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Islands face limits
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"This is driven by our view that the labor force is not going to grow faster than a certain rate," Gangnes said. "And that constrains the growth of jobs, and that in turn constrains income growth."
Hawaii is enjoying its strongest economy since the early 1990s, driven largely by a real estate and construction boom coupled with growth in services sectors, such as restaurants and business services.
The state's unemployment rate of 2.7 percent reported for May is the lowest in 14 years. At the same time, the labor force has grown. Strong demand for workers in key industries has driven up wages in key industries.
The forecasters predict construction jobs to grow by 7.5 percent on Oahu, 4.7 percent on the Big Island and 4.2 percent on Maui and Kauai.
The problem, Gangnes said, is that increasing prices could lead to a cooling of this growth. With hotels already running occupancies in the 80 percent range on Oahu and no new rooms opening soon, Gangnes said, visitors might opt to stay away as fuller rooms push up rates.
Likewise, commercial developers and home builders might decide the cost of workers is simply too high to keep building at the current pace as the supply of skilled workers becomes increasingly tight, Gangnes said.
The result, he said, will be a "pattern of a slowing local economy but not a stagnating one."
Despite the predicted growth, the forecast envisions relatively small inflation. Gangnes said the inflation rate is expected to be 4 percent this year. However, he cautioned that it could turn out higher if housing costs continue to increase at current levels.
The UH Economic Research Organization bases its forecasts on statistical models developed by the group's economists, Gangnes said. Co-writing the forecast were Carl Bonham of UH and economist Leroy Laney.