Hawaii forecasts visitor arrivals and spending to more than double next year

Hawaii’s economy is starting to show signs of coming back to life from a devastating pandemic that stopped tourism in its tracks and left about a quarter-million people unemployed and numerous businesses forced to close.

The state issued a report Friday forecasting the inflation-adjusted economic growth rate to end this year down 11.2% — better than the 12.3% initially feared — and then gradually recover with gains of 2.1% in 2021, 2% in 2022 and 1.2% in 2023.

Hawaii’s battered tourism industry, which has seen various stops and starts due to the surging new coronavirus, also is expected to improve, according to the quarterly economic forecast released by the state Department of Business, Economic Development and Tourism.

Visitor arrivals, which hit a record 10.4 million in 2019, are projected to decrease 73.7% this year to 2.7 million. But arrivals are forecast to more than double next year to 6.2 million and then reach 7.7 million in 2022 and 8.8 million in 2023. Still, it won’t be until 2025 that arrivals reach 2019 levels, the report said.

Spending by visitors is projected to be down 71.4% this year to $5.1 billion from nearly $17.8 billion in 2019, but then more than double next year to $10.5 billion and reach $13.4 billion in 2022 and $15.3 billion in 2023.

“We are happy to see the improvements in the economies of the U.S. and Hawai‘i,” DBEDT Director Mike McCarthy said in a statement. “It is great to see the airlines adding flights to our state, especially those from Canada and Japan. With the expected distribution and use of the COVID-19 vaccine in December, I believe our tourism recovery will be accelerating in 2021.”

This month there are 935 more flights scheduled to Hawaii from the mainland and 84 more flights scheduled from international destinations than in November. Of this month’s international flights, 42 will come from Canada, which is the first time that Hawaii has had Canadian inbound flights since April.

Following the reopening of trans-Pacific travel on Oct. 15 with the Safe Travels pre-travel testing program, visitor arrivals in November recovered 23% of the traffic of the year-earlier month. There were 6,100 visitors a day in November compared with 630 a day for the first half of October before the Safe Travels program, and 4,000 a day for the second half of October.

But Mufi Hannemann, president and CEO of the Hawaii Lodging &Tourism Association, is not as optimistic as DBEDT and said the numbers won’t reach the projections without changes to the current travel requirements.

“Our major concern now with respect to some of the optimism that is being held by some is that the governor’s recent change to the Safe Travel program requiring an automatic quarantine for people who come here, and Kauai’s latest order of a 14-day quarantine, is definitely going to hurt,” he said in a phone interview. “The numbers we’ll experience will be nowhere what we’d all like to see in terms of putting people back to work and opening hotels. I don’t think we’ll hit those projections. The numbers will be worse. That’s why we’re pressing that there’s got to be a better balance with visitors coming here safely to spur growth and other aspects of our local economy.”

Hannemann is in favor of visitors getting a second test at the airport to avoid quarantine if they don’t have their negative test result upon arrival or, he said, allowing travelers 96 hours before flying, rather than 72, to obtain a negative COVID- 19 test.

Despite the recent pickup in visitors, Retail Merchants of Hawaii President Tina Yamaki said it’s going to be a gradual recovery for the state and its businesses.

“We know it’s going to be very slow growth,” she said in a phone interview. “People are still very apprehensive of traveling, and you have to remember that when they return home they often have a 14-day quarantine. Like everybody else, we hope for the best but expect the worst, too. We don’t want to see another shutdown. I don’t think retail can afford that.”

Even with COVID-19 cases keeping Oahu stubbornly in Tier 2 of the four-tier plan — where Tier 4 is the highest — the return of trans-Pacific travel and various forms of federal and state aid are allowing Hawaii’s economy to maintain a pulse.

The most recent unemployment report for October showed Hawaii with the highest seasonally adjusted jobless rate in the nation at 14.3%. But that’s down from a record high of 23.8% in April.

And as the unemployment rate declines, so have initial unemployment claims, with the number stable at below 5,000 since Oct. 17. For the most recent available week, which ended Nov. 28, initial unemployment claims were 6.7% of the peak level, which was 53,112 in the week that ended April 4.

“During the last three quarters of 2020, we faced unprecedented challenges while slowly restarting our economy, and will continue to face more difficult times during the first half of 2021,” McCartney said. “Nonetheless, I am optimistic that we will see accelerated economic growth during the second half of 2021 due to increased visitor arrivals thanks to our Safe Travels program and the distribution of a COVID-19 vaccine.”

There have been other silver linings to signal the economy is improving. Hawaii bankruptcies fell 9.4% during the first 11 months of the year compared with the same time in 2019. State and federal aid undoubtedly allowed some consumers and businesses to avoid filing for bankruptcy.

Also, personal income increased 15.9% during the second quarter compared with the year-earlier period.

With Congress taking another stab at carving out a stimulus bill and the stock market at record highs, there appear to be other catalysts to keep Hawaii’s economy on a recovery track.

The outlook for the U.S. economy is looking up, too, with the Blue Chip Economic Indicators report issued in November fore­- casting the U.S. economy to contract 3.7% this year — an improvement from the May forecast of a 5.8% contraction — and then rise 4% in 2021. The Blue Chip Economic Indicators report is a consensus of 50 economic forecasting organizations.

DBEDT said despite its improved forecast that economic challenges remain for the state. A Hawaii Commercial Rent Survey released in October found that company revenue was down almost across the board, with 86.4% of respondents indicating that 2020 revenue would be below 2019 revenue. And 11.9% of those surveyed indicated that their revenue would be 50% or more below 2019 levels.

Asked about their level of hardship to pay expenses, “extreme hardship” was indicated by 43.7% of the businesses for rent expenses, 40% for employee expenses and 36.7% for operating expenses.

DBEDT said that with a vaccine on the horizon, the state’s economy should begin to bounce back next year in several areas. Non­agricultural payroll jobs are forecast to shrink 11.9% this year and then increase 6.1% in 2021. The unemployment rate is projected to average 11.2% this year and then decrease to 7.9% next year.

But inflation-adjusted personal income, which is projected to rise 5.6% this year, is seen plunging 8.9% in 2021 due to the reduction in federal assistance programs that propped up income this year.

“The economy has been improving because there were some stimulus packages, county grants, PPP (Paycheck Protection Program) programs and restaurant cards,” Yamaki said. “But Hawaii still has the highest unemployment rate, and people’s salaries have been cut and people are cautious how they’re spending. Hopefully, next year, with the vaccine and everything, we’ll see a lot more improvement where travel will be a little more open and people will want to travel.”