Hawaii’s economy is continuing its steady growth and should maintain that pace into next year.

The state said Thursday in its quarterly forecast that economic conditions remain unchanged from its third-quarter projections and that the underperforming construction industry is still on its way to becoming the leading industry for economic growth.

Hawaii’s inflation-adjusted gross domestic product, the broadest measure of economic output, should rise 2.6 percent this year, unchanged from the third-quarter forecast, according to the report released by the state Department of Business, Economic Development & Tourism. Next year, the state said, growth is expected to increase 2.8 percent, up from 2.2 percent in the earlier report. But that 2.8 percent growth still would be slightly lower than the 3.0 percent growth rate being forecast by 50 leading economic groups for the U.S. economy, DBEDT noted.

Visitor arrivals, which are on track for their third straight record year, are expected to rise 0.8 percent this year, up slightly from the state’s previous 0.7 percent forecast in August. However, next year’s arrivals were revised slightly lower to 1.9 percent growth from the 2.0 percent previously forecast.

"The (state’s economic) fundamentals are strong with steady growth and we expect this to continue into 2015," DBEDT Director Richard Lim said. "Our labor market remains robust, with unemployment being the seventh lowest in the nation and employment levels reaching an historic high during the first nine months of the year. Visitor arrivals are on track to set another record year in 2014. The value of building permits increased 15.9 percent as of September, indicating a good year for construction next year."

Hawaii visitor arrivals rose just 0.5 percent through the first nine months of this year, according to data released last month by the Hawaii Tourism Authority. But DBEDT said the year-to-date number should get a bump up in October because the agency’s own records show that the passenger count increased 6.8 percent during the month from October 2013.

DBEDT said future visitor growth is expected to come from the "Other Asia" market, which includes China and South Korea. Arrivals from those two countries are expected to grow at double digits for the next few years, DBEDT said.

Through the first nine months of this year, Chinese visitor arrivals were up 27.4 percent from the year-earlier period and Korean visitor arrivals were ahead 17.8 percent.

Visitor spending is expected to rise 2.7 percent this year, up slightly from 2.6 percent in the previous forecast, and 3.6 percent in 2015, the same as previously forecast.

The announcement of a Chinese tourist and business visa extension by President Barack Obama in Beijing earlier this week during the Asia-Pacific Economic Cooperation conference will further boost Chinese visitors to Hawaii and the U.S., DBEDT said. Both countries agreed to extend tourist and business visas from a year to a decade.

DBEDT expects Chinese visitors to Hawaii will reach 159,000 this year and 200,000 in 2015. Through the first nine months of this year, Chinese visitors were up 27.4 percent to 128,792.

Construction this year didn’t live up to the expectations of the state’s leading economists, but DBEDT sees better times ahead for that sector in 2015.

With the major government projects such as the Honolulu rail system, the Honolulu Water Supply sewage treatment facilities and the approved private projects, more projects will be in the process of applying for building permits in the coming months, DBEDT said.

Honolulu’s inflation rate is expected to remain the same as previously forecast — up 1.5 percent this year and up 2.2 percent in 2015. DBEDT also kept its unemployment rate the same as before at 4.4 percent this year and 4.1 percent next year. And Hawaii’s real (inflation-adjusted) personal income growth also stayed the same — up 2.6 percent this year and up 2.5 percent in 2015. The 2.6 percent rate would be the highest real personal income growth rate since 2006.

DBEDT expects nonagricultural payroll jobs to increase 1.3 percent this year, up from 1.2 percent in the previous forecast, and up 1.5 percent next year, the same as the August forecast. Nonagricultural payroll jobs increased by 7,500 through the first nine months of this year compared with the year-earlier period

DBEDT said its full report, which contains more than 100 tables, is available online at dbedt.hawaii.gov /economic/qser.

STEADY PROGRESS
Year-over-year percentage changes through 2017

* Percentage of workforce;
** Adjusted for inflation
Figures for 2014-17 are forecasts
Source: State Department of Business, Economic Development & Tourism