The Department of Business, Economic Development and Tourism (DBEDT) released its first quarter 2022 Statistical and Economic Report today. DBEDT raised its economic growth forecast for 2022 by one-fifth of a percentage point from 3.0 percent projected in the fourth quarter 2021 to 3.2 percent in the current projection. According to the U.S. Bureau of Economic Analysis, Hawaii’s economic growth rate, as measured by the growth of real gross domestic product (GDP), dropped 10.8 percent in 2020 and increased 3.2 percent during the first three quarters of 2021. Though the 4th quarter 2021 GDP data at the state level will be available on March 31, 2022, DBEDT expects that the economic growth for 2021 would end up at 3.8 percent.
Visitor Industry Performance
Visitor arrivals totaled 6.8 million in 2021, about 65.3 percent of the level of 2019 and visitor spending reached $13.0 billion. Tourism industry maintained the momentum of recovery heading into 2022 with a recovery rate of 70 percent (as compared with the same month in 2019) in January and 79 percent recovery in February 2022, even though COVID-19 cases skyrocketed due to the Omicron variant.
In 2021, U.S. mainland visitors accounted for 95.4 percent of total visitors, representing a 94.1 percent recovery from the 2019 level. International visitor recovery was only at 9.3 percent. Since May 2021, the U.S. visitor count has surpassed the 2019 monthly levels. Compared with 2019 and 2020, visitors from the U.S. mainland now spend more on a daily basis and stay longer.
As currently scheduled, air seats will increase by 5.5 percent in April this year as compared with same month in 2019. Seats from domestic flights continued surpassing the 2019 same month level during the first 4 months of 2022 with 20.8 percent increase in January, 25.8 percent increase in February, 23.3 percent increase in March and 28.1 percent increase in April 2022. For the entire year of 2021, seats from international flights that came to Hawaii were only 11.9 percent of the 2019 level. In January 2022, the scheduled air seats from international flights rose to 30.8 percent of the January 2019 level, dropped to 28.6 percent in February, will increase to 36.4 percent in March, and 50.7 percent in April 2022. The increase in air seats on international flights are mainly due to the resumption and new routes from Canada to Hawaii airports. After a two-year hiatus, Jetstar, an Australian low-cost airline, will resume flights to Honolulu from Melbourne, Australia on March 1 of this year.
State Tax Revenues
State tax collection started the year with 31.1 percent surge in general fund revenue in January 2022 from the same month in 2019. In calendar year 2021, the annual state general fund tax revenue totaled $8.1 billion, a 27.0 percent increase from 2020, and 11.4 percent up from 2019.
As a comprehensive indicator of Hawaii’s economic activities, the state general excise tax (GET) collections went up 16.0 percent in January 2022 from January 2019 (GET tax collections lags sales by one month). The annual GET collection was $3.6 billion in calendar year 2021, up 18.6 percent from 2020 and about the same level as 2019.
In January 2022, the state net individual income tax revenue increased 42.8 percent from the same month of 2019. The annual net individual income tax collection amounted to $3.4 billion, a 29.2 percent increase from 2020 and a 25.1 percent increase from 2019.
Labor Market Conditions
Hawaii’s labor market conditions continued to improve throughout 2021 with unemployment rates decreasing to a seasonally adjusted rate of 5.7 percent in December 2021 and 4.9 percent at not seasonally adjusted rate. This compares to the 10.3 and 9.3 percent unemployment rate in December 2020 for seasonally adjusted and not seasonally adjusted, respectively. In December 2021, the total number of people employed either as payroll employees or self-employed was the highest since March 2020 at 610,350 and represents a 92.5 percent recovery compared to the pre-pandemic period of December 2019. Initial unemployment claims during the week ending February 19, 2022 dropped to 1,414. As a comparison, the average weekly initial unemployment claims were 1,200 in 2019.
