The Department of Business, Economic Development and Tourism (DBEDT) released its fourth quarter 2020 Statistical and Economic Report on December 4th. Based on recent developments in Hawaii’s economy, DBEDT now projects that Hawaii’s economic growth will fall by 11.2 percent in 2020, less than the 12.3 percent previously forecast.

Recent Economic Improvements

Improvement in the Hawaii economy includes the following:

1. Visitor arrivals recovered by 23 percent in November 2020 in comparison to the level, in the same month, in 2019. The preliminary visitor count for November was 6,100 a day, which is an improvement from 630 a day for the first half of October and from 4,000 a day for the second half of October.
2. Hawaii bankruptcy filings fell by 9.4 percent during the first eleven months of 2020 compared with the same period in 2019.
3. Personal income rose 15.9 percent during the second quarter of 2020 compared with the same quarter a year ago.
4. Initial unemployment claims have been stable at below 5,000 level since October 17. For the most recent week (week ending November 28), initial unemployment claims were 6.7 percent of the peak level, which occurred in the week ending April 4, 2020 with 53,112 unemployment filings.
5. In December 2020, 935 more flights are scheduled from the U.S. mainland and 84 more flights are scheduled from international destinations than in November 2020. Of the international flights in December, 42 will be coming from Canada, which is the first time that Hawaii has had Canadian inbound flights since April 2020.
6. Hawaii’s unemployment rate continued to decline from 23.4 percent in May 2020 to 14.2 percent in October 2020.
7. In terms of average daily new COVID-19 cases per 100,000 population, Hawaii’s cases ranked the lowest among the states in the nation for the week ending December 3, 2020, with 5.7 cases per 100,000 population in Hawaii versus 53.3 cases per 100,000 population for the U.S. as a whole.
8. According to U.S. Congressman Ed Case, the COVID-19 vaccine will be available for distribution in the middle of December 2020.
9. A bipartisan group of lawmakers unveiled a $908 billion coronavirus relief proposal on December 1, 2020, with more federal funds potentially coming in 2021.
10. The U.S. stock market, in terms of the Dow Jones Industrial Index, had the best month in November 2020 since 1987.
11. The outlook for U.S. economy has continued to improve in recent months. According to the Blue Chip Economic Indicators report issued in November the U.S. economy is expected to contract by 3.7 percent in 2020. That is an improvement from the May forecast of 5.8 percent contraction in 2020. The Blue Chip forecast is for 4 percent U.S. economic growth in 2021.The Blue Chip Economic Indicators is a consensus of 50 economic forecasting organizations.

The improvements cited above are mainly attributed to the federal government assistance programs and the starting of the pre-travel testing program for trans-Pacific passengers. As of the end of November, federal funds allocated to Hawaii totaled $10.3 billion, of which 80.3 percent has been spent.

Economic Challenges Remain

According to an estimate by the U.S. Bureau of Economic Analysis, Hawaii’s real gross domestic product (GDP) fell by 13.9 percent in the second quarter of 2020 compared with the same quarter of the previous year. As the pandemic took hold, tourism-related industries were hit the hardest in the second quarter with real GDP declines in Arts, Entertainment and Recreation (-61.8%), Accommodation and Food Service (-61.1%), Transportation and Warehouse (-30.6%), Educational Services (-18.4%), and Wholesale Trade (-17.9%). Buoyed by resident spending, the retail industry fared better than other tourism-related industries, declining 9.0 percent in the second quarter over the same quarter of the previous year.

GDP for knowledge-based industries showed a measure of resilience, declining less than overall state GDP in the second quarter compared with the same quarter of the previous year. These industries included Finance and Insurance (-1.3%), Information (-2.8%), Management of Companies and Enterprises (-4.3%), and Professional, Scientific, and Technical Services (-8.7%).

The construction industry also showed resilience, with a modest GDP decline of 3.5% in the second quarter over the same quarter of the previous year. Commercial and industrial construction appears to be paving the way for a recovery, with the value of September year-to-date building permits up 89.6 percent over the same period of 2019.

In spite of the pandemic, there were two non-agriculture industries that grew during the second quarter: Federal Civilian Government (1.7%), Utilities (2.6%).

