A rebound in tourism is leading Hawaii’s economy out of recession, but the slow pace and uneven nature of the recovery will pose challenges for the state going forward, according to a forecast released today by a group of University of Hawaii economists.

After contracting in 2008 and 2009, the overall economy is expected to turn the corner this year and begin to grow again in 2011, according to the report from the University of Hawaii Economic Research Organization.

"Recovery is under way in Hawaii even if it has not yet touched all sectors," the report’s authors wrote. "That recovery will gain strength slowly over the next several years, tempered by still-weak conditions in major visitor markets, drag from government, and a difficult environment for construction."

A better-than-expected performance from the visitor industry has resulted in moderate job gains in tourism and related industries. However, much of the rest of the state economy remains relatively weak, with job losses continuing in some areas, according to the report.

During the April-to-July period, monthly visitor arrivals were 8.4 percent higher than the same period a year earlier, with the majority of the improvement coming from the mainland and Canada markets. The statewide hotel occupancy rate cracked the 70 percent mark in June for the first time in nearly two years, while monthly visitor spending has surpassed $900 million a month in four of the last five months.

Despite the gains, however, visitor arrivals remain nearly 15 percent below their average in 2006 and 2007, UHERO noted. And improvement in the near term probably will be tempered by a slowdown of economic growth in the U.S. and Japan, according to the report.

While the growing health of tourism businesses and their work force will eventually ripple through the broader economy, this "has not yet begun in earnest," the report said.

Few nontourism industries have shown much job creation. The health care and "other services" job categories recorded modest job gains in July compared with the same month a year earlier, while job tallies in government and arts and entertainment were little changed. Most every other category had job losses, with the construction sector taking the biggest hit.

Payroll jobs are forecast to fall this year for the third consecutive year before growing by 1.3 percent in 2011.

After growing by 3.9 percent in fiscal year 2010, state tax revenue is expected to get a further boost this fiscal year by a 1 percent hike in the hotel room tax and an increase in the cigarette tax.

"Overall the state fiscal situation remains difficult, but is headed in the right direction," according to the report.