The latest economic forecast says Hawai'i could see some recovery starting early next year, though it will be weak and not shared by all sectors.

The updated projections by the University of Hawai'i Economic Research Organization show a slight brightening of some of the state's prospects next year and in 2011 compared with its September forecast.

But it continues to forecast a lazy climb out of an economic downturn.

"Prospects are good for an early-2010 return to growth in Hawai'i," the report says, explaining the state may be past a trough in tourism.

"The pace of recovery will be modest, because of lingering weakness in the U.S. and Japan, and the disastrous state budget picture."

UHERO and other economic forecasters have been saying the state is starting to recover from what has been the worst recession since at least statehood.

The economic setback resulted in tens of thousands of people being thrown out of work or having their pay reduced, while some well-known businesses have closed or filed for bankruptcy. Hotels and airlines had to slash rates to attract visitors.

UHERO's latest forecast raises its expectations for the tourism industry, saying recent data suggest the state is very likely past the bottom of the tourism downturn.

It is projecting tourism arrivals will end two years of declines and rise 3.7 percent next year, with increases coming in both the U.S. and Japanese markets.

The report notes tourism from Japan, especially spending, will benefit from the yen rising against the dollar and providing more reasons to shop here.

At the same time, UHERO does not foresee the number of full hotel rooms passing the 70 percent mark until 2011, and that room rates will continue to languish next year.

"We continue to expect total visitor counts to remain below the 7 million mark until 2012," the report said.

"More rapid recovery, while possible, is unlikely because of the challenges facing American consumers as they deal with lingering high unemployment and damaged household balance sheets."

UHERO has cut slightly its expectations for joblessness here and said the hiring outlook includes a return to some job growth for most industries early next year. But construction jobs losses won't end until late 2010 and that state and local government job losses could continue through 2010 given huge budget shortfalls being experienced.

'LONG WAY TO GO'

UHERO Executive Director Carl Bonham said while some jobs will be added next year, there also will be an increase in the labor force as people who haven't been looking for work re-enter the market.

This combination of factors will translate into an average unemployment rate of 7.3 percent in 2010. That will be up from this year, but is lower than the 8.1 percent UHERO previously projected for the year.

"We probably have bottomed in jobs in some sectors," Bonham said.

The improved job picture could have further reaching effects than just those who are out of work. It could translate into a lower unemployment trust fund tax increase projected for next year and in 2011. The state Department of Labor and Industrial Relations uses UHERO projections in estimating increases, which at last check were to rise from an average of $90 per employee per year to $1,070.

UHERO's long-term projection for the economy continues to show there won't be a sharp recovery and that economic conditions will gradually improve over the next couple of years.

"We've got a long way to climb out of what was a pretty deep recession," Bonham said.

The report notes the economy won't yield tangible benefits for many households for some time, including more jobs and higher income when accounting for a rise in inflation.

Moreover, it also says that while there are clearer signs of a recovery, risks to forecasts still abound, including possible additional fallout from state and county government financial crises and what would occur should the global recovery stall.