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A strong national economic picture is helping sustain Hawaii’s economy in the first quarter of the year, according to a report released Friday.

The U. S. economy is off to a positive start in 2024, thanks to substantial consumer spending, healthy job markets and progress on curbing inflation. That means the nation is likely heading for a soft landing rather than a recession, according to the University of Hawaii Economic Research Organization.

Locally, from a gradual return of international visitors, notably from Canada and Japan.

Still, while Hawaii’s economy has mostly recovered from the coronavirus pandemic, the state will continue to be challenged by the recovery and rebuilding of Lahaina after the fires of August.

“On the Valley Isle, the initial visitor recovery after the wildfires has proven somewhat stronger than expected, but rebuilding will take a long time, with many uncertainties about how this will play out,” according to the UHERO forecast.

UHERO is housed in the University of Hawaii Manoa’s .

Here are some of the key takeaways from the report:

• Per person visitor spending in Hawaii has increased, “but challenges remain, including the poor purchasing power of foreign currencies,” due to the strong dollar. Visitor arrivals will see modest growth of 2% this year, and real visitor spending will soften.
• Construction work has been aided by major federal and state contract work and robust homebuilding on Oahu. On Maui, post-fire rebuilding will add 2,500 workers over the next few years. But recovery remains “a long road ahead.”
• In spite of some positive indicators on housing, high housing costs continue to plague the state. The efforts of state and county government to convert short-term rental properties into long-term housing are works in progress.
• The pace of improvement in unemployment insurance claims has slowed. “Unfortunately, workers who first filed for benefits in the weeks after the fire will begin losing eligibility this month.”
• Unemployment figures for Hawaii, Honolulu and Kauai counties more or less held steady, but the slowing of population and labor force growth is “a long-term phenomenon and will cause job and income growth rates to trend lower than in the past.”

“After two years of recovery from the pandemic, the ‘bounce back’ growth is over,” UHERO Executive Director Carl Bonham said Thursday. “Together with the lingering impacts of the Maui wildfires, this means real gross domestic product will slow markedly in 2024 to a 1.5% rate of growth.”

“Looking further into the future, little to no population growth state wide implies a continued slowing of job growth and a trend towards lower output growth after the temporary boost from rebuilding on Maui,” he added.

The report said that inflation-adjusted real personal income rose back above its pre-pandemic level at the end of last year and will grow at a roughly 1.7% annual pace for the next three years.

An Evolving World

Many economic uncertainties remain that could further slow the national and state economies.

The Federal Reserve is in “a waiting game” as to whether it will further cut interest rates. The federal budget is still being funded by continuing resolutions rather than a long-term appropriation. And shipping costs could rise considerably depending on what happens between warring factions in Middle East seaways.

China’s property problems continue to mount, Germany is close to recession and inflation still cuts into real purchasing power in Japan. The three nations are among the top economies in the world.

While Hawaii’s visitor industry is sustained largely by North American tourists, who account for more than 70% of all visitors, a more diverse mix is needed for the industry to thrive down the road.

Airfare eats up travel budgets, and it is as yet unclear how Alaska Air Group’s planned acquisition of Hawaiian Holdings will affect the Hawaii air travel market.

Other concerns, according to UHERO, are that Hawaii will owe hundreds of millions of dollars in hazard pay to state workers during the pandemic. The report was compiled before the Senate Ways and Means Committee this week warned of a dramatic hike in the hundreds of millions of dollars Hawaii may be on the hook for for Maui recovery, which will additionally deplete the state’s coffers.

Even with improved visitor arrivals, a full recovery of Maui’s visitor industry remains “many years down the road.” Barriers include the use of hotel rooms and other visitor accommodations to house recovery and reconstruction workers, the report said.

The Japanese market, meanwhile, while inching up, will be hampered in the long term because of a shrinking and aging population.

“Even then, Japan will remain the second largest market after the U.S.,” UHERO predicted.

“Hawaii’s Changing Economy” is supported by a grant from the as part of its CHANGE Framework project.