State economy forecast to grow; visitor arrivals expected to be higher

Hawaii’s economy is expected to finish this year a little stronger than expected with visitor arrivals and spending projected to reach records for the eighth year in a row.

The state Department of Business, Economic Development and Tourism said in its fourth-quarter economic forecast Tuesday that it was revising upward its growth projection for 2019 to 1.2% from the previous 1.1% increase in its August forecast. The growth rate, or inflation -adjusted gross domestic product, remained unchanged for the next three years in a range of 1.2% to 1.3%. GDP is the broadest measure of economic output.

DBEDT revised upward its forecast for visitor arrivals to increase this year by 5.7% to 10.5 million from its previous forecast of 3.5%. And the state agency now expects visitor spending to increase 0.9% to $17.79 billion from its previous expectation of a 0.2% decrease. Air seats are forecast to grow 2.9% this year.

Both visitor arrivals and spending are forecast to increase in the range of 1.5% to 2.5% through 2022, which is higher than previously projected, due to a change in market shares between international and domestic visitors.

DBEDT Director Mike McCartney said it is encouraging that Hawaii’s labor market saw a 5.1% decrease in unemployment benefit claims during the first 10 months of the year.

“The positive news is our economy will continue growing at a steady but slow pace with our gross domestic product exceeding $100 billion in 2020 for the first time in our state’s history,” McCartney said.

DBEDT also revised upward its forecast for inflation-adjusted personal income to 1.7% this year from 1.2% in its previous forecast. Personal income is expected to increase another 1.7% in 2020, up from DBEDT’s last forecast of 1.1%.

The agency left its forecast for consumer inflation, as measured by the Honolulu consumer price index, unchanged at 2% for this year with it increasing to 2.5% by 2022.

Some of the higher revisions from DBEDT are based in part on data from the U.S. Bureau of Economic Analysis. On Nov. 7, BEA revised upward Hawaii’s economic growth rate for 2018 to 2.4% from 1%. The BEA also revised the 2017 growth rate to 2.3% from 1.6%.

The construction industry, however, has been softening with the value of private building permits declining during the first nine months of the year. The value of residential permits fell 21% while the value of commercial and industrial permits decreased 38.9%.

Although the value of additions and alterations permits increased 17.2%, the overall value of permits could not offset the decrease in other two categories, DBEDT said.

“While the economy remains healthy, we face challenges going forward from softening in the visitor and construction industries — the main drivers of our economic growth in the past few years,” state Chief Economist Eugene Tian said.