hawaii, and construction continues to boom. Inflation in Hawaii is under control, at least for now, although gasoline prices remain a risk. The labor market has also rebounded, UHERO reported. 

And while bank failures and high interest rates have made it harder for people and small businesses to borrow money, Fuleky said there doesn’t appear to be a looming credit crisis similar to 2008. 

While a political debate in Washington involving the U.S. federal debt ceiling has raised the specter that the U.S. could default on its debt, Fuleky said this hasn’t yet caused alarm on the credit markets. If that did start happening, he said, congressional leaders would likely do something.

“When push comes to shove, they will get their act together and move ahead,” he said.