A new report by the University of Hawaii Economic Research Organization has grim news for Hawaii’s economy: construction hasn’t picked up as much as economists predicted, and a stalled tourism industry is slowing the state’s economic growth.

The annual economic forecast found that tourism in Hawaii was “essentially flat” in the first half of this year. A report by the Hawaii Tourism Authority issued earlier this week found that total visitor spending grew by 2.5 percent in the first half of 2014 to $7.4 billion, but that there are still fewer tourists coming from the mainland and that overall arrivals have slightly declined.

On top of that, the construction industry hasn’t grown as quickly as economists anticipated. In fact, the number of construction jobs has actually declined slightly this year.

Building crane on new construction in Kakaako on July 21, 2014

Building crane on new construction in Kakaako on July 21, 2014.

PF Bentley/Civil Beat

But the UHERO report predicted that the situation will improve, estimating construction jobs will grow by as much as 8 percent in 2015-2016 and will peak in 2018.

More good news: Payroll jobs are supposed to return to pre-recession levels later this year.

Still, economists say Hawaii is vulnerable to swings in the global economy.

The report’s conclusion wasn’t optimistic:

“Tourism can no longer be a growth engine in Hawaii, government dollars will be constrained, and construction can only do so much,” it said. “This is the reality we face for at least the next half-decade. If we are lucky on the national and international front and maintain supportive local policies, relatively healthy conditions should prevail in Hawaii. If not, well….”

State economist Eugene Tian said the UHERO analysis wasn’t surprising. He guessed that the construction industry will improve later this year but said delays in permitting have stymied job projections.

While the number of construction permits issued has increased, he said most of those are for additions and renovations and there’s been a decrease in residential and commercial permits issued.

As for tourism, a declining inventory of hotel rooms and higher prices for rooms is limiting the industry’s growth, he said.

Tian expects that tourism will pick up later this year, although it still won’t be the state’s economic driver.

Two impending hurricanes expected to hit this weekend may also be adding salt to the wound.

By Thursday evening, many retailers including major shopping malls Ala Moana Center, Pearlridge and Kahala Mall, announced plans to close Friday.

Several airlines also canceled flights in response to the hurricanes, including Hawaiian Airlines, Air China, United Airlines and U.S. Airways.

While the state doesn’t yet know what the economic impact of the storms will be, Tian said that they could hurt the visitors industry if tourists are prevented from coming to Hawaii.

“If they are not coming, we will lose visitors’ spending and that can be translated into a decrease in the GET and other taxes like the hotel room tax,” he said.

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