UHERO forecast: State faces headwinds, Maui recovery is ongoing : Maui Now

While economic fallout from the Maui wildfires has been somewhat smaller than feared, the rebuilding path will be long, according to a new report from the University of Hawaiʻi Economic Research Organization.

The UHERO fourth quarter forecast for 2023, calls for “considerable uncertainties” about how rebuilding on Maui will proceed.

“There remain a host of uncertainties surrounding Maui’s future recovery path, including how fast residents can be moved from hotels to more permanent housing, the speed of ongoing cleanup work, the extent and duration of support programs, and how long and in what fashion rebuilding will occur,” according to the UHERO forecast.

The report notes that Maui visitor industry has been recovering faster than we anticipated, and visitors to the rest of the state have reached record levels. Recovery from the Japan market is taking longer, partly due to a very weak yen, leaving Hawaiʻi’s dependence on the US market unusually high, according to the forecast.

The UHERO report indicates that statewide payroll employment was rising at a “modest pace” this year, before being pulled down in the aftermath of the Maui wildfires.

“On Maui, there has been a more rapid than expected partial employment recovery, as some displaced workers have found alternative jobs in recovery or other work. Some have left the Island,” according to the report. Overall, the forecast expects Hawaiʻi job growth of about 1% next year. Very slow population growth will mean only incremental trend job growth thereafter.

UHERO reports that the total number of visitors to Hawaiʻi will be essentially flat in 2024, before returning to moderate growth in 2025.

Statewide, Hawaiʻi’s economy has been resilient in the face of weakening US and global economies, high interest rates and the slower return of Japanese travelers.

The UHERO report notes that deceleration in key visitor markets will produce slower growth in 2024; but, absent a US recession, moderate gains will resume in 2025.

Key takeaways from the Dec. 15 report include the following:

• The US has outperformed most advanced economies this year. High interest rates have weighed on investment, and the labor market has softened. Robust consumer spending will slow as excess savings dwindle, helping to bring inflation into the Fed’s target range and achieve a “soft landing” 1.1% growth next year.
• Canada and Japan’s real gross domestic product contracted in the third quarter. The US slowdown will restrain Canada’s economy, while Japan’s move toward tighter monetary conditions to combat inflation will ease pressure on the yen. Australia’s inflation fight is proving difficult, and its exports have been weak as China deals with a property market meltdown. Global growth in 2024 will be similar to this year’s tepid 3% pace.
• Visitor spending has been fairly soft this year, primarily due to the disruption of high priced Maui tourism. Spending has risen on Kauaʻi and Hawaiʻi Island, as some travelers have substituted vacations on these islands. The weak yen is weighing on spending on Oʻahu, which has dipped below its pre-COVID peak. Overall real visitor spending will drop in 2024 and firm thereafter.
• Consumer price inflation has receded from its March 2022 7.5% peak. Feedthrough of higher housing costs will keep inflation in the 3–3.5% range for the next year, before a slow downward trend resumes. Incomes have been battered by inflation, but are now above pre-pandemic levels in real terms, and they will grow at a roughly 2% annual pace. Real gross domestic product will slow below 2% in 2024, before picking up in 2025.
• The home resale market is suffering from high mortgage rates, high prices, and a lack of inventory by homeowners reluctant to give up low interest rates. Maui rebuilding will drive further expansion of an already hot Hawaiʻi construction industry. Getting—and housing—the needed workers will be a challenge.

“While Maui’s recovery remains top of mind, the state as a whole has continued to grow at a moderate pace, and only gradual slowing is expected,” the UHERO forecast said. “But, as always, Hawaiʻi is somewhat at the mercy of conditions beyond our shores. A sharper slowdown or recession in the US mainland would mean a sharper slowdown in Hawaiʻi in 2024–25.”

UHERO is housed in UH Mānoa’s College of Social Sciences.

UHERO Executive Director Carl Bonham provides a summary of UHERO’s 2023 fourth quarter forecast in this episode of “UHERO Focus.”

The UHERO forecast says ongoing recovery of international markets will help to offset near-term US market weakness.

“We have noted above the relatively weak global conditions and currencies that are weighing on many overseas markets. International average daily census, which is influenced by the length of visitor stays in the Islands, has retreated slightly this year. Among our major markets, the Japanese and Korean currencies have fallen the most,” according to the forecast.

The UHERO report explains: “Once the Fed turns the corner on this tightening cycle, we expect these currencies to strengthen against the dollar. This will support the ongoing recovery of international markets, even as the weaker global economy continues to provide headwinds. Overall, we see further gradual recovery of many international markets over the next several years, bringing the total number of arrivals from markets other than the US and Japan back to roughly their 2019 level by the end of the decade.”

Read the entire UHERO forecast HERE.