PRESS VERSION - EMBARGOED UNTIL 2:00 AM ON SEPTEMBER 20, 2019
Already weak, Hawaii’s prospects
look increasingly dicey
UHERO STATE FOREC A ST UPDATE, PRESS EDITION
SEPTEMBER 20, 2019
Economic growth in the Islands has slowed to a standstill. That’s bad
news, considering shocks on the horizon.
Hawaii has been slowing for several years. That slowing
has deepened in 2019 and extends to most corners of the
economy. Two years of population decline have undercut
demand in many sectors. Tourism, while still generating
impressive visitor numbers, has seen spending slip, and
many international markets have fallen back sharply. Add to
that the impending shock to Oahu from the crackdown on
home vacation rentals, and prospects for further tourism
growth look poor. Construction remains a relative bright
spot, although even here further softening of the Hawaii,
US, and global economies would undercut growth. All told,
the outlook is for Hawaii to tread water over the next few
years, vulnerable to waves that could well pull us under.
Our population is a drag
Demographic factors have played a key role in Hawaii’s
recent slowing. The state’s population fell in both 2017 and
2018, the first back-to-back annual declines since the 1950s.
Only a portion of this can be attributed to a drop in the
number of active duty military and their dependents, with
the rest involving outmigration of other residents, likely
responding to better work opportunities and lower living
costs on the US mainland.
The outflow of residents has undermined aggregate
demand in the Islands, leading to broad weakness. Payrolls
flatlined in the second half of 2018 and have declined since
the beginning of this year. According to UHERO estimates,
there are now two thousand fewer jobs statewide than at
the end of last year. (Our figures for the recent period differ
from published data, because we estimate forthcoming
government benchmark data revisions.) The broad-based
nature of this weakness is striking: of nine aggregate
sectors that we forecast, five have seen outright job losses
and the remaining four have grown by less than 1% this
year.
While we expect Hawaii’s population count to stabilize over
the next few years, very restrained growth will continue to
weigh on activity across much of the economy. We expect
overall payroll numbers to be essentially flat for this year as
a whole and to expand by less than a half-percent in 2020.
Contributions to payroll job growth
The labor market is seeing broad-based weakness.
2018 2019
Health Care and Soc. Assist.
Construction, Mining
Accommodation and Food
All Other Jobs
Trade, Transportation, Utilities
-0.3 -0.1 0.1 0.3%
Despite job weakness, Hawaii’s labor market still appears
tight. The headline unemployment rate stood at 2.8% in
July, up just a half-percent from its trough near the end
of 2017. However, this is somewhat misleading. Population
decline and the ongoing retirement of baby boomers
have weighed on the labor force, which has declined
by 3.5% since the beginning of 2017. This has offset in
part the decline in employment over this time period.
And the broadest measure of unemployment, which
includes workers who have given up looking for jobs or
are getting fewer hours than they would like, has risen by
1.4 percentage points over the past year. We expect the
unemployment rate to continue to edge up, reaching 3.5%
by 2021.
Fewer foreign visitors, and now fewer rooms
Conditions in the visitor industry are also weaker than they
might at first appear. While arrivals numbers continue to
set records, the number of visitors in Hawaii on a typical
day has grown by just 1% this year. (The two can differ
because of changes in the average length of visitor stay.)
Most worrisome has been a sharp pullback in international
markets, where the number of visitor days has declined
across all major market segments. Because of a stronger
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 PRESS VERSION - EMBARGOED UNTIL 2:00 AM ON SEPTEMBER 20, 2019

