- Associated Press - Wednesday, February 3, 2016

HONOLULU (AP) - Hawaii economists on Wednesday predicted steady economic growth for the rest of the year, but they warned of challenges lying ahead.

The state’s economy should expand by 2 to 2.5 percent in 2016, said Eugene Tian, research administrator at the state’s tourism and economic development department. The tourism industry is getting a boost from the introduction of more flights from cities like San Francisco and Seoul, South Korea, Tian said.

“The economy is great,” Tian said at a forum in Waikiki hosted by two travel industry associations. Hawaii’s unemployment rate sank to 3.8 percent last year, which was the seventh-lowest in the nation.

But he cautioned that the economy faces challenges.

The construction industry’s momentum is weakening, as evidenced by a building permit application slowdown.

The military’s presence is contracting, he said. The number of active duty troops assigned to Hawaii dropped from a post-World War II high of 51,000 in 2014 to 46,000 last year.

Paul Brewbaker, a private economist, told the forum the stronger dollar - which makes a Hawaii vacation more expensive for Japanese and other overseas travelers - would weigh on growth.

Both pointed to a concerning longer-term trend: a decline in visitor spending when inflation is taken into account. Tian said real visitor spending has decreased 0.7 percent a year on average from 1997 to 2014.

“I think this is the single most important strategic economic development for Hawaii,” Brewbaker told reporters after his talk.

The islands haven’t been able to find an industry that would diversify the local economy beyond tourism, Brewbaker said. There’s also no sign that the trend toward less visitor spending will reverse.

He attributed spending declines to lower spending by consumers in general as they shop more at discount and big box stores instead of department stores. Another reason is many repeat visitors to Hawaii have learned where to get better deals and economize during their trips here.

Brewbaker said the trend could be addressed by building more hotel rooms and other places for visitors to stay. Another solution could be to attract higher-spending visitors, but he said this is something the state has had trouble doing despite years of effort.

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