UH economists see slower growth ahead

A University of Hawaii economic group is dialing back its growth forecasts for the state amid an ongoing slowdown in tourism and construction that is expected to continue for at least the next three years.

In a report to be released today, the University of Hawaii Economic Research Organization forecast that the state’s inflation-adjusted gross domestic product will rise 2 percent this year and then slow to 1.7 percent in 2018 and 1.6 percent in 2019. Those numbers are all revised lower from the 2.1 percent, 1.9 percent and 1.8 percent increases that were forecast in December.

Hawaii’s annualized GDP through the first three quarters of 2016 was 2.1 percent. The full-year 2016 number has not come out yet.

“After seven years of sustained growth in the islands, deceleration is now underway,” UHERO said in its report. “In part this stems from the slowing pace of construction industry expansion. But it also reflects a generalized slowing as demand growth eases and labor markets tighten. Tourism has kept up a record-breaking pace longer than expected; still, there will only be room for so much additional growth.”

UHERO said its outlook is “generally upbeat,” but cautioned that policy shifts by President Donald Trump’s administration, uncertainty about U.S. immigration, rising fiscal debt, sharp interest rate increases and corporate tax reform could shake up the economy.

The UH economists’ forecast is moving in the same direction as one from the state’s top economists. Last month, the state Department of Business, Economic Development and Tourism lowered its forecast for GDP, which is the broadest measure of economic output. DBEDT forecast increases of 1.8 percent, 1.7 percent and 1.6 percent, respectively, from 2017-2019.

UHERO said it expects visitor arrivals to hit a record for the sixth straight year but predicts the number of tourists in 2017 to increase just 2.2 percent rather than the 2.4 percent projected in its December report. UHERO expects arrivals to top 9 million for the first time after finishing 2016 at 8.9 million. The increase will be driven by continued gains in visitor traffic from the mainland, while international markets will remain soft, UHERO said.

The research group sees visitor arrivals rising just 1.1 percent in 2018 — with Japan arrivals declining 1 percent during that year — and inching up only 0.9 percent in 2019.

UHERO forecast that home prices will continue to grow for the next three years at a low single-digit growth rate.

“In 2016 we saw about 5.5 percent growth in home prices and expect that growth rate to slow down to 2019,” Carl Bonham, UHERO executive director and a UH professor of economics, said in a phone interview. “The forces in play are higher mortgage interest rates that have already gone up and will continue to go up, and we’ve got a little bit slower job and income growth in our forecast going forward. But we’re still talking about median single-family home prices over $800,000 by 2019 and condos in the mid-$400,000 range by 2019.”

UHERO said inflation-adjusted personal income will rise 2.1 percent this year and then taper to 1.5 percent in 2019.

The research group said Hawaii’s labor market will remain healthy, with much of the recent hiring in accommodation and food services due to new and newly reopened resort facilities. The research group said it expects an additional 2 percent rise in accommodation and food services this year but that job growth in those areas will slow to less than 1 percent in 2018 as visitor arrivals slow.

Health care job growth, up nearly 3 percent in 2016, will be somewhat slower than in the past, while construction job growth will hold steady after construction employment edged down in 2016 following a first-quarter surge, UHERO said.

“The next wave of resort and retail-related construction and the ramping up of single-family home building will sustain activity near its current level through 2019,” UHERO said. “After that, the sector will begin to ebb.”