The state is entering a mild recession, but it will be less severe than previously predicted, according to the University of Hawaiʻi Economic Research Organization's most recent forecast.
UHERO Executive Director Carl Bonham explained that the U.S. economy and national policies are the main causes.
“Whether it's tariffs or deportations or cutbacks in federal spending, that has impacted us both through the shutdown, which was just sort of piling on top of what was already a pretty weak Hawaiʻi economy,” he said.
“And the cutback in federal civilian employment. All of those come together to produce an overall weak economy.”
UHERO reports that the number of job postings is falling while federal layoffs continue. Another potential impact on Hawaiʻi's job market is the upcoming increase in minimum wage from $14 to $16 an hour.
Bonham explained that the increase comes as hiring has already slowed due to national policies and that it will impact more people than the last time minimum wage rose in 2024.
“ This one is coming when there are more people who will be impacted, meaning their wages will go up, so it's a bigger hit to businesses,” he said.
“The economy is much weaker. The hiring was already weaker long before … so we think there's a possibility that this is going to contribute to entry-level workers having a hard time finding a job. And anybody who might lose a job because of the slowdown in tourism or other parts of the economy is going to have a harder time getting back to work,” Bonham said.
However, construction continues to be a bright spot, as the job counts in the industry hit another record high.
Hawaiʻi differs from the rest of the country because inflation has continued to decline throughout this year. Bonham explained it's likely because the state’s economy has been weaker than the national economy. But it’s expected to peak in the middle of next year at about 3.5%.
“ We're not talking about runaway inflation, but it is a cost increase for businesses and consumers,” he said. “It's not necessarily small, in the thousands of dollars per household, in terms of costs.”
UHERO predicts that the state's economy will start recovering in the second half of 2026.
