Introduction to Hawaii’s Economic Prospects
Hawaii’s economic prospects are looking bleak, with the University of Hawaii Economic Research Organization (UHERO) predicting a mild recession in the islands over the next year. The organization’s third quarter forecast for 2025 highlights several key areas of concern, including a decline in visitor numbers, stalled job growth, and weak housing activity.
Current Economic Conditions in Hawaii
In Hawaii, the number of visitors has decreased, job growth has come to a standstill, and housing activity remains weak. Inflation is expected to rise over the next year as tariffs feed through to consumer prices. The only major source of strength in the economy is construction, which is being supported by large federal contracts and other public projects.
U.S. and Global Conditions Worsen
The U.S. economy is also showing signs of weakness, with consumer spending slowing down and job growth ceasing to grow. The national unemployment rate remains stable only because of the loss of foreign-born workers. Abroad, Canada has fallen into recession, and Japan’s modest recovery is slowing down as exports fall and interest rates rise. Other key Hawaii visitor markets are also facing similar strains, which could have a negative impact on Hawaii’s economy.
Impact of Tariffs on Hawaii Tourism
The visitor industry in Hawaii has deteriorated mid-year, with seasonally adjusted arrivals falling by 8% between April and July. International markets have seen the biggest losses, with the Canadian visitor census down 9%. This leaves Hawaii dependent on a continental U.S. market that is vulnerable to a U.S. recession. While losses to date are a bit smaller than anticipated, UHERO sees arrivals about 5% lower than last year by the middle of 2026, with real visitor spending expected to decline by more than $600 million.
Stalling Labor Markets
Hawaii’s payroll job growth has stalled since March, leaving employment 15,000 jobs below pre-pandemic levels. Many sectors are now contracting, led by federal job losses and tourism sector declines. The drop in federal jobs will deepen as deferred resignations take effect, and payrolls are projected to fall through late 2026 before a slow recovery begins.
Inflation and Its Impact on Households
Honolulu inflation has receded to 2.3% in July, but the gradual pass-through of tariffs will lift consumer price index inflation to about 4% at the end of next year. By 2026, inflation will have lifted local prices by an average of 1.5% more than it would have been, permanently raising typical household costs by roughly $1,400 annually. State income tax relief will help to support purchasing power, but federal cuts will remove benefits for tens of thousands of people, hitting the lowest-income families hardest.
Construction as a Source of Growth
Hawaii’s sole area of resilience continues to be construction, where recently announced military construction, ongoing Skyline work, and Aloha Stadium redevelopment will sustain industry employment near 40,000 jobs through the end of the decade. Maui rebuilding will also support the industry, but the biggest risk to the sector is the impact of tariffs on the cost of materials.
Conclusion
In conclusion, Hawaii’s economic prospects are looking bleak, with a mild recession predicted over the next year. The decline in visitor numbers, stalled job growth, and weak housing activity are all major concerns. The impact of tariffs on Hawaii tourism, stalling labor markets, and inflation will all have a negative impact on the economy. However, construction remains a source of growth, and with careful planning and management, Hawaii can navigate these challenges and work towards a stronger economic future.
