State of the Hawaii Economy 2026: What Employers Need to Know
Jena Andres
Director of Brand & Client Marketing, ProService Hawaii
Quick Summary: Hawaii businesses are navigating a perfect storm: federal spending cuts, flat tourism, and costs rising faster than revenue. But in a recent webinar with UHERO's Dr. Carl Bonham and local business leaders from Diamond Bakery, RevoluSun, and Aloha United Way, three actionable strategies emerged for 2026: renegotiate with suppliers and get creative with packaging before raising prices, invest heavily in employee training and retention to reduce costly turnover as minimum wage jumps 15%, and expand beyond Hawaii's 1.4 million residents by following customers to mainland markets or finding underserved local niches. Dr. Bonham's forecast calls for mild recession, but his most important insight challenges that narrative: “Every individual business is different. Even in the midst of an overall weak economic situation, individual businesses and individual sectors will thrive.” The difference? Strategic action today, not hope for better conditions tomorrow.
Economic uncertainty is nothing new for Hawaii businesses, but right now the pace of change feels faster and more complicated to predict than ever before. Rising costs, shifting federal policy, minimum wage increases, and a tourism sector that isn't bouncing back—it's a lot to navigate all at once.
If you're feeling the pressure, you're not alone. ProService Hawaii recently surveyed 200 local business leaders to find out what's keeping them up at night. The numbers tell a clear story: 85% say business costs have increased over the past year, 78% feel concerned about the impact of tariffs on Hawaii's economy, and 36% report that hiring has become more challenging.
The good news? Hawaii businesses have always been resilient.
ProService Hawaii recently brought together Dr. Carl Bonham, Executive Director of the University of Hawaii Economic Research Organization (UHERO), alongside seasoned local business leaders Butch Galdeira, President of Diamond Bakery; David Gorman, President of RevoluSun; and Michelle Bartell, President and CEO of Aloha United Way. The panel shared real-world perspectives on how economic trends are affecting their businesses and the creative strategies they're using to adapt.
This article captures the key insights from that conversation: what's driving economic conditions in Hawaii right now, how it's affecting businesses day to day, and most importantly, the strategies that are actually working for local companies navigating these challenges.
What's shaping Hawaii's economy in 2026
Dr. Bonham's forecast confirms what many business owners are already experiencing. Hawaii's economy faces significant headwinds in 2026, and conditions aren't expected to improve substantially in the near term.
- Federal policy is driving local impact: Hawaii's economy is uniquely concentrated—more than 11% of the state's GDP comes directly from federal spending. When Washington makes decisions about spending, interest rates, or tariffs, Hawaii businesses feel the impact more aggressively than policy decisions made at the state level. The federal government shutdown has already cost Hawaii 1,300 federal civilian jobs, with another 1,000 to 1,200 expected to disappear. The state also stands to lose between $300 and $400 million annually in federal Medicaid spending.
- Tourism faces headwinds: Hawaii's tourism sector has stagnated at around $1.7 billion in monthly visitor spending, down from $1.9 billion throughout 2022 and 2023. More concerning is where visitors are coming from. Nearly 80% of visitor spending now comes from the US mainland, while Japanese visitors have declined to their lowest levels since the late 1990s, and Canadian visitors have been dropping at nearly 10% annually since the Maui wildfires. This heavy reliance on US visitors means Hawaii's tourism industry revenues are directly tied to the mainland economy, which Dr. Bonham expects will bring weaker activity, slower wage growth, and continued price increases in 2026.
- Operating costs continue climbing: Businesses are feeling margin pressure from multiple directions. Butch Galdeira shared that Diamond Bakery paid $235,000 more in tariffs this year compared to last—the equivalent of three to four full-time positions they couldn't hire. Taiwan tariffs jumped from zero to 20%, China tariffs surged from 25% to well over 100% on some items. Add to that an 18% increase in neighbor island shipping rates, medical insurance premiums climbing over 10% annually, and a minimum wage jump from $14 to $16 starting January 1, 2026. What makes this especially challenging is unpredictability. Some businesses have seen their price structures change five, six, or even seven times over the past four months because of tariff adjustments. The National Federation of Independent Businesses is recording the highest levels of uncertainty among small businesses since its survey began in the mid-1980s. When businesses face this much uncertainty, they put hiring on pause and delay investments—creating a ripple effect throughout the economy.
