A new economic forecast for Kauai finds that following a modest recovery from the pandemic, the county is at a critical juncture with an impending national recession threatening to affect the flow of mainland visitors on which the county so heavily relies.

What You Need To Know

  •  “Declining U.S. Outlook is a Rising Risk for Kauai" examines key sectors, emerging trends and potential challenges that influence the county’s economic outlook

  • The report notes that while inflation has receded, a national recession looks increasingly likely due to tightening credit and rising interest rates constraining demand

  • Kauai fared well as the pandemic receded, and the state saw a large influx of Mainland visitors

  • The report’s authors said Kauai would need to continue to manage the environmental and social impacts of tourism, resident settlement, infrastructure and congestion

Prepared by the University of Hawaii Economic Research Organization under contract by the Office of Economic Development, the report, “Declining U.S. Outlook is a Rising Risk for Kauai,” is the first Kauai County-focused economic forecast since 2019. The report examines key sectors, emerging trends and potential challenges that influence the county’s economic outlook.

The report notes that while inflation has receded, a national recession looks increasingly likely due to tightening credit and rising interest rates constraining demand.

Still, UHERO maintains that Kauai’s unique attractiveness to visitors is reason for optimism.

“Kauai’s tourism sector is more exposed to a pending U.S. downturn and is less insulated by the recovery of international visitors than Oahu,” the report stated. “But Kauai’s inherent resilience, as a sought-after destination with a strong sense of local attachment, sets a solid foundation for avoiding an outright downturn locally.”

Kauai fared well as the pandemic receded and the state saw a large influx of mainland visitors. Though still lower than what Maui experienced, room rates on Kauai spiked at a rate higher than inflation, leading to an increase in real visitor spending, the report found.

Among other economic indicators, the report found that labor force recovery on the island was nearly complete. The unemployment rate is expected to average 3.8% this year and rise slightly in 2024.

As the report makes clear, the housing situation on the island remains problematic.

“Homebuilding and authorizations have been particularly low on Kauai for several years,” the report stated. “In 2021, residential permits on Kauai lingered at only 20% of 2005 levels. The lack of supply drives up prices and contributes to decreasing housing affordability. But large state infrastructure investments, particularly in road maintenance, will continue to buoy Kauai’s construction sector.”

The county’s population remains stable despite an overall decline statewide. According to the report, this may be due to remote work opportunities following the pandemic and “amenity factors” attracting residents to the island.

In the longer term, the report’s authors said Kauai would need to continue to manage the environmental and social impacts of tourism, resident settlement, infrastructure and congestion.

“Opportunities to diversify the visitor base beyond the US, to diversify jobs with remote work and to diversify local industries will help to build resilience,” the report stated.

Michael Tsai covers local and state politics for Spectrum News Hawaii. He can be reached at michael.tsai@charter.com.