Non-agricultural payroll jobs grew 2.0 percent from 2020 to 2021 and recovered to 86.3 percent of the 2019 level. The fourth quarter 2021 growth rate was at 8.6 percent from the same period in 2020, with a recovery rate of 87.6 percent from 2019. Leading the job recovery in the fourth quarter of 2021 was the construction industry with 98.9 percent of the fourth quarter 2019 job count, followed by federal government civilian jobs at 97.7 percent, county government jobs at 96.0 percent, and wholesale trade at 95.9 percent. Falling behind is the leisure and hospitality sector (art, entertainment and recreation, accommodation, and food services) which only had a 75.8 percent recovery rate and ranked the lowest recovery rate among all the sectors.
Although it has improved significantly, Hawaii is still among the states with the highest unemployment rate. The non-seasonally adjusted rate was the 6th highest in the nation in December 2021. Hawaii’s labor force participation rate continues to trend down and averaged 60.1 percent in 2021, down from 61.7 percent in March 2020. The declining labor force participation rate is a sign of just how tight the labor market is and indicates a labor shortage.
Construction and Real Estate
The construction industry performed well during the pandemic. In 2020, total construction put in place as measured by the contracting tax base reached a historic high of $9.8 billion. During the first eleven months of 2021, the total value of construction completed was $9.3 billion, a 3.5 percent increase from the same period in 2020.
In 2021, the value of private building permits issued by the county building departments increased 20.5 percent of which the value of residential building permits increased 74.2 percent while the value of commercial and industrial permits and additions and alterations building permits decreased 11.0 percent and 10.7 percent, respectively. The value of residential permits accounts for 53.2 percent of the total permit value. The increase in residential permit value was high enough to offset the decrease in the other two categories.
In 2021, there were 25,970 homes sold statewide, the highest since at least 2008 when the home sale statistics were collected. This represents a 40.0 percent increase from 2020 and a 29.1 percent increase from 2019. Of the homes sold in 2021, 46.4 percent or 12,048 were single-family homes and 53.6 percent or 13,922 of them were condo units.
The average sale price for single-family homes in 2021 was $1,053,819, representing a 32.3 percent increase from 2019 and a 26.3 percent increase from 2020. The average sale price for condo homes was $672,793, an increase of 18.6 percent from 2019 and 13.3 percent from 2020.
Of the homes sold in 2021, 19,696 units or 75.8 percent were sold to local buyers and 24.2 percent or 6,274 were sold to out-of-state buyers. Between 2008 and 2021, 75.0 percent of the residential homes were purchased by residents.
Other New Developments
New developments in the U.S. and the local economy in the past few months will impact the economic growth nationwide.
Prices in the Honolulu area, as measured by the Consumer Price Index for All Urban Consumers (CPI-U), rose 6.0 percent in January 2022 over the last 12 months. It was the highest since 1991 when the annual rate was 7.2 percent. Hawaii’s rising inflation follows the national trend where the U.S. consumer prices increased 7.5 percent over the past year. The increase in inflation was partly driven by energy prices, which jumped 32.2 percent due to an increase in the gasoline price. The recent Ukraine crisis may raise oil prices further and threaten to make inflation worse. Russia was Hawaii’s third largest importing country in 2021. Hawaii imported 6.2 million barrels of crude oil from Russia during the first 11 months of 2021, accounting for 26.6 percent of the total foreign petroleum imports. The international sanctions on trade with Russia with likely drive oil price up further. Supply chain disruptions and labor shortages are also contributing to the rise in inflation. These upward pressures on prices would ease to a certain extent as the US Federal Reserve is expected to tighten the monetary policy by hiking its key interest rates as early as March.
As COVID-19 cases and hospitalizations around the country continue to fall, city and state leaders race to lift COVID restrictions and prepare for full reopening. However, it is reported that a more infectious type of the Omicron variant has surged to account for more than a third of global COVID-19 cases recently. While health authorities are examining whether this subvariant of Omicron could extend the length of the COVID -19 wave, it remains to be seen how these new variants may disrupt the economic recovery.
