The state Department of Business, Economic Development and Tourism has lowered its economic forecast for the state amid “increased uncertainty” surrounding the current economic climate, according to its third quarter 2019 Statistical and Economic Report.
Economic growth rate forecasted to slow down in several areas
The report, which was released Friday, says that the trade war between the United States and China has been impacting both consumer prices and visitor arrivals from China to Hawaii, and economic growth in 2019 and 2020 is expected to slow down across the U.S. — and the globe.
For Hawaii, DBEDT now predicts that economic growth for the state will be 1.1% for 2019, and between 1.2 and 1.3% for the next few years.
DBEDT also cited a report by Blue Chip Economic Indicators, a compilation of economic forecasts, that found that the U.S. economic growth rate also decreased from 2.6% to 2.4% in May 2019. Hawaii’s economic growth has trailed behind that of the Mainland’s by 18% for the past decade, according to data released by DBEDT back in March.
While the report found that the decrease in visitor arrivals to Hawaii from China is being offset by an increase in Mainland arrivals from the U.S. West, DBEDT also forecast that visitor spending growth will decrease to rates between 1.9 and 2.3%, due to the change in market shares between international and domestic visitors.
“After eight months of consecutive declines in visitor spending, we saw an increase in visitor spending in June,” said Eugene Tian, a state economist, in a statement. “We project visitor spending will increase by 2% during the second half of the year and will offset the 2% decrease during the first half, leaving the total visitor spending flat for 2019.”
The forecasts for personal income growth, both real and nominal, were also lowered according to the report, as well as the payroll job growth projection — which was lowered to 0.4% for 2019 and at a similar growth rate for the next few years. Officials also expect visitor expenditures to decrease by 0.2% this year following the decreases in the first half of 2019.
Uncertainty surrounding Oahu’s vacation rental ban
DBEDT’s report found that Oahu’s vacation rental ban, also known as Bill 89, has not yet affected visitor arrivals, since going into effect Aug. 1.
“For one, it just happened, so the soonest you would begin to see impacts on tourism would probably be October or November,” said Carl Bonham, executive director of the University of Hawaii Economic Research Organization, in an interview with PBN. “It’s kind of a complicated, highly uncertain mess, but it has the potential to be a negative in the short term for tourism.”
Bill 89 allows the 770 rentals that were granted permits in 1989 — the last time that the city issued permits for vacation rentals — to continue operating, but dictates that no new permits will be allotted for whole-home transient vacation units. The measure also imposes fines starting at $1,000 and increasing to as high as $10,000 per day for violations, according to previous PBN reporting.
Private building permit value declines across the board
According to DBEDT’s report, one of the biggest problems facing Hawaii’s economic growth is the declining value of private building permits across the state. Through June, the value of private building permits decreased by 13.2%, residential permit values decreased by 18.2%, and commercial and industrial permit values decreased by 56.9%. Only the value for additions and alterations increased by 6.6%.
Officials say that the decrease in value of private building permits may indicate “a future slowdown in construction activity,” even though the industry has added 700 more jobs in June compared to the same period last year.
“The building permits have fallen significantly and those building permits are seen as a leading indicator of construction activity,” Bonham said. “Therefore [DBEDT’s report] is likely suggesting that there will possibly be less construction going on in the future.”
Bonham, however, disagrees that the double-digit drop in permits is one of the largest threats to Hawaii’s economy.
“Rising unemployment, falling employment, a declining population and no job growth are our biggest problems,” Bonham said. “And that’s what’s happening now, not what could happen in the future.”
Hawaii sees growth in GDP, passenger count, home sales
While every state saw GDP growth in the first quarter of 2019, Hawaii’s GDP growth rate was the lowest in the nation, with a 1.2% increase, according to the most recent data from the U.S. Bureau of Economic Analysis.
On the plus side, total passenger count has grown by 4% during the first three weeks of August from the same period a year ago, and passengers from the Mainland to Oahu increased 8.7%, according to the report.
“If you look at some of the biggest economic indicators like visitor arrivals, income growth and tax revenue growth, a vast number of those economic indicators are positive,” Bonham told PBN.
DBEDT officials also say that volume of home sales on Oahu have recovered from declines at the beginning of the year and median sale prices are rising and setting new records.
“Though we are facing increased uncertainties, we are pleased to see that our tax revenue growth is still strong,” said DBEDT Director Mike McCartney, in a statement. “We had a record first seven months in calendar year 2019 with tax revenue of $4.4 billion that was deposited into the general fund which represented a 6.8% increase from the same period a year ago.”
To see the full report, click here.
Courtesy Olivia Peterkin Web Editor, Pacific Business News