Recent developments bring both promise and peril for Hawaii. Tourism prospects are positive, despite the delayed Japanese market recovery. Construction activity will remain high, and inflation is receding rapidly, setting the stage for real income gains. On the flip side, the Fed’s aggressive rate hikes and liquidity problems sparked by recent bank failures threaten the US and global economies. A national recession will weigh on Hawaii later this year, but local sources of strength should keep our heads above water.
UHERO’s Peter Fuleky provides a summary of the 2023 second quarter forecast report in this episode of “UHERO Focus”
4 thoughts on “UHERO Forecast for the State of Hawaiʻi: Promise and Peril for the Hawaii Economy”
Nice presentation. The Forecast says, “We expect the US economy to be in recession by the fourth quarter of this year.” Hard to know what that means. The NBER’s Business Cycle Dating Committee, says that a recession is the period between a peak and a trough, but it is not a RECESSION unless the period lasts “longer than a few months.” Let’s say that means at least four months. So for the economy to be in recession in November requires that the economy contracted every month from July-Oct. Is that your interpretation (say using the Chicago Fed’s monthly indicator)? Or does it mean that a quarterly measure (say from BEA) will turn out to be negative in the third and fourth quarters of this year but we won’t know that until sometime in 2024?
Jim, thank you for your comment. There are several factors pushing the US economy closer to a slowdown. The Fed’s monetary policy explicitly tries to cool the economy. The rapid rise in interest rates seems to have caught some banks off-guard. To maintain liquidity, banks have raised lending standards. The high interest rates and tight credit environment make it harder for businesses (especially small ones) to operate. Already, real estate sales have plummeted, retail sales are weakening, and manufacturing has been contracting since the end of last year. These indicators reflect the state of the economy before the most recent 25bp hike by the Fed. At the same time, the aggregate labor market remains buoyant and wages continue to rise at a fast clip, providing little reason for the Fed to change its restrictive stance. Add to the mix the looming breach of the debt ceiling. Given past experience, Washington won’t act before actual economic damage has occurred. The growing pile of obstacles increases the downside risk. Hence our expectation is that the US will begin to experience a “wide-ranging decline in economic activity” (definition of a recession) before the end of this year. The exact timing (and depth) depends on when the hurdles listed above overwhelm the still present upward momentum in the economy and trigger a change of policy. The downswing can extend into next year. So, to finally answer your question: we think that a downturn will begin but may not be over by the end of this year. And yes, the NBER will look back at this period and determine the onset and duration of the recession at a later date.
John Kenneth Galbraith said, “The only functional of economic forecasting is to make astrology look respectable.”
Thanks, Peter. On May 3, Steve Liesman asked Jay Powell whether the Fed still follows a separation doctrine between monetary policy and banking regulation. Powell effectively said, “yes,” because the two are “not in conflict.” Obviously, that’s not true. Wall Street believes that the Fed will pause at the next meeting, not because inflation has been tamed or because the labor market is depressed, but because credit is tight and banking is still a problem.