Hawaii’s high cost of living is apparent to anyone who’s spent much time in the Aloha State, but a new report by University of Hawaii economists takes a deeper look at the price of paradise – and the way high living costs drag down the economy overall.
In this sense, the University of Hawaii Economic Research Organization’s annual economic forecast is more than a look ahead – and it’s generally a positive one — to 2020.
The report’s lead authors, economists Carl Bonham, Byron Gangnes and Peter Fuleky, also provide a snapshot of current data and analyses of critical issues facing the community: not only global economic forces that determine how much money comes to Hawaii for rank and file store clerks and food servers, but also just how much more it costs to live in Hawaii versus other places and how those costs are propelling people to leave Hawaii.
Here are five takeaways from the report, which is titled “After a Cloudy 2019, New Year Looks a Little Brighter.”
UHERO uses a tool published by the U.S. Bureau of Economic Analysis to quantify just how pricey Hawaii is. According to the bureau’s most recent “regional price parities” model, which allows comparisons of buying power across the nation, Hawaii’s cost of living was the nation’s highest in 2017, at almost 19% higher than the national average.
The next most expensive was the District of Columbia, which was 17% higher than average, and New York which was almost 16 % higher.
This means a dollar doesn’t have nearly as much buying power in the high-cost locations, and urban Honolulu is worse than the state overall.
Plus, Hawaii residents suffer a double whammy: incomes much lower than those in other high cost locales. Per capita personal income in Hawaii was about $53,000 compared to about $77,200 in D.C. and $61,500 in New York.
To underscore what this means for the average person, UHERO shows per capita incomes in Hawaii over time, and the incomes adjusted for Hawaii’s high living costs. The difference is striking. A $53,000 income in Hawaii is worth about $10,000 less when adjusted for Hawaii costs.
Just as Hawaii’s high costs of living aren’t a secret, it’s also no secret why people live here despite the high costs. Hawaii is an amazing place to live. Or as UHERO puts it, “many Hawaii residents want to live here because of geographical and cultural amenities — including family ties — and are willing to accept a lower wage in order to do so.”
But that is starting to change. UHERO expects 2019 to mark a third straight year of population decline in Hawaii, which saw the number of residents drop from about 1,428,000 in 2016 to 1,420,000 in 2018. A population drop of 8,000 might seem trifling. But to business leaders and economists, the decline is more worrisome than it might seem because Hawaii’s population should be growing, as there are more people being born here than dying.
Economists have chalked the declines up partly to military personnel relocated out of state and taking their families with them.
“But,” UHERO says in its current report, “Hawaii’s rising cost of living and abundant job opportunities in a buoyant mainland economy have likely also played a role.”
UHERO’s report includes a comprehensive look at the global economy, including the effects of the trade war in big Asian tourism markets, like Japan, as well as Korea and China. This has hit Hawaii’s tourism industry, where visitor spending is down, despite record numbers of tourists.
Hawaii expects to record a record 10 million tourists in 2019, when all the numbers come in. Much has been reported about the stresses so many visitors put on Hawaii’s beaches, reefs and hiking trails, and how to mitigate and manage such negative externalities. Meanwhile, the big-spending international travelers aren’t coming like they used to.
The result: “Inflation-adjusted visitor spending has fallen off, down more than four percent in daily per-capita terms,” UHERO reports.
And 2020 doesn’t look much better. “While arrivals will continue to grow at a modest pace,” UHERO says, “real visitor spending will break even at best next year.”
To show how this is affecting the broader economy, UHERO points to retail trade, an area that caters in large measure to the tourist market. The correlation between dropping visitor spending and declining retail jobs is so striking that it’s hard to believe there’s no causal connection. To be sure, as UHERO notes, online shopping has hurt brick-and-mortar stores.
But that doesn’t explain all of Hawaii’s losses: the retail trade sector has shed more than 3,000 jobs since the second quarter of 2018.
Even as Hawaii’s population has declined, company payrolls have continued to grow in recent years. It’s partly been the result of gig economy jobs and people holding more than one job to make ends meet. The number of workers holding more than one job continued to grow in 2019, increasing by more than one percentage point, UHERO reported. Still, payrolls finally started to decline.
“Together with weak real visitor spending, the drag from population decline finally brought to a halt this year the growth in payroll jobs,” UHERO reported. “While the softness in jobs is most pronounced in sectors linked to tourism, the slowdown is widespread, touching a number of key areas of the local economy.”
All of this might seem to spell gloom for Hawaii. But the state’s economy overall is strong. Hawaii’s per capita GDP puts the state in the Top 10. And 10 million tourists import a lot of money into Hawaii, even if they’re no longer individually spending like they once did.
Plus, there seems to be a never-ending appetite for luxury condos and builders willing to construct them.
The result is expected to be more growth in 2020.
“The construction industry is holding up, and the number of visitor arrivals continues to grow,” the report says. “Following this year’s weakness, we expect some improvement in the external environment, which will help us edge back onto a positive, if restrained, growth path.”
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