The state Department of Business, Economic Development and Tourism revised its economic growth projection upward to 1.9% for 2023, and lowered its projection for 2024 from 1.5% to 1.3.%
Those numbers were in DBEDT’s Statistical and Economic report for the fourth quarter.
The increase for 2023, according to DBEDT, was mainly due to the strong growth during the first half of the year.
Data released by the U.S. Bureau of Economic Analysis indicated that Hawaii’s economic growth during the first half of 2023 was at 2.4%, higher than U.S. growth of 2%.
DBEDT expects that economic growth for the second half of 2023 will be at 1.4% percent, lower than the first half, due to the Aug. 8 Maui wildfires, while the decrease in growth expectations for 2024 is mainly due to projections of a global economic downturn.
Joe Kent, executive vice president of the economic policy think-tank Grassroot Institute of Hawaii, called the report “backwards-looking.”
“Our economy is growing, but it’s sluggish, and there’s a lot of weakness underneath the hood, and a lot of it is not captured in the numbers,” Kent said. “Let’s not forget that state tax revenues declined in fiscal 2023 by 1.7%. So, our economy is not strong right now.”
The report noted a 51.4% decrease in air arrivals to Maui between August and October than during the same period in 2022, with spending by those visitors down 41.4%.
The statewide effect of those fires translated to a 7% decrease in visitor spending statewide during that period compared to 2022. It also said the Valley Isle’s visitor numbers, in terms of days stayed and expenditures, started to improve in October.
Kent said those numbers come punctuated by question marks, including, “How much is the state going to be on the hook for when it comes to the Lahaina fire recovery?”
“The feds are paying … hundreds of millions at least, if not billions, and the state doesn’t really know how much it’s going to be on the hook for that in the long run,” he said. “You’ve got these costs that aren’t in this forecast, like potential lawsuits against the state, the county, (Hawaiian Electric) and other entities. A lot of those costs, whether (the plaintiffs) win or lose, may be paid by the residents, either in higher fees and taxes.
“You’ve got HECO, which is seeking to raise its electricity rates to potentially pay for those lawsuits, and you’ve got the housing costs for residents who’ve been displaced for long periods of time, insurance rate hikes — because, all of a sudden, the insurance companies are realizing how much they’ve mispriced the risk for wildfire events and other major disasters — and water hike rates, too.”
The report said inflation was 3% during the first nine months of 2023, higher than the 1.7% experienced during the same period in 2019, but much lower than the national level of 4.4%.
The report called the near-term construction industry outlook as “favorable.”
In the first 10 months of 2023, the average level of construction jobs increased 2.4% over the same period in 2022 and exceeds the average level in 2019 by 0.9%. Construction earnings for the first half of 2023 were up 5.5% compared to the first half of 2022.
The report noted several large-scale projects approved for Maui, including: the Kuihelani Solar + Storage Project at $26.3 million; Maui Bay Villas at $76.2 million; Grand Wailea at $36.3 million; a new hotel planned for the old Maui Palms site in Kahului at $34.8 million; and Kapalua Bay Villas at $32.2 million.
What isn’t projected is the scale and cost of construction of homes needed to replace those destroyed in the fires for Maui residents who elect to stay.
The fires exacerbated a longstanding concern about Hawaii’s declining population, with the report noting that “more residents may decide to move out of state.”
According to the report, labor force growth slowed over the last three quarters of 2023 and began to decrease in the third quarter. The shortage of labor remains a challenge for the state’s economy, the report said.
Kent said Hawaii’s tax burden also is a major factor causing the workforce exodus, adding, “A lot of states have no income tax.”
“It just makes no sense to keep pushing our workers off the tax cliff when they get salary hikes,” he said. “That pushes them not only off the tax cliff, but off the Hawaii cliff, and they move to the mainland.
“We’re recommending that policy leaders focus on improving Hawaii’s economic climate,” he concluded. “And the best way to do that is to send a signal, such as by lowering taxes or regulation, where possible. If we were able to lower corporate taxes or peg the income taxes to inflation or reduce the state taxes, we would see more investment in-state over the long term. We might lose in the first year, but win in the long term when people see that Hawaii is where they want to invest.”
Email John Burnett at jburnett@hawaiitribune-herald.com.
