Hawaii's business community is facing a challenging outlook as the state heads towards a "mild recession" in 2026, according to a recent economic forecast. The report, which analyzed the economic state of the islands, emphasizes that the headwinds are primarily driven by external forces: the overall performance of the U.S. economy, the continuation of tariffs under President Donald Trump's administration, cuts in federal spending, and immigration enforcement policies. These factors are expected to impact various sectors, creating uncertainty for entrepreneurs, investors, and professionals across the state.
The University of Hawaiʻi Economic Research Organization (UHERO) released a third-quarter forecast in September 2025, painting a picture in which the visitor industry faced strains and showed a downturn in numbers. The report highlighted declines in visitor arrivals and real visitor spending. The UHERO report indicates that a weakening U.S. economy threatens a downturn for Hawaii. With the economic forecasts pointing towards a slowdown, businesses need to brace for potentially reduced consumer spending and project a decline in their revenues.
One of the most significant concerns for Hawaii's economy continues to be the impact of tariffs. The UHERO forecast suggests that tariffs will raise local prices, and as a consequence, affect the average household costs. This increase, coupled with the projected declines in tourism, could lead to a decrease in business revenue and profitability across various sectors. For instance, businesses in the tourism industry, a key economic driver for Hawaii, may struggle with decreased visitor spending.
Despite the challenges, the construction sector emerges as a potential source of strength. Ongoing projects, including military contracts and public initiatives, are expected to sustain employment in the industry. The UHERO report indicates that construction is a key area of resilience and may help in mitigating some of the adverse effects of the economic slowdown. However, even the construction sector faces risks, particularly regarding tariffs that may increase the cost of materials, potentially impacting project profitability and delaying developments.
Entrepreneurs and investors in Hawaii must monitor these trends closely and explore strategies for navigating the upcoming economic conditions. This includes diversification, cost management, and seeking opportunities in resilient sectors like construction. As the state navigates these economic uncertainties, adaptability and strategic planning will be crucial for enduring and fostering growth.
Additional insights can be found in a Hawaii News Now report that details the impacts of federal policies and economic pressures on Hawaii's economy.
