Record COVID-19 case counts and additional preventive policy measures have caused an abrupt tourism pullback signaling a short-term decline in Hawaiʻi’s overall economic activity. However, as the Delta wave turns the corner, experts predict a period of weakness before growth resumes late in the year. These findings are included in the latest forecast for the state by the University of Hawaiʻi Economic Research Organization (UHERO).
- U.S. economic recovery sharply increased in the second half of 2020, bringing output above its previous peak by the second quarter of 2021. However, the Delta variant threatens to slow U.S. and global activity. And even before this, the recovery had been mixed, with labor markets lagging. Beyond this pandemic surge, global recovery will resume, but prospects are bleak for the poorest countries where vaccination progress has been extremely slow.
- Visitors from the continental U.S. reached an all-time high in July 2021, driven by healthy incomes and pent-up demand, and occupancy rates across all accommodations reached 80%. But a surge in COVID-19 cases prompted virus concerns, new preventive measures and Gov. David Ige’s request for visitors to delay Hawaiʻi vacations, leading to a sharp decline in the number of visitors to our islands. International visitors, who have been absent in the recovery so far, will begin to return in 2022, reaching more than half their pre-pandemic level by the middle of next year. Overall arrivals will recover from the fall slump by early summer 2022.
- The labor market faces pandemic-induced challenges. Hiring has been slow despite the large number of job openings. School and childcare closures, enhanced unemployment benefits and ongoing virus concerns have discouraged re-employment. Therefore, there are significant shortages of workers in a number of sectors. While employment gains will resume, job numbers will not match pre-pandemic levels for several years.
- The end of federal pandemic support will significantly reduce income for many Hawaiʻi families. This includes the end of special unemployment programs that supplemented weekly benefits, extended eligibility periods and extended benefits to contract workers. The child tax credit that began in mid-July will help, but is slated to end in December. Incomes are expected to decline into early next year before growth resumes.
- Housing markets have been hot, paralleling developments in the continental U.S. Low interest rates and demand from U.S. mainland buyers have helped boost Hawaiʻi home resale prices to new records. Rents have gone up at the same time that the eviction moratorium is ending. Residential homebuilding has been strong, and there has been some improvement in commercial occupancy, although temporary retail and restaurant closures threaten this progress.
UHERO concludes that the economic future remains very uncertain. A baseline forecast expects the adverse impact of the Delta variant and associated restrictions to continue through the fall. A pessimistic scenario considers the possibility that persistent restrictions due to COVID-19 could weigh more heavily on economic activity in Hawaiʻi and around the world. An optimistic scenario envisions a faster recovery from the Delta variant and a return of pent-up demand leading to a strong winter season and more rapid return to employment and income recovery.
This work is an example of UH Mānoa’s goal of Excellence in Research: Advancing the Research and Creative Work Enterprise (PDF), one of four goals identified in the 2015–25 Strategic Plan (PDF), updated in December 2020.