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Local economists say recovery in 2022 remains uncertain due to the new Omicron variant

AP Photo/Marco Garcia

The state is showing signs of recovery after the Delta variant surge, says a new report from the University of Hawaiʻi's Economic Research Organization, or UHERO.

But UHERO is forecasting another uncertain time for Hawaiʻi's economy in the early months of 2022, primarily driven by the spread of the Omicron variant.

UHERO Executive Director Carl Bonham says there is still not a lot known about the variant, which brings more uncertainty for the state's economy in the near future.

Bonham says the Omicron variant would most likely impact Hawaiʻi's tourism industry. Specifically, international travel.

"We've already seen increasing, or renewed restrictions on travel. In our pessimistic scenario, these restrictions remain in place for an extended period of time," he said.

Those restrictions aren't coming from the U.S., but from visitors' home countries. In Japan, a two-week quarantine is still in effect for anyone returning from international travel. Bonham says not many people can afford another two weeks away from work.

In UHERO's "baseline" scenario, a conservative forecast, restrictions for international travelers will ease in late January — driven in part by increased accessibility to COVID vaccines.

"The difference between those two outcomes, it's almost $2 billion in visitor spending, it's almost one percentage point in unemployment — almost 10,000 jobs," Bonham said.

In its optimistic forecast, those restrictions would end in early 2022 — just in time to give a boost to the winter tourism season.

International travel is important for the state's recovery and potential growth. Even though the state's tourism industry says demand is high in the coming months, Bonham doesn't anticipate Hawaiʻi will see the same surge of domestic travelers seen in summer 2021.

But even if travel restrictions were lifted, there are still other issues affecting the state's recovery and potential growth — such as consumer inflation, higher housing costs, and the labor market.

Bonham says there are roughly 25,000 fewer people in the labor force today than prior to the pandemic. He says many have retired, but some are choosing not to go back to work.

"In the pessimistic scenario, we don't have recovery of labor force participation of the working-age population. And that implies slower growth, that implies, obviously, less jobs. It relies more on businesses to, sort of, maintain labor-saving efforts that they put in place during the pandemic."

On the other hand, Bonham says there is an increase in people starting their own businesses.

But there are efforts to boost labor participation across the country.

One is the Build Back Better proposal, which has incentives such as paid childcare, free tuition at community colleges, and income tax credits. However, disagreements in Washington D.C. threaten whether or not there will be aid coming to the state.

Another is the recently approved Infrastructure Investment and Jobs Act, which will help improve local labor and housing challenges by funding projects with long-term economic benefits.

"Whether it's moving roads, or putting in infrastructure to help with affordable housing. As a result, construction actually does very well over the next three to four years in our forecast," Bonham said.

Bonham says how the state's economy fares in the coming months will largely depend on the Omicron variant, and whether the Build Back Better plan is approved by Congress.

Casey Harlow was an HPR reporter and occasionally filled in as local host of Morning Edition and All Things Considered.
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