Change in inflation-adjusted visitor spending
There has been a sharp pullback in international markets.
8% US
International
4 growth in visitor days will remain very limited thereafter,
0 that a substantial number of illegal units appear to still be
-4
-8
-12
2017 2018 2019 (YTD)
dollar, international visitors are facing an increase in the
price of Hawaii vacations, and the global economy has
also slowed markedly. Trump’s rhetoric adds insult to
injury. Those visitors who do come tend to spend fewer
dollars. Inflation-adjusted international visitor spending
is down more than 9% this year; only spending by US
visitors remains on par with the same period in 2018. Not
surprising, then, that jobs in the accommodation and food
service sector have been flat for the past two years. Jobs in
the trade sector have fallen sharply.
Against this more vulnerable backdrop, Oahu tourism is
set to take a significant hit from the recent crackdown on
transient vacation rentals (TVRs). Honolulu Ordinance 19-
89, which went into effect on August 1, prohibits advertising
illegal TVRs. While we are only now getting the first data,
the ordinance has already led to a sharp reduction in the
number of TVRs advertised on online sites. Based in part
on data from the AirBnB website, we estimate that about
10,000 units on Oahu were advertised on various vacation
rental sites prior to the adoption of the ordinance, of
which more than 6,000 units appear to have operated
unlawfully outside resort or resort/mixed use zones. Since
the ordinance went into effect, about 3,500 units have
withdrawn their listings. This represents a greater-than-8%
drop in Oahu’s overall visitor plant inventory, which
averaged a little more than 40,000 units in the first half of
this year.
likely to reduce Oahu visitor days by more than 4% in 2020.
Neighbor Island visitor numbers will be somewhat stronger.
Statewide hotel occupancy will edge up above 81%. All
told, Hawaii visitor days will contract by a half-percent in
2020, a marked decline from this year’s 2.6% gain. Trend
averaging less than 1% in the 2021-2023 period. Considering
advertising online, the ultimate effects of the ordinance
could yet be larger. We will of course be watching data
closely in coming months and updating the outlook as
appropriate.
Construction remains a bright spot
The construction industry remains a focus of relative
strength. Construction jobs have been inching up for nearly
two years, climbing back to within 1,700 of their early-2016
peak. While the value of building permits has been very
weak recently, anecdotal evidence from industry sources
is much more upbeat, citing high capacity utilization and a
large pipeline of work on the way. Our baseline outlook is
for a continuing modest upward trend over the next several
years, although we have yet to assess the potential impact
on housing markets and residential construction of the TVR
ordinance. We will have much more to say about this and
other factors affecting prospects for the industry in our
forthcoming UHERO Construction Forecast.
Local residents have seen little improvement in their
purchasing power in recent years, and soft economic
conditions will limit earnings growth even more going
forwards. Per capita real income will grow at half-percent
average annual rate over the forecast horizon, further
constraining local spending. One silver lining of the weak
economic environment is restrained inflation. Easing
demand, low interest rates, relatively stable fuel prices,
Average Daily Visitor Census
The reduction in TVR units will affect visitor numbers.
260K Forecast Before TVR Ordinance
Current Forecast
240

While some of these potential visitors will find alternative

accommodations—­in hotels, timeshares, condos, TVRs 220
in resort areas, and on the Neighbor Islands—others will
choose to forgo a Hawaii vacation. As a result, some of
the rise in visitor numbers that had been fuelled by the
proliferation of vacation rentals will now be reversed. The 200

reduction in advertised units that we have seen so far is 2014 2016 2018 2020 2022

2019 Third Quarter - State Forecast Update | UHERO 2

 PRESS VERSION - EMBARGOED UNTIL 2:00 AM ON SEPTEMBER 20, 2019

and the strong dollar have combined to alleviate price
pressures. Consumer prices grew at a 1.8% pace in the first
half of the year and will trend at a sub-2% rate for the next
several years.
We are poorly positioned for risks
Hawaii finds itself in an increasingly vulnerable position.
With weakness in international markets, the tourism
industry has become more reliant on domestic arrivals at
a time when the US economy is cooling and risks are on
the rise. While US consumer confidence remains relatively
strong, tariffs and lackluster global demand have undercut
manufacturing, and policy uncertainty is weighing on
business investment. Despite low (and falling) interest rates,
US construction spending has also been weak. It wouldn’t
take much to tip our only healthy visitor market into
recession.
Oahu’s restrictions on transient vacation rentals add
a new risk, the extent of which is not yet fully known.
Certainly it will lead to some pullback in visitor numbers,
and therefore spending and related tax revenues. But it is
important to note that this comes against a backdrop of
tremendous visitor expansion over the past five years. It is
also important to acknowledge that the decision to impose
these limits is a complicated one that involves an array of
considerations, including housing affordability and the
footprint of vacation rentals within communities. A simple
tallying of actual or potential visitor losses does not do
justice to this complex issue.
If the economy were booming, these risks might be less of
a concern. Unfortunately, population outflow and global
weakness have already brought hiring to a halt. That makes
Hawaii’s prospects more dependent than ever on what
happens next in the broader US economy.

