State economists are forecasting that Hawaii will grow this year at a slower pace than projected.
The economy is now expected to expand 1.5 percent in 2018, according to the latest quarterly report released Wednesday by the state Department of Business, Economic Development and Tourism. The previous forecast was for 1.9 percent growth.
“Hawaii’s economic conditions remain healthy,” DBEDT Director Luis Salaveria said in a statement. “Even though we are now entering a slower growth period of around 1.5 percent annual growth, the lower growth rate will be accompanied by a lower rate of inflation. Our economic growth rate during the past three years (2015-2017) was 2.4 percent.”
During the past 30 years, Hawaii’s economic growth rate was 1.8 percent a year on average, while the economic growth rate for the U.S. was 2.5 percent for the same period. In the first quarter, federal data showed that Hawaii’s economy grew at a 1 percent annual rate.
Lower inflation has contributed to the slower growth rate. Inflation was 1.6 percent for the first half of this year, which was lower than DBEDT expected. The state agency now projects inflation to be 2 percent for the full year, down from 2.6 percent in its earlier forecast. For 2019 DBEDT sees inflation being 2.3 percent, down from 2.7 percent in its previous projection.
Despite the negative effect that lava activity has had on Hawaii island tourism, DBEDT revised upward its projection for statewide visitor arrivals to a 6.1 percent increase, up from 6.0 percent, in 2018. For 2019 DBEDT now is forecasting arrivals to gain 1.6 percent, up from 1.2 percent. DBEDT’s forecast was released prior to Hurricane Lane striking the islands.
Visitor spending was revised upward to 9.2 percent for this year, up from 8.6 percent, and in 2019 is projected to gain 3.2 percent, up from 2.0 percent.
The tourism industry accounted for more than half of the 10,300 job gains during the first seven months of this year, DBEDT said.
Construction activity, which has been leveling off, is seen picking up next year.
“We are encouraged to see that the value of private building permits increased 3.9 percent during the first half-year of 2018,” said chief economist Eugene Tian of DBEDT. “If this trend continues for the second half-year, the construction industry will perform well in 2019, since it takes a few months to start construction after permits are issued. The value of government contracts awarded increased 151 percent during the first half of 2018.”
Due to the expected lower inflation rate, DBEDT revised upward its inflation- adjusted personal income growth to 1.8 percent, up from 1.7 percent, for this year, and for 2019 to 1.8 percent, up from 1.5 percent.
DBEDT kept its forecast for nonfarm payroll jobs unchanged from the previous forecast to 1.2 percent growth for 2018 and 0.9 percent for 2019, and kept its unemployment rate projections unchanged at 2.2 percent for this year and 2.5 percent for 2019.
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