Confidence among Hawai'i businesses continues to weaken, according to a new survey, though a slight majority believes the state economy will continue to improve over the next one to five years.

The survey of 401 small to large companies last month shows that the outlook on business performance and the local economy eroded for a second straight year.

Survey respondents cited the cost of doing business — particularly transportation, healthcare and rent expenses — as their primary concern.

Although retailers interviewed for the survey were generally optimistic about the outlook for the economy, many reported weaker sales last year, including the holiday shopping season.

The Business Banking Council produces the semiannual survey sponsored by American Savings Bank and conducted by QMark Research and Polling.

According to the poll, 49 percent of respondents believed the local economy will continue to improve over the next one to five years, while 46 percent of respondents believed economic growth has stopped.

Of those who said Hawai'i's economy was likely to improve, 21 percent expect it to improve for five years, and 20 percent expect it to improve one year before flattening or dipping.

By one measure, business optimism peaked in 2005 when a survey index was at 138, and has declined since then to 104 in the most recent survey.

Local economists project that Hawai'i's economy will grow this year, although more slowly than it did last year.

The state Department of Business, Economic Development and Tourism forecasts that the broad economic measure of inflation-adjusted gross state product will rise 2.8 percent this year, slightly off from an estimated 2.9 percent growth last year and actual growth of 3.0 percent two years ago.

DBEDT forecasts that gross state product, which is mainly driven by personal income, will rise 2.7 percent in 2009 and 2.5 percent in 2010.

Some local business operators who attended a presentation of the survey results yesterday said economic outlook generally plays little role in how they run their companies.

Phil Fong, chief executive officer of local retailer Jeans Warehouse, said he expects the local economy to worsen this year, but he plans to open a flagship store this summer that will be the largest for the 30-year-old chain with 26 stores.

"We're investing for the long-term," he said, adding that business for Jeans Warehouse was better last year than it was in 2006.

Local entrepreneur of cookie fame Wally Amos said he doesn't care what the economy is doing. He believes he has great opportunities to capitalize on his name recognition and latest business concept that combines selling handmade cookies and promoting early childhood reading.

Amos said his company, Chip & Cookie, hasn't made a profit since opening in mid-2005 in Kailua, but he plans to expand by opening a second store at Royal Hawaiian Shopping Center this summer. "I got a lot of things going for me," he said.

John Reed, chief executive officer of large kama'aina retailer Hilo Hattie, said revenue and profits were down last year, but better results are expected when the company relocates its Nimitz Highway store to a new location at Royal Hawaiian Shopping Center in November. "You have to adjust to the market," he said.

The Business Banking Council survey, which involved responses from 106 retailers, said retailers were generally more optimistic about their outlook on business and the economy than the general business population.

"This has been traditional," said Barbara Ankersmit, QMark president. "Retailers are always more optimistic and have slightly better performance than businesses as a whole."

According to the survey, retailers with higher revenue represented 44 percent of all retail respondents, compared with 56 percent in the survey a year earlier. Pretax profits were higher for 22 percent of retail respondents, compared with 50 percent a year earlier.

A drop in revenue last year was reported by 30 percent of retailers, up from 12 percent a year earlier, and a drop in pretax profits last year was reported by 34 percent of retailers, up from 19 percent a year earlier.

Holiday sales, a big component of retailing, were higher for 33 percent of retail respondents, which compared with 35 percent last year and 50 percent in 2005. The survey said 40 percent of retailers said their holiday sales declined, compared with 34 percent last year and 21 percent in 2005.

Among all businesses surveyed, 45 percent said revenue was higher, and 27 said it was lower last year compared with the previous year. Some 31 percent said pretax profit was higher, and 32 percent said it was lower.

The survey's performance index was at 114, down from 124 a year earlier. The last time the performance index was below 114 was in mid-2003 at 104.

QMark said the sample size of the survey has a margin of error of 4.9 percentage points with a 95 percent level of confidence.

The research firm randomly interviewed companies from Jan. 9 to 23. The sample was balanced to fairly represent the state's mix of small, medium and large businesses based on their number of employees, which ranged from three to more than 100.