A new University of Hawai‘i economic forecast predicts a difficult next few years as recession looms.
Carl Bonham, executive director of the University of Hawai‘i Economic Research Organization, described a newly released third-quarter economic forecast as “bleak,” with multiple national and global factors driving down the state’s prospects.
“The risks seem stacked against us,” Bonham said.
The forecast, released Friday, predicts a “mild recession” in the state over the next year as tourism falters: “not too deep or not too long,” Bonham said, with the worst impacts expected toward the end of 2026 before a gradual recovery over the following years.
Bonham said the state has been relying on domestic tourism, with international tourism still having not quite recovered from the impacts of Covid-19 and the Lahaina fires. But as the U.S. economy weakens, Mainland tourism has seen a sharp downturn. By mid-2026, UHERO predicts 5% fewer tourist arrivals than at the end of 2024, with quarterly tourist spending expected to fall by more than $600 million.
At the same time, tariffs proposed by President Donald Trump’s administration have left businesses feeling “overwhelming uncertainty,” Bonham said. He said some businesses are unable to get any quotes for materials more than three months out because nobody can predict how much more anything will cost that far away.
UHERO predicts that, by the end of 2026, “tariffs will have raised Hawai‘i prices by about 1.5% over what they would otherwise have been. This will represent a permanent annual cost of perhaps $1,400 for a median-income household.”
Compounding the issue is the loss of unauthorized immigrant labor, which will continue to increase the price of produce. Between the impact of immigration crackdowns and impacts of tariffs, UHERO forecasts an inflation peak of about 4% at the end of 2026 — which, UHERO notes, is a lower peak than previous predictions, thanks to recent reductions to inflation.
But UHERO predicts broader losses across the entire labor market.
"Job losses will be seen across virtually all local industries," the forecast warns, expecting about 2,400 job losses among federal workers alone. As cuts to federal contracts compound and the tourism industry shrinks, knock-on impacts will spread across the state's private sector.
Hawai‘i employment is still about 15,000 jobs below pre-pandemic levels, and Bonham said that this year’s estimated job growth is predicted to stand at about 0.7%.
“The number of jobs in Hawai‘i basically hasn’t changed since January,” Bonham said.
Bonham said it isn’t only bad new across the board. The construction industry, he said, is expected to be the only sector in the state to grow during the recession, with the redevelopment of Aloha Stadium, the construction of the last leg of Skyline, and other military construction projects expected to bring nearly 40,000 jobs over the next five years.
Even so, the jobs gained by construction will hardly offset the total job losses predicted statewide. By the end of 2026, the UHERO report predicts about 1,000 additional construction jobs compared to this year — and more than 5,000 jobs lost in other sectors, primarily in government positions.
Through all of this, Bonham said there are some potential off-ramps. For example, the U.S. Supreme Court is expected to rule on whether the Trump administration tariffs are legal in November. Depending on that verdict, he said, the worst of the tariffs may not go into effect, staving off the worst impacts of the recession.
But Bonham was not optimistic. Even if the tariffs are partially reversed, there is no guarantee that the Trump administration can’t reintroduce them in different forms — once again leaving businesses uncertain about the future.
“There is a possibility that some of the new threats at the federal level will convince Democrats to come to the table and we avoid a government shutdown,” Bonham said. “I think the biggest off-ramp is … the U.S. economy bouncing back. With all these investments in AI infrastructure … maybe the U.S. economy will surprise everybody.
“What could help is if the very wealthy continue to thrive,” Bonham said. “The top end of the income distribution contributes enormously to visitor spending here.”
For the latest news of Hawai‘i, sign up here for our free Daily Edition newsletter.