HAWAII ECONOMIC INDICATORS

YEAR-OVER-YEAR PERCENT CHANGE

2017 2018 2019 2020 2021 2022

Nonfarm Payrolls 1.1 0.6 -0.1 0.4 0.3 0.1

Unemployment Rate (%) 2.4 2.5 2.8 3.2 3.5 3.9

Visitor Arrivals 5.2 5.9 5.1 -1.2 -0.1 0.3

U.S. Visitor Arrivals 5.1 9.0 8.6 -1.9 -0.2 0.4
Japan Visitor Arrivals 6.7 -1.0 -0.3 0.8 0.1 -0.3
Other Visitor Arrivals 4.0 2.2 -2.0 -0.6 0.1 0.3

Inflation Rate, Honolulu MSA (%) 2.5 1.9 1.7 1.6 1.6 1.9
Real Personal Income 1.2 1.0 1.2 0.6 0.6 0.5
Real GDP 1.1 1.4 1.3 0.9 0.6 0.4

Note: Source is UHERO. Nonfarm Payrolls for 2018 are UHERO estimates of the benchmark revision. Figures for 2019 are UHERO
estimates. Figures for 2020-2022 are forecasts.

2019 Third Quarter - State Forecast Update | UHERO 3

 PRESS VERSION - EMBARGOED UNTIL 2:00 AM ON SEPTEMBER 20, 2019

TABLE 1: MAJOR ECONOMIC INDICATORS

STATE OF HAWAII FORECAST

2017 2018 2019 2020 2021 2022

Nonfarm Payrolls (Thou) 653.3 657.0 656.2 659.0 660.7 661.4

% Change 1.1 0.6 -0.1 0.4 0.3 0.1

Unemployment Rate (%) 2.4 2.5 2.8 3.2 3.5 3.9

Population (Thou) 1,424.2 1,420.5 1,418.3 1,418.0 1,419.1 1,421.3

% Change -0.3 -0.3 -0.2 0.0 0.1 0.2

Personal Income (Mil$) 75,355.1 77,508.6 79,868.5 81,689.0 83,520.9 85,578.3

% Change 3.7 2.9 3.0 2.3 2.2 2.5

Inflation Rate, Honolulu MSA (%) 2.5 1.9 1.7 1.6 1.6 1.9

Real Personal Income (Mil 2018$) 76,789.5 77,534.5 78,499.8 78,990.4 79,454.3 79,864.4
% Change 1.2 1.0 1.2 0.6 0.6 0.5

Real Per Capita Income (Thou 2018$) 53.9 54.6 55.4 55.7 56.0 56.2
% Change 1.4 1.2 1.4 0.6 0.5 0.4

Real GDP (Mil 2018$) 90,738.5 92,024.3 93,219.9 94,050.6 94,616.6 95,026.7
% Change 1.1 1.4 1.3 0.9 0.6 0.4

TOURISM SECTOR DETAIL

Total Visitor Arrivals by Air (Thou) 9,277.6 9,827.1 10,332.1 10,205.7 10,193.8 10,222.1
% Change - Total Visitor Arrivals by Air 5.2 5.9 5.1 -1.2 -0.1 0.3
U.S. Visitors 5,842.6 6,368.9 6,916.5 6,788.1 6,772.6 6,800.2
% Change - U.S. Visitors 5.1 9.0 8.6 -1.9 -0.2 0.4
Japanese Visitors 1,587.8 1,571.3 1,566.9 1,579.4 1,581.2 1,575.9
% Change - Japanese Visitors 6.7 -1.0 -0.3 0.8 0.1 -0.3
Other Visitors 1,847.3 1,887.0 1,848.7 1,838.2 1,840.0 1,846.0
% Change - Other Visitors 4.0 2.2 -2.0 -0.6 0.1 0.3

Avg. Length of Stay (Days) 9.0 9.0 8.8 8.8 8.9 8.9
Visitor Days (Thou) 83,506.5 88,009.3 90,425.5 89,975.2 90,519.3 91,325.7
% Change 4.8 5.4 2.7 -0.5 0.6 0.9
Average Daily Room Rate ($) 264.1 276.8 283.9 299.1 310.2 320.3
% Change 4.1 4.8 2.6 5.4 3.7 3.2
Occupancy Rate (%) 80.2 80.1 80.2 81.0 80.8 80.7
Real Visitor Expenditures (Mil 2018$) 16,954.6 17,613.2 17,522.3 17,395.1 17,474.3 17,508.2
% Change 3.0 3.9 -0.5 -0.7 0.5 0.2

Note: Source is UHERO. Nonfarm Payrolls for 2018 are UHERO estimates of the benchmark revision. Figures for 2019 are UHERO
estimates. Figures for 2020-2022 are forecasts.

