Hawai'i's economic difficulties may be abating, with the state saying there are signs that certain sectors may hit bottom this year and start a slow recovery from the downturn.

The state Department of Business, Economic Development and Tourism released an updated economic forecast yesterday that calls attention to a possible end of the economic malaise.

"We're approaching or at a bottom for the recession in a number of areas," said Bob Shore, acting head of DBEDT's research division.

"We are starting to see visitor arrivals strengthening; the decline in visitor expenditures and daily visitor census are very narrow now."

The state has been looking for some relief from economic deterioration that began in 2008 and has seen several prominent companies go out of business, while bankruptcies jumped and unemployment reached highs not seen in three decades.

Economic forecasts over the past six months have projected that a recovery will begin to take hold this year, though it will be a faint one. They envision the state taking a couple of years to return to more normal economic conditions.

"The recovery starts to take root this year," Shore said, explaining that a little more optimistic tourism numbers, along with more encouraging national and international news made for a slightly better outlook for the state. But he said a basic view that the recovery will be gradual remains.

The broadest measure of economic activity forecast by the state is that of gross state domestic product adjusted for inflation. In 2009, real gross domestic product contracted by 0.7 percent, an indication that the state was in the grips of a recession.

The latest forecast has been revised from one released in November to show that activity will rebound with a 0.9 percent increase this year. That's 0.1 percentage points better than previously expected.

This will continue to improve in 2011, when growth of 1.4 percent is expected.

"Hawai'i's economy is expected to continue seeing more positive signs of stability into 2010, the beginning of recovery in some sectors, and modest growth by 2011," the report said.

TOURISM GROWTH

The improved outlook mostly rests with higher numbers for tourism, which according to a First Hawaiian Bank report, accounts for as much as 40 percent of the state's economy.

DBEDT said visitor arrivals should rise this year after 2009's decline, with even greater growth occurring next year and in 2012.

Perhaps more crucially, visitor expenditures that fell by more than one-tenth last year are forecast to come back with a 2.3 percent gain in 2010. That was a revision from the prior projection of no growth this year.

Construction, another pillar of the state's economy, continues to decline. But DBEDT said there are signs the slide may be abating, with building permits — a sign of future activity , rising slightly in the fourth quarter.

Jobs also continue to be a concern for the state into this year, with a third straight year of losses forecast. Shore said jobs typically lag recoveries because employers put off hiring for several reasons, including wanting to make sure there's been an upswing before taking on more workers.

He said some companies may also have more staff than work to go around for now, and that as the recovery takes hold these people will become busier.

"Generally they'll be a little cautious about expanding the labor force until they have the revenue stream to support that in the long run," Shore said.

TEPID INCOME GAINS

The forecast also includes a little improvement for pocketbooks, with inflation-adjusted personal income projected to remain flat this year after two years of declines.

Next year there will only be tepid gains, with the income rising just 0.8 percent, in part because inflation is now rising a bit faster than previously expected.

Shore noted the projections are just that — forecasts that can change subject to unforseen events. As such, better or worse news about the national and international economies could affect the state and its tourism industry.

"While the signs that Hawai'i has probably reached a bottom in the current recession are increasing, that stability is also subject to the course of events on the national and international economic levels," the latest report noted.

"Moreover, reaching a bottom is far from a full recovery, and that is likely to be a very gradual process over the next several years."