Updated: October 3, 2022
University of Hawaiʻi Economic Research Organization’s economic forecast released today predicts a mild recession for the US in the first half of next year. One silver lining is that Hawai’i may escape those impacts, thanks to the return of Japanese visitors.
However, Maui County and Kauaʻi will likely feel the brunt of the downturn because of their reliance on US Mainland tourism, which is already slowing, Dr. Carl Bonham, UHERO executive director, said during a news conference Thursday.
“The negative impacts of the US recession are going to be felt most acutely on Maui and Kauaʻi,” Bonham said. “The smallest effects and the best growth will be seen on Oʻahu and on the Big Island.”
Pointing to pent-up demand, the economist said the Japanese visitor market may return to about 50% of pre-pandemic levels by the first quarter. The Aloha State may avoid overall net job losses due to the return of Japanese travel that’s now “finally underway,” the forecast said.
Big Island, with direct flights from Japan to Kona, along with Oahu, will benefit from the relatively strong return.
Also Hawaiʻi island is bolstered by more university and state dollars than other Neighbor Islands, and O’ahu has economic benefits of military defense, research and development and manufacturing.
“It’s a little more of a diversified economy than Maui or Kauaʻi,” Bonham said. “The problem we’re forecasting, and again this is just a forecast, the problem for Maui and Kauaʻi, that we expect a decline in US visitors, over the next, really, from here on, and the decline in spending from those markets. What happens on Oʻahu and on Big Island is more that the return of the Japanese and other international sort of offsets that and that doesn’t happen so much on Maui and Kauaʻi.”
Bonham said Maui’s luxury market during a downturn could be a “double-edged sword.”
Maui County has the highest room rates in the state, which could further deter US Mainland travelers. On the other hand, higher-spending visitors may weather the recession better than the average household.
The continued return of other international visitors, including those from Canada, New Zealand and Australia, are important to Maui’s economy during the slowdown, Bonham said.
“Overall, recovery of total international visitors in 2023 for Maui is expected to offset the loss of US market due to the US recession,” he told Maui Now after the news conference. “We still expect a 1% increase in total visitors on Maui next year, and only once the international recovery is largely complete and US arrivals continue to wane in early 2024, do we see an overall decline in visitors.”
Another factor setting Maui apart is its housing market, particularly that the county lacks new inventory.
“That suggests that Maui is not likely to see as much of a slowdown/decline in home prices as we have forecast for Oʻahu,” Bonham said. “And, the rising costs of bringing new homes to market — higher building costs that we discuss, higher interest rates, and reduced affordability does not bode well for increasing the supply of housing on Maui.”
Overall, all islands are facing high inflation — seen in big grocery bills and pricier plate lunches. Food costs are continuing to rise in double digits to the 10% range.
UHERO’s third quarter Hawaiʻi forecast shed light on the mild US recession predicted for 2023 and how it will weigh on Hawai’i’s recovery.
In the face of 8%-plus inflation, the Fed will make additional large interest rate hikes, sharply reducing spending, the report said. High mortgage rates have already caused a downturn in the national housing market, and high inflation is eating into household budgets. While labor markets remain tight for now, UHERO expects US growth to manage just 0.3% next year.
While high inflation, higher travel costs and Fed interest rate hikes will adversely impact Hawaiʻi households and businesses, there is a possibility that Hawaiʻi could come out of the US recession unscathed.
“There’s an urban myth in Hawai’i that when the US economy goes one direction, six months later, Hawaiʻi follows,” Bonham said. “That’s not true. In fact if you looked at past recessions, two out of the last four past recessions, Hawaiʻi basically grew right though the US recession or at least grew much more than the US economy did, which was shrinking.”