Hawaii Businesses Face Stagnant Growth Post-Adjustment for High Costs

A recent analysis by the University of Hawaiʻi Economic Research Organization (UHERO) reveals that Hawaii's economic growth, when adjusted for the state's exceptionally high cost of living, has stagnated since the early 1990s, placing it among the weakest in the nation. This finding fundamentally alters the perception of Hawaii's economic health, suggesting that nominal gains may be significantly eroded by local price levels, impacting the real prosperity of residents and the sustainability of businesses.

The Change

The UHERO report, released February 1, 2026, crunches key economic indicators like Gross Domestic Product (GDP) per person, income, and productivity. When these figures are adjusted to account for Hawaii's elevated prices for essential goods and services, the picture of economic dynamism shifts dramatically. Instead of robust growth, the data points to a long-term stagnation, indicating that the real purchasing power and economic output per capita have not kept pace with national trends. This reality underscores the unique challenges of operating and living in Hawaii, where the cost of doing business and maintaining a livelihood significantly outpaces income growth in real terms.

Who's Affected

• Small Business Operators: Businesses in Hawaii operate within a high-cost environment. This report suggests that the apparent economic activity might not translate into proportionally higher real profits if costs continue to outstrip revenue gains in real terms. Wage pressures, in particular, could become unsustainable if productivity does not keep pace with cost-of-living increases. Restaurant owners, retail shops, and local service providers need to critically assess their pricing strategies and operational efficiencies against this backdrop of stagnant real growth.

• Real Estate Owners: Property owners and developers must consider that nominal property value appreciation may not be matched by corresponding increases in genuine economic capacity. Rising property taxes and maintenance costs in Hawaii are already significant; this report implies that rental yields and property appreciation may not hold their real value over the long term if the underlying economy is not growing in real terms. Landlords and property managers may face challenges in maintaining rental income that keeps pace with inflation.

• Remote Workers: For those living and working remotely in Hawaii, the report reinforces the ongoing challenge of the high cost of living. While drawing mainland salaries might seem advantageous, the stagnant real economic growth indicates that the local cost structure is a persistent drag on disposable income. This imbalance could affect decisions about long-term residency and the overall quality of life.

• Investors: Investors, whether in local businesses, real estate, or broader market funds tied to Hawaii, should temper expectations. The report suggests that the real return on investment in Hawaii may be considerably lower than nominal figures indicate. Venture capital and angel investors looking at Hawaii-based startups need to factor in the potentially constrained consumer spending power and higher operating costs that could hamper growth.

• Tourism Operators: As Hawaii's economy is heavily reliant on tourism, this report highlights the importance of sustained visitor spending. While visitor numbers can fluctuate, the underlying domestic economic weakness means that real income for residents earning from tourism-related jobs may not be improving, potentially impacting local consumption and service industry dynamics over time.

• Entrepreneurs & Startups: Founders and growth-stage companies face significant headwinds. Securing funding and scaling operations becomes more challenging when the local market's real purchasing power is stagnant. Higher labor costs, coupled with potentially limited local market expansion, require robust business models and a clear path to external markets or high-value niche services.

• Agriculture & Food Producers: While often focused on export markets or local resilience, these sectors are still affected. Rising operational costs, including labor and imported inputs, combined with a local consumer base whose real spending power is not growing, creates a squeeze. Land use and water rights remain critical issues, but the economic context suggests increased pressure on margins.

• Healthcare Providers: Healthcare services are essential, but providers must consider the economic realities of their patient base. If real incomes are stagnant, patients may face increased out-of-pocket expenses or delays in seeking care, impacting revenue streams for private practices and clinics. Telehealth solutions might become more critical as a cost-effective option for both providers and patients.

Second-Order Effects

The stagnation of Hawaii's real economy has significant ripple effects. Lower real income growth limits the capacity for local businesses to absorb rising operational costs, such as utilities, supplies, and imported goods influenced by the Jones Act. This can lead to a feedback loop where businesses, unable to raise prices sufficiently without alienating a price-sensitive local market, face narrowed profit margins. Consequently, this can constrain wage growth for employees, further impacting their real purchasing power and potentially leading to a gradual exodus of skilled labor seeking better economic opportunities elsewhere. The reliance on tourism, while a buffer, means the economy is vulnerable to external shocks, as domestic economic weakness provides less resilience.

What to Do

Given the WATCH action level, the focus is on monitoring key indicators to anticipate future strategic needs.

• Small Business Operators: Pay close attention to local cost-of-living indices (e.g., Consumer Price Index for Honolulu) and average wage growth in your sector. If wage growth consistently outpaces productivity gains or inflation-adjusted revenue growth, revisit your pricing models and explore operational efficiencies. Consider diversifying revenue streams or focusing on higher-margin services.

• Real Estate Owners: Monitor rental vacancy rates and the growth of real household income in your target markets. If rental demand slackens or the growth of real income for potential tenants slows, it may signal a need to adjust rental rate expectations or focus on amenities that add tangible value rather than relying solely on nominal appreciation.

• Remote Workers: Continue to track the ratio of your income to local cost-of-living metrics. If the cost of essential goods and services markedly outpaces your income growth (even if it's an external salary), consider budgetary adjustments or long-term financial planning for potential relocation.

• Investors: Keep an eye on reports detailing Hawaii's real GDP growth and productivity metrics alongside inflation. If divergence between nominal and real economic indicators widens, it may suggest reassessing the risk-reward profile of Hawaii-centric investments, particularly those reliant on local consumer spending.

• Tourism Operators: Track visitor arrival numbers and average spending per visitor. While external factors drive tourism, monitor reports on local resident employment and wages within the tourism sector to gauge the underlying stability of the workforce and local support for the industry.

• Entrepreneurs & Startups: Focus on building business models that are resilient to constrained local spending. Explore opportunities in sectors less sensitive to local economic cycles or with strong export potential. Monitor access to capital and the cost of talent acquisition relative to achievable revenue growth.

• Agriculture & Food Producers: Watch trends in input costs (fertilizer, fuel, labor) versus market prices (local and export). If the gap widens, explore cooperative purchasing or value-added processing to enhance margins.

• Healthcare Providers: Monitor patient volume and payer mix. If a significant portion of your patient base faces reduced real incomes, consider offering tiered service options or expanding telehealth services to maintain accessibility and revenue.