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 PRESS VERSION - EMBARGOED UNTIL 2:00 AM ON SEPTEMBER 20, 2019

TABLE 2: JOBS BY INDUSTRY

STATE OF HAWAII FORECAST

2017 2018 2019 2020 2021 2022

Nonfarm Payrolls (Thou) 653.3 657.0 656.2 659.0 660.7 661.4

% Change 1.1 0.6 -0.1 0.4 0.3 0.1

Construction and Mining 36.2 36.1 36.5 37.1 37.2 36.3

% Change -4.7 -0.1 0.9 1.8 0.2 -2.3

Manufacturing 14.4 14.2 13.8 13.8 13.9 13.9

% Change 1.2 -1.3 -2.7 0.4 0.3 0.2

Trade 89.2 89.7 88.6 88.7 88.8 88.9

% Change 0.8 0.6 -1.3 0.1 0.1 0.1

Transportation and Utilities 32.8 33.4 33.5 33.7 33.7 33.7

% Change 3.2 1.8 0.4 0.6 0.2 0.1

Finance, Insurance and Real Estate 28.6 28.7 28.5 28.5 28.5 28.5
% Change 0.5 0.3 -0.7 -0.1 0.0 -0.1

Services 326.7 329.3 329.6 331.2 332.6 334.0

% Change 2.3 0.8 0.1 0.5 0.4 0.4
Health Care and Soc. Assistance 70.2 71.5 72.0 72.8 73.6 74.4
% Change 2.6 1.8 0.7 1.1 1.1 1.0
Accommodation and Food 110.5 110.9 111.0 111.2 111.3 111.5
% Change 3.8 0.3 0.1 0.2 0.1 0.2
Other 146.0 146.9 146.5 147.1 147.7 148.1
% Change 1.1 0.7 -0.3 0.4 0.4 0.2

Government 125.5 125.6 125.8 126.0 125.9 126.0

% Change -0.4 0.0 0.2 0.1 -0.1 0.1
Federal Government 33.4 33.6 33.9 34.2 34.0 34.0
% Change 0.7 0.7 0.9 0.7 -0.5 0.1
State and Local Government 92.1 91.8 91.8 91.8 91.9 92.0
% Change -0.8 -0.3 -0.1 0.1 0.1 0.1

Note: Source is UHERO. Industry job counts for 2018 are UHERO estimates of the benchmark revision. Figures for 2019 are UHERO
estimates. Figures for 2020-2022 are forecasts.

2019 Third Quarter - State Forecast Update | UHERO 5

 PRESS VERSION - EMBARGOED UNTIL 2:00 AM ON SEPTEMBER 20, 2019

TABLE 3: PERSONAL INCOME BY INDUSTRY

STATE OF HAWAII FORECAST

2017 2018 2019 2020 2021 2022

Real Personal Income (Mil 2018$) 76,789.5 77,534.5 78,499.8 78,990.4 79,454.3 79,864.4
% Change 1.2 1.0 1.2 0.6 0.6 0.5

Labor & Proprietors' Income 54,301.6 54,604.4 55,207.2 55,626.7 55,947.3 56,140.9
% Change 1.0 0.6 1.1 0.8 0.6 0.3

