UH economic report eases state growth forecast slightly

Hawaii’s economy is expected to keep growing at a slower pace even as tourist arrivals head for a sixth straight record year and the construction industry remains busy.

The University of Hawaii Economic Research Organization, which describes its report due out today as “fairly upbeat,” lowered its 2017 forecast for the state’s inflation-adjusted gross domestic product to 1.4 percent — down from 2 percent in its March report. The GDP is the broadest measure of economic output.

UH economists also revised downward their forecasts for visitor arrivals, nonfarm payrolls and inflation-adjusted personal income while keeping their inflation rate projection the same. But the forecast for the state’s unemployment rate, which is now the second lowest in the country at 2.7 percent, was forecast to average 2.8 percent this year — an improvement from the 2.9 percent that UHERO projected in its last report. Inflation is expected to remain at 2.6 percent — the same as in its last forecast.

“Growth will trend lower now that recovery is complete and construction is topping out, but there are no signs of an imminent downturn,” UHERO wrote. “We are wary of potential disruptions at the federal level, which the first 100 days of the Trump presidency have demonstrated are impossible to anticipate.”

UHERO now sees visitor arrivals by air increasing 1.9 percent this year to just under 9 million. That is down from a 2.2 percent gain in its earlier forecast. Its future projections are for 1.1 percent growth in 2018 and 0.8 percent growth in 2019.

“The scope for additional arrivals growth is limited,” UHERO wrote. “Traditional hotel and timeshare properties are already operating at very high levels of occupancy. While individual vacation rentals have taken up some of the slack, prospects for further expansion may be limited by the number of available units and potential regulatory pushback. … Still, despite slowing growth, the state’s visitor industry will continue to operate at robust levels of activity, with visitor volumes at all-time highs in all counties.”

UHERO said Hawaii’s economy has started this year “in fine form.”

“Moderate job and income growth are continuing, and generally favorable global and national conditions are maintaining impressive tourism numbers,” the report said. “The construction buildup has eased, but the industry remains very active. While developments in Washington could hurt us, for now prospects look good for continued growth, if at a less rapid pace than we have seen in recent years.”

UHERO said seven years of expansion have restored labor markets to health and improved household finances.

“Labor markets are now at or near what economists consider ‘full employment’ conditions,” UHERO said.

UHERO sees nonfarm payrolls rising 1 percent this year — slightly less than the 1.1 percent growth in its previous forecast. Its projection for inflation-adjusted personal income is for 1.6 percent growth this year, down from 2.1 percent growth in its March report.

The UH researchers said construction jobs will remain near 38,000 workers through 2018 before easing lower as the current cycle begins to wind down.

“The multiyear ramp-up of construction has ended,” UHERO said. “Industry jobs topped out early last year and in March were actually running more than 2 percent lower than year-earlier levels. However, there is enough activity in the pipeline to maintain employment near the current level for the next several years.”