What this means for your business
Economic forecasts matter, but the real story is in how local businesses are experiencing these pressures day to day. Here's what leaders across different industries are navigating:
Diamond Bakery is facing what Butch Galdeira describes as a perfect storm of rising costs—that $235,000 tariff hit, climbing medical premiums, increased shipping rates, and the upcoming 15% minimum wage increase all hitting simultaneously. Every decision about pricing or staffing now requires balancing margin protection against customer loyalty built over 104 years.
RevoluSun's experience highlights the challenge of policy-driven volatility. David Gorman describes the renewable energy business as riding a “solar coaster” where regulatory shifts create dramatic swings in demand. When residential tax credits were eliminated, his team scrambled to handle a massive year-end rush while simultaneously planning for a 2026 where they'll need to re-educate the market about remaining solar opportunities.
Behind these business challenges is a community under stress. Aloha United Way's 211 helpline has seen calls surge from around 150 daily to over 1,000, with food assistance overtaking housing as the top request for the first time. Between 40-80% of Hawaii households now qualify as ALICE—working but living paycheck to paycheck. These families are your customers with less to spend and your employees carrying stress that affects their work.
The labor market has essentially frozen. Jobs have been flat since January, and Dr. Bonham points out that the real hiring challenge isn't finding warm bodies—it's finding people who show up consistently and have the capacity to learn. As minimum wage jumps 15%, that selectivity will only intensify across every sector.
3 strategies working for Hawaii businesses
The panelists shared practical approaches they're using right now to navigate current conditions—not theory, but what's actually working.
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1. Get strategic about costs (not just cutting them)
There's a big difference between slashing budgets and being strategic about where you spend. Diamond Bakery's approach demonstrates this well. Rather than immediately raising prices when tariffs hit, the team renegotiated with major suppliers and in some cases found new partners offering better terms. They're also exploring creative packaging adjustments while being extremely careful not to compromise the brand integrity built over 104 years.
The key insight: there's a limit to what customers will pay. Finding the balance between absorbing costs and maintaining loyalty requires creativity and willingness to try new approaches. -
2. Make retention your competitive advantage
When hiring is difficult and turnover is expensive, your current employees become your most valuable asset. RevoluSun's experience shows what's possible when you invest in people—employees who started in entry-level positions now run crews or have moved into six-figure roles after the company invested in their training and licensing.
Dr. Bonham emphasized that with minimum wage rising 15%, employers will focus intensely on reducing turnover and finding employees who truly fit their business. The key is creating environments where people can thrive.
Michelle encouraged employers to stay curious about what employees need. Sometimes people struggle to show up for reasons beyond their control, and understanding these barriers—then connecting employees with community resources—can improve outcomes for everyone. -
3. Look beyond the 1.4 million
Hawaii has only 1.4 million residents—a really small market for businesses looking to grow. Expanding beyond the islands becomes essential.
Diamond Bakery followed customers who left for the mainland, partnering with retailers in California, Washington, Texas, and Oregon. The strategy works because they're maintaining loyalty with people who already love their products, not starting from scratch.
RevoluSun focuses on underserved opportunities: system expansions, creative financing models, commercial projects, and service for existing systems. Dr. Bonham pointed to UHERO research identifying sectors where Hawaii has natural competitive advantages—specialized agriculture, renewable energy, and ocean-related industries. His key insight: "Every individual business is different. Even in the midst of a really overall weak economic situation, individual businesses and individual sectors will thrive."
Planning ahead with ProService Hawaii
The outlook for 2026 requires strategic planning, but it's not a reason to panic. Hawaii businesses have weathered challenges before. What separates businesses that thrive from those that merely survive is thoughtful preparation and having the right partners.
ProService has been partnering with Hawaii employers for decades, through economic ups and downs, helping navigate workforce planning, benefits, compliance, and cost management.
Here's how to move forward:
- Watch the full webinar to hear the complete conversation and all the insights shared.
- Schedule a consultation to discuss your specific situation and explore how ProService can help you manage costs, strengthen retention, and position for success.
- Access training resources to develop your team and reduce turnover. ProService clients can reach [email protected] for workshops and tools.
Stay informed with community resources:
- UHERO Economic Research
- UHERO's Research on Diversifying Hawaii's Economy
- Aloha United Way 211 Helpline
Partnering with ProService means your team stays informed, prepared, and resilient, no matter what the year ahead brings. Let's navigate 2026 together.