Construction 4,446.2 4,448.0 4,486.3 4,573.5 4,583.3 4,477.3

% Change -2.9 0.0 0.9 1.9 0.2 -2.3
Manufacturing 967.0 966.9 962.1 966.7 975.5 979.1
% Change -1.0 0.0 -0.5 0.5 0.9 0.4
Trade 4,698.0 4,712.1 4,673.9 4,690.4 4,701.1 4,716.7
% Change 2.6 0.3 -0.8 0.4 0.2 0.3
Transportation and Utilities 2,987.1 3,004.4 3,054.5 3,090.5 3,111.7 3,122.3
% Change 5.3 0.6 1.7 1.2 0.7 0.3
Finance, Insurance & Real Estate 3,383.7 3,374.2 3,319.5 3,356.4 3,393.1 3,424.8
% Change 0.7 -0.3 -1.6 1.1 1.1 0.9
Services 21,725.4 22,174.3 22,511.4 22,606.4 22,729.6 22,864.5
% Change 2.9 2.1 1.5 0.4 0.5 0.6
Health Care & Soc. Assist. (% ch.) 3.2 2.7 1.7 1.3 1.2 1.3
Accommodation & Food (% ch.) 3.8 1.4 1.9 1.1 0.5 0.3
Other (% ch.) 2.3 2.0 1.0 -0.1 0.2 0.4
Government 15,707.6 15,541.8 15,804.7 15,945.7 16,051.4 16,151.4
% Change -1.4 -1.1 1.7 0.9 0.7 0.6
Federal, civilian (% ch.) 0.2 0.1 2.4 1.0 0.4 0.4
State & Local (% ch.) 0.1 -2.6 0.9 0.5 0.4 0.4

Less Social Security Taxes (-) 6,176.3 6,240.5 6,347.3 6,397.6 6,435.9 6,459.5
% Change 1.3 1.0 1.7 0.8 0.6 0.4

Transfer Payments 11,973.0 12,109.4 12,499.1 12,680.5 12,880.5 13,103.5

% Change 1.3 1.1 3.2 1.5 1.6 1.7

Dividends, Interest and Rent 16,691.2 17,029.2 17,140.8 17,080.8 17,062.4 17,079.6
% Change 1.5 2.0 0.7 -0.4 -0.1 0.1

Population (Thou) 1,424.2 1,420.5 1,418.3 1,418.0 1,419.1 1,421.3

% Change -0.3 -0.3 -0.2 0.0 0.1 0.2

Real Per Capita Income (Thou 2018$) 53.9 54.6 55.4 55.7 56.0 56.2
% Change 1.4 1.2 1.4 0.6 0.5 0.4

Inflation Rate, Honolulu MSA (%) 2.5 1.9 1.7 1.6 1.6 1.9

Nominal Personal Income (Mil. $) 75,355.1 77,508.6 79,868.5 81,689.0 83,520.9 85,578.3
% Change 3.7 2.9 3.0 2.3 2.2 2.5

Note: Source is UHERO. Figures for 2019 are UHERO estimates. Figures for 2020-2022 are forecasts.

2019 Third Quarter - State Forecast Update | UHERO 6

 PRESS VERSION - EMBARGOED UNTIL 2:00 AM ON SEPTEMBER 20, 2019

TABLE 4: EXTERNAL INDICAT0RS

STATE OF HAWAII FORECAST

2017 2018 2019 2020 2021 2022

U.S. FACTORS

Employment (Thou) 153,337.4 155,761.0 156,899.5 157,708.1 158,512.4 159,045.1

% Change 1.3 1.6 0.7 0.5 0.5 0.3

Unemployment Rate (%) 4.4 3.9 3.7 3.9 4.0 4.2

Inflation Rate (%) 2.1 2.4 1.8 1.9 1.9 2.0

Real GDP (Bil chained 2012$) 18,108.1 18,638.2 19,060.2 19,441.6 19,815.5 20,160.4
% Change 2.4 2.9 2.3 2.0 1.9 1.7

Population (Thou) 325,410.1 327,435.5 329,465.4 331,801.5 334,160.7 336,504.3

% Change 0.6 0.6 0.6 0.7 0.7 0.7

JAPAN FACTORS

Employment (Thou) 65,310.8 66,640.8 67,012.2 66,774.4 66,404.8 66,013.4

% Change 1.0 2.0 0.6 -0.4 -0.6 -0.6

Unemployment Rate (%) 2.8 2.4 2.5 2.6 2.9 3.0

Inflation Rate (%) 0.5 1.0 0.8 1.6 0.5 0.6

Real GDP (Bil chained 2011 yen) 530,152.1 534,367.8 539,357.7 539,917.8 543,586.7 546,327.6
% Change 1.9 0.8 0.9 0.1 0.7 0.5

Population (Thou) 126,785.8 126,529.1 126,210.8 125,851.7 125,465.5 125,052.8

% Change -0.2 -0.2 -0.3 -0.3 -0.3 -0.3

Exchange Rate (Yen/$) 112.1 110.4 109.0 107.8 105.4 102.5

Note: Source is UHERO. Figures for 2019 are UHERO estimates. Figures for 2020-2022 are forecasts.

2019 Third Quarter - State Forecast Update | UHERO 7

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