Hawaii’s construction sector is on track to begin its long-awaited recovery next year even if Oahu’s rail project remains sidelined, according to a quarterly forecast to be released today by the University of Hawaii Economic Research Organization.

The number of permits sought for private construction suggests that commercial and residential building will offset some of the lost rail activity, although Hono­lulu will still be adversely affected, according to the report.

"Despite rail challenges we continue to expect construction to begin a decisive move upward in 2013," the report’s authors wrote.

Workers discovered human bone fragments in September along the proposed rail route in Kakaako. That was followed by a Hawaii Supreme Court ruling requiring the City and County of Hono­lulu to survey the entire 20-mile rail route before proceeding with construction.

"We have pushed back our forecast for rail work by one year compared with our previous estimate. And of course we await the outcome of November’s mayoral election, which could affect rail prospects beyond that," the UHERO report said.

UHERO is calling for the overall economy to continue on its path of slow, steady growth with moderate gains in payroll jobs. Researchers revised downward slightly their estimates of job and income growth compared with their previous forecast issued in July.

Inflation adjusted gross domestic product, the broadest measure of the state’s economic activity, is forecast to grow by 0.9 percent in 2012 and 2.5 percent in 2013.

Statewide private building permits have expanded for three consecutive quarters this year, the first time that has happened since 2006, the report said. Residential building permits are up 20 percent from last year, and firming real estate prices on Oahu support UHERO’s view that the next home-building cycle is getting under way, according to the report.

UHERO is forecasting construction jobs to grow by 0.6 percent this year and 7.7 percent in 2013. The 2012 increase would be the first annual gain in construction jobs since 2007.

The biggest risk to the economic forecast is at the federal level, where failure to address a looming fiscal crisis could derail the economy, the report said.

A confluence of expiring tax cuts, new taxes and automatic spending cuts agreed to last year have been dubbed "the fiscal cliff."

"So far, political posturing has prevented a solution; let’s hope cooler heads prevail in the post-election period," the report said.