Hawai‘i is facing a “mild recession” going into 2026, warns an analysis by the University of Hawai‘i.
The University of Hawai‘i Economic Research Organization released today a report on the state’s economy at the end of 2025 and looking ahead to 2026. Much like its fall forecast, the end-of-year verdict is that things will get worse before they get better.
UHERO Executive Director Carl Bonham said Thursday that little has changed since the fall report. Tourism in Hawai‘i is still in decline, prices are still rising, and the job market is still weak.
According to the report, UHERO predicts that total non-farm jobs in the state will drop by 0.3% — about 100,000 — next year. This drop will include a cumulative 1,900 laid off federal workers, and 500 lost jobs in the accommodation and food service sector.
On the other hand, Hawai‘i's construction sector remains strong, and is the only industry in the state remaining steady into 2026. Total commitments to build in the state will peak at $9.8 billion this year, while an $8 billion multiple award construction project will bring years of work for improvements and upgrades at Joint Base Pearl Harbor Hickam.
This follows up on a report published last week by the state Department of Business, Economic Development and Tourism, which projected a 1.5% increase to the state GDP next year, a mild decrease from the 1.6% increase this year. However, this may represent a lag behind growth nationwide; financial analytics company S & P Global predicts a U.S. economic growth rate of 2% next year.
Tourism to the state is expected to drop next year. While the 2025 tourist industry is ending in a slightly stronger state than 2024 (which was itself weaker thanks to the lingering impacts of the 2023 Lahaina wildfires), the collective strain of inflation, stagnant income growth across the Mainland U.S. and more will drive visitor rates down by more than 1% next year — which means, very roughly, a little over 100,000 fewer visitors statewide.
Canadian tourism in particular has dropped amid that country’s own economic woes caused in part by the Donald Trump Administration’s tariffs. Visitor numbers from Canada are nearly 10% down from last year and will remain down into next year.
The impacts of tariffs imposed by the Donald Trump Administration will compound the issue, increasing inflation in the state throughout next year. However, Bonham said Hawai‘i has generally been spared the worst of inflation compared to the Mainland; here the inflation rate is around 2%, whereas on the Mainland it’s about 3%.
Nonetheless, inflation is expected to reach a peak of about 3.5% in Hawai‘i toward the end of 2026.
Meanwhile, the month-long shutdown of the federal government in October has had its own knock-on effects, as paychecks for the roughly 34,000 federal employees in the state were delayed, reducing overall spending in the state. The correlating lapse in funding for programs like SNAP similarly reduced household spending.
While most of this spending has rebounded since the shutdown ended and federal workers received their deferred paychecks, Bonham said a second shutdown would exacerbate recession conditions next year.
Because Congress only ended the October shutdown by temporarily funding most federal programs through Jan. 30, another shutdown could be around the corner if Congress fails to extend funding again next month.
All of this, however, could change based on any number of unpredictable factors at the federal level. The report acknowledges that decisions by the U.S. Supreme Court over whether Trumps tariffs are constitutional, the overall impact of the administration’s immigration crackdown on the nation’s labor force and how the Federal Reserve will set interest rates could all worsen or reduce or even avert entirely the recession.
“This continues to be an environment where uncertainties dominate our thinking,” the report concludes, before hoping that “in 2026 we will see clear evidence of improving conditions.”
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