Hawai‘i's Economic Recovery: A Gradual Shift Beyond Recession

The University of Hawai‘i Economic Research Organization (UHERO) released its first quarter forecast for 2026 on February 27, indicating that Hawai‘i's economy is gradually moving beyond a mild recession experienced in the previous year. The report highlights a modest recovery, primarily supported by a resilient U.S. economy and ongoing strength in the construction sector. Despite these positive indicators, the recovery is expected to be slow, with tepid job and income growth becoming the new normal due to structural challenges and low population trends.

Hawai‘i Gradually Moving Beyond Recession, UHERO Report Says

According to UHERO, payrolls in Hawai‘i have begun to increase after job losses linked to a downturn in tourism and federal job cuts. The unemployment rate is projected to remain low at 2.2%, while inflation in Honolulu is expected to peak just above 3% in the latter half of the year before easing to a 2.5% trend. Real GDP is anticipated to expand by 1.6% in 2026, with real income growing by approximately 1% annually. However, the forecast remains clouded by significant risks, including trade policy uncertainty and potential federal workforce reductions.

Hawai‘i Gradually Moving Beyond Recession, UHERO Report SaysUHERO: Hawai‘i economy turns a corner, moves beyond recession with modest growth : Maui Now

Tourism, a critical component of Hawai‘i's economy, has stabilized but is not yet experiencing significant growth. In 2025, the average daily visitor census declined by 1.3%. While domestic visitors have helped offset losses from international markets, particularly from Japan, a substantial recovery in visitor numbers is not expected until 2027. On Maui, visitor arrivals increased by 7%, reflecting ongoing recovery efforts from the 2023 wildfires, although overall numbers are still projected to remain below pre-fire levels by the end of the decade.

Hawai‘i Gradually Moving Beyond Recession, UHERO Report Says

The construction sector has emerged as a bright spot in the local labor market, with payrolls growing by over 4% in the past year, adding approximately 1,700 jobs. This growth is attributed to elevated government contracting and increased building activity, particularly on Oahu and in Maui County. Other sectors, including health care and accommodations, are also expected to contribute to job growth, although losses in federal civilian employment may dampen overall growth figures.

UHERO: Hawai‘i economy turns a corner, moves beyond recession with modest growth : Maui Now

Despite the positive outlook, challenges remain. The recent passage of Bill 9 in Maui County, which phases out short-term vacation rentals, has raised concerns about its potential impact on tourism activity and local jobs. Critics argue that while the conversion of these rentals to long-term housing could increase housing stock, it may also lead to reduced visitor capacity and economic trade-offs.

UHERO: Hawai‘i economy turns a corner, moves beyond recession with modest growth : Maui Now

Hawai‘i's economic recovery is characterized by gradual growth, with significant uncertainties ahead. While the adoption of artificial intelligence and other technological advancements may offer some promise, the overall trajectory suggests a slower growth rate than in previous years. As the state navigates these challenges, continued monitoring of economic indicators and policy impacts will be essential for understanding the path forward.

Hawai‘i Gradually Moving Beyond Recession, UHERO Report Says