In 2021, there were a total of 1,184 bankruptcy filings, representing a 22.3 percent decrease from 2020. For the first month of 2022 the bankruptcy filings dropped to 70, a record low since February 2006.
The most recent economic projections at the national level by the Blue Chip Economic Indicators (February 2022 issue) lowered the U.S. economic growth rate for 2022 from 4.0 percent in its November 2021 issue (when DBEDT performed 4Q 2021 forecast) to 3.7 percent in February 2022 issue. For 2023, the national economic growth rate was projected to be at 2.6 percent.
Forecasting Results
In the current report, DBEDT predicts that Hawaii’s economic growth rate, as measured by real domestic product (GDP), will increase 3.2 percent in 2022 over the previous year. The economic expansion path will continue with a 2.5 percent increase in 2023, 2.3 percent in 2024, and 2.0 percent in 2025. These growth rates are higher than the projections made last quarter.
The visitor arrivals forecast is projected to be 9.0 million in 2022, or about 86.3 percent recovery from the 2019 level. Visitor arrivals are projected to increase to 9.7 million in 2023, 10.0 million in 2024, and 10.4 million in 2025, which is fully recovered to the 2019 level. Visitor spending is projected to be $16.7 billion in 2022, which is about a 93.8 percent recovery from the 2019 level. Visitor spending is projected to grow at 7.9 percent, 4.9 percent, and 3.5 percent, respectively for 2023, 2024, and 2025.
Non-agriculture payroll jobs are forecast to increase by 4.8 percent in 2022 then will increase by 3.2 percent in 2023, 2.6 percent in 2024, and 2.2 percent in 2025. For the current forecasting period (up to 2025), non-agriculture payroll jobs will not recover to the pre-pandemic (2019) level until after 2025.
The state unemployment rate will gradually improve as economic growth returns. The rate (not seasonally adjusted) is projected to be 4.0 percent in 2022, 3.5 percent in 2023, and 3.2 percent in 2024. It will finally decrease to 2.8 percent in 2025, about the same level as the average unemployment rate for the five years before the pandemic (2015-2019) at 2.7 percent. These rates are lower than the ones projected last quarter.
During the pandemic, personal income surged due to government transfers related to unemployment insurance payments and other CARES Act funds. As these government supports faded out in early 2021, personal income is expected to decrease in 2022 by 1.7 percent, following a 5.0 percent increase in 2021. Growth of personal income is projected to be between 3.5 and 3.1 percent for the following years until 2025.
As measured by the Honolulu Consumer Price Index for urban consumers, inflation is expected to increase in 2022 to 4.8 percent, still lower than the projected U.S. consumer inflation rate at 5.0 percent. Hawaii consumer inflation will increase at rates between 2.6 and 2.1 percent in the following years until 2025. These inflation projections are higher than those projected last quarter (4Q 2021).
Statement by Director Mike McCartney
Hawaii’s economic recovery has been gaining momentum as we enter the last month of the first quarter of 2022. As the negative impacts on our economy from the Covid-19 pandemic subsides, we find ourselves facing another challenge. Global supply chain disruptions and increasing oil and energy prices due to the war between Russia and Ukraine may impact our economy, especially the airlift and demand for travel. We are working with the petroleum companies to diversify the source of oil imports and minimize the impact of any international crisis.
This new challenge is an opportunity for Hawaii to double down on our unified efforts to accelerate our conversion to clean energy and build a new economy that goes beyond net zero emissions.
We have seen increases in investment and consumption in our state during the past 12 months especially from a boom in the construction industry and real estate market. Our tourism markets faced some setbacks due to the Omicron variant, but the industry continues to recover and will likely see accelerated overall growth during the second quarter of 2022.
I remain positive about being able to improve the economic prosperity for all of Hawaii’s citizens because of their commitment to be safe, resilient, innovative, patient and to persevere.
The full report is available at: dbedt.hawaii.gov/economic/qser.