There were 110,000 fewer non-agriculture payroll jobs in the third quarter of 2020 compared with the same quarter of 2019. The decline in jobs was the highest for Accommodation (-33,300 or 77.8%), Food and Drinking Places (-30,000 or 42.7%), Transportation, Warehousing & Utilities (-9,800 or 28.7%), Professional & Business Services (-7,500 or 10.1%), and Arts, Entertainment, and Recreation (-5,900 or 43.1%).

The challenging climate for businesses was reflected in the second Hawaii Commercial Rent Survey conducted by Island Business Management Hawaii with data provided by DBEDT and released in October. Company revenues were down almost across the board, with 86.4 percent of respondents indicating that 2020 revenues would be below 2019 revenue. Furthermore, 11.9 percent of those surveyed indicated that their revenues would be 50 percent or more below 2019 levels. As revenues declined, the ability of Hawaii s businesses to meet their basic expenses became increasingly difficult. When asked about their level of hardship to pay expenses, “extreme hardship” was indicated by 43.7 percent of the businesses for rent expenses, 40 percent for employee expenses, and 36.7 percent for operating expenses.

At the national level, the U.S. economic growth rate was negative 9.0 percent for the second quarter and negative 2.9 percent for the third quarter of 2020 compared to the same quarters in 2019. The Blue Chip Economic Indicators November report forecast that a majority of countries in the world will have economic contractions in 2020 with China as an exception with a 2.0 percent increase. Declines in 2020 are forecast for the European region, 7.6 percent; Japan, 5.4 percent; Canada, 5.8 percent; Australia, 3.9 percent; and South Korea, 0.9 percent.

Forecasting Results

DBEDT now projects that Hawaii’s economic growth rate, as measured by real GDP, will drop by 11.2 percent in 2020, then will increase at 2.1 percent in 2021, 2.0 percent in 2022 and 1.2 percent in 2023.

Hawaii is forecast to welcome 2.7 million visitors in 2020, a decrease of 73.7 percent from 2019. Visitor arrivals are forecast to increase to 6.2 million in 2021, 7.7 million in 2022, and 8.8 million in 2023. Visitor arrivals are not expected to reach 2019 levels until 2025.

Visitor arrivals to the state from April to October 2020 totaled 171,136, a decrease of 97.2 percent from the same period in 2019. However, these visitors stayed longer in Hawaii with an average length of stay at 22.9 days. In 2019 visitor average length of stay was 8.6 days.

Non-agriculture payroll jobs are forecast to shrink by 11.9 percent in 2020, then increase by 6.1 percent in 2021, 2.5 percent in 2022 and 1.9 percent in 2023. Like the GDP growth, non-agriculture payroll jobs are not expected to recover to pre-crisis level until 2025.

The state unemployment rate is projected to average 11.2 percent in 2020, then decrease to 7.9 percent in 2021, 7.1 percent in 2022 and 6.6 percent in 2023. These rates are much higher than the average Hawaii unemployment rate of 2.5 percent between 2017 and 2019.

Nominal personal income is expected to increase by 7.6 percent in 2020, mainly due to the federal assistance programs. The majority of the increase in personal income came from government transfers related to unemployment insurance payments and other transfers mostly related to the CARES ACT funds, which offset declines in wages and salaries. Nominal personal income is expected to decrease by 7.8 percent in 2021 due to the reduction in federal assistance programs.

Inflation is expected to remain moderate. As measured by the Honolulu Consumer Price Index for urban consumers, inflation is forecast to increase at rates between 1.6 to 2.3 percent for the next few years. These growth rates are higher than those projected in the previous quarter. During the second half of 2020, Honolulu consumer inflation was 1.6 percent, with increases in items including Food & Beverage (2.7%), Housing (2.6%), and Apparel (4.9%) being offset by declines in Transportation (-4.5%) as fuel prices fell.

Statement of Director Mike McCartney

“We are happy to see the improvements in the economies of the U.S. and Hawaii. It is great to see the airlines adding flights to our state, especially those from Canada and Japan. With the expected distribution and use of the COVID-19 vaccine in December, I believe our tourism recovery will be accelerating in 2021,” said DBEDT Director Mike McCartney. “During the last three quarters of 2020 we faced unprecedented challenges while slowly restarting our economy and will continue to face more difficult times during the first half of 2021. Nonetheless, I am optimistic that we will see accelerated economic growth during the second half of 2021 due to increased visitor arrivals thanks to our Safe Travels program and the distribution of a COVID-19 vaccine.”

The full report is available at: dbedt.hawaii.gov/economic/qser.