Hawaii Economy Exits Recession: Modest Growth Signals Gradual Stabilization Across Sectors
The University of Hawaiʻi Economic Research Organization (UHERO) forecasts that Hawaiʻi’s economy is emerging from a mild recession, predicting a period of gradual but sustained growth throughout 2026. This forecast indicates a shift towards a more stable operating environment, which has implications for businesses across various sectors.
The Change
According to UHERO's first quarter 2026 forecast, released on February 27, 2026, the state has moved beyond the modest recession experienced in the previous year. The recovery is characterized as gradual, meaning businesses should anticipate a slow but steady improvement in economic conditions rather than an immediate surge. A notable aspect of this forecast is the anticipated strong performance in tourism on Maui, driven by the ongoing recovery from the 2023 wildfires, albeit at a decelerating pace compared to the initial rebound.
Who's Affected
Small Business Operators (e.g., restaurants, retail, services):
- Impact: Expect a slow but incremental increase in consumer spending and potentially higher visitor expenditures. This could translate to modest revenue growth. However, competitive pressures and the cost of doing business in Hawaii remain significant. Businesses should maintain focus on operational efficiency and customer retention.
- Timeline: Gradual improvements anticipated throughout 2026.
**Tourism Operators (e.g., hotels, tour companies, vacation rentals):
- Impact: Visitor arrivals and spending are projected to increase, particularly on Maui, which is experiencing a strong recovery rebound. This offers opportunities for revenue growth. However, scaling operations to meet demand requires careful planning due to potential labor and logistical constraints.
- Timeline: Ongoing recovery, with Maui showing notable strength. Expect continued growth but potentially slower than the initial post-wildfire rebound.
**Real Estate Owners (e.g., property landlords, developers):
- Impact: Modest appreciation in property values and rental rates is likely as the economy stabilizes. Increased tourism may drive demand for short-term and long-term rentals in popular areas. Developers might see more confidence in initiating new projects, provided financing and regulatory hurdles are manageable.
- Timeline: Gradual stabilization and potential for modest gains through 2026.
**Investors (e.g., VCs, portfolio managers, real estate investors):
- Impact: The forecast suggests a less volatile investment climate, favoring businesses with resilience and sound long-term strategies. While a boom is not expected, stable growth can provide more predictable returns. Venture capital activity may cautiously increase as risk appetite slowly returns.
- Timeline: Conditions are improving for strategic, long-term investments.
Entrepreneurs & Startups:
- Impact: A recovering economy generally improves the environment for startups seeking funding and customers. However, the recovery is gradual, meaning businesses dependent on rapid economic expansion may face continued challenges. Focus on solving genuine market needs and building sustainable business models.
- Timeline: Favorable conditions are slowly developing.
Agriculture & Food Producers:
- Impact: Stable local demand from a recovering economy provides a baseline for food producers. Export markets remain influenced by global economic conditions. Increased visitor numbers could slightly boost demand for local produce and goods in the hospitality sector.
- Timeline: Stable local demand, with potential for marginal uplift.
Second-Order Effects
This gradual economic recovery, driven partly by tourism, has several ripple effects within Hawaii's unique island economy. Increased visitor spending and a more robust demand for services can, over time, put upward pressure on wages as businesses compete for labor. This can lead to higher operating costs for small businesses.
Furthermore, as tourism activity picks up, particularly in popular areas, it can contribute to increased demand for housing, potentially impacting rental costs and availability for local residents. Even modest economic growth can exacerbate existing infrastructure pressures, such as transportation and utilities, if not managed proactively.
- Increased tourism → Higher demand for services → Increased labor demand → Potential for modest wage growth and higher operating costs for small businesses.
- Gradual economic recovery → Increased consumer and visitor spending → Higher demand for goods and services → Marginal improvement in business revenues and profitability.
- Maui tourism rebound → Local service sector expansion → Increased demand for rental properties → Potential upward pressure on local housing costs.
What to Do
Given the forecast for gradual recovery, immediate drastic actions are not required. However, businesses should adjust their long-term planning and operational strategies to align with a slow but positive economic trajectory.
Recommended Monitoring and Action Triggers:
For All Roles:
- Monitor: Key economic indicators such as visitor arrival numbers, statewide unemployment rates, and consumer spending indices. Track inflation and commodity prices for any signs of significant upward pressure that could offset revenue gains.
- Action Trigger: If UHERO's subsequent forecasts begin to predict a sharper or more sustained acceleration in GDP growth, or if key indicators show consistent growth above forecast for two consecutive quarters, consider recalibrating expansion plans, staffing levels, and investment strategies upwards.
Small Business Operators & Tourism Operators:
- Monitor: Local business costs (rent, utilities, wages) and competitor pricing. Gauge customer demand trends specific to your niche.
- Action Trigger: If operating costs begin to rise faster than revenue, or if demand consistently outstrips capacity, explore options for efficiency improvements, strategic price adjustments, or phased capacity expansion.
Real Estate Owners & Investors:
- Monitor: Local property market trends, including vacancy rates, rental yields, and sales volumes. Track interest rate movements and construction cost indices.
- Action Trigger: If property values and rental demand show sustained growth above the forecast, consider optimizing rental portfolios or exploring strategic acquisitions/developments where risk exposure is manageable.
Entrepreneurs & Startups:
- Monitor: Funding availability trends, venture capital activity in Hawaii, and the adoption rates of your product/service.
- Action Trigger: If market adoption rates accelerate or if VC sentiment demonstrably shifts towards higher-risk investments, consider initiating fundraising rounds or scaling operational capacity.
Agriculture & Food Producers:
- Monitor: Local demand patterns and wholesale prices. Keep abreast of potential shifts in export market conditions.
- Action Trigger: If consistent increases in local demand are observed, particularly from the hospitality sector, evaluate opportunities for expanding production of high-demand local products.
General Action Recommendation:
This forecast calls for a WATCH approach. Focus on building resilience and planning for sustained, moderate growth. Ensure your business model is robust enough to benefit from gradual economic improvement without overextending resources. Use the next 6-12 months to assess operational efficiencies and explore strategic, long-term growth opportunities that align with a stable, but not booming, economic environment.
