A booming local construction industry is expected to help Hawaii’s economy maintain about average growth this year, according to a new state forecast.

The state Department of Business, Economic Development and Tourism estimates that Hawaii’s economy will grow 1.3% this year, which compares with an annual average of 1.4% over the past 20 years.

DBEDT said in its report that “booming” construction, strong home sales and decent growth in jobs along with personal income are largely offsetting softness in Hawaii’s biggest industry, tourism.

“Stable growth will result from continued strength in construction industry activity, overcoming relative weakness in the tourism sector,” DBEDT said in an executive summary of the report released Thursday.

A 1.3% expansion of Hawaii’s economy this year would be a step down from 2% in 2023 and equal to growth in 2022. Growth for 2025 is forecast at 2%.

James Kunane Tokioka, DBEDT’s director, described the local economy as robust.

“It is important to understand that the current slowdown in Hawaii’s economic growth is temporary,” he said in a statement. “While growth levels are below those seen a year ago and nationally, the state of the economy is robust.”

DBEDT’s forecast noted that as of March, Hawaii’s economy has recovered 98% from where it was just before the coronavirus pandemic in 2020 and that economic growth is expected to continue from 2025 through 2027 at or just above 2% a year.

“We expect the construction industry will continue to lead our economic recovery in the next few years,” Tokioka said. “Construction, health care and private education continue to show strength — and the overall job count is increasing.”

According to the report, construction spending statewide jumped 12.7% during the first four months of this year, based on industry tax receipts. That compares with a 9.8% gain in 2023 over 2022. 2023’s increase represented about $1 billion in additional construction spending.

The number of construction jobs, according to DBEDT, totaled 41,200 during the first seven months of this year and represents an industry record.

Hawaii’s housing market is another sector contributing to economic growth this year. DBEDT reported that sales of new and previously owned homes statewide grew 25.2% during the first half of this year and that the average sale price was up 10.1% for single-family houses and 1.5% for condominiums. The report also noted that 27.8% of all those sales were made to out-of-state buyers, representing the highest share since 2011.

Job and wage growth also have been good. DBEDT reported that personal income in Hawaii grew by 5.5% in the first quarter of this year, topping an annual average of 4.3% over the prior 20 years. The number of nonagricultural payroll jobs is forecast to grow 0.8% this year, according to the report.

The state’s unemployment rate for the first seven months of this year averaged 2.9%, representing the seventh lowest among states. Also, the rate in July, 2.9%, was 1.5 percentage points below the national average.

DBEDT forecasts that Hawaii’s unemployment rate will be 2.8% for 2024, then further improve to 2.7% in 2025 and 2.5% in 2026 and 2027.

Tourism, the state’s biggest industry, is holding back better economic growth, but that isn’t expected to last for long.

DBEDT expects a 1% dip in visitor arrivals and a 0.6% slip in visitor spending this year, followed by increases of 2.9% for arrivals and 4.7% for spending next year.

The projected increases for 2025 are partly based on expectations that visitors from Japan will return in greater numbers.

During the first seven months of this year, more visitors from the mainland came to Hawaii compared with the first seven months of 2019 before the pandemic, but the number of visitors from Japan was only 45.2%, as many as had arrived during the same 2019 period.

Overall, visitor arrivals during the first seven months of this year represented 93% of the volume during the comparable period in 2019. DBEDT expects full recovery over pre-pandemic levels will happen in 2027 with 10.3 million visitors, which would top the record set in 2019 at 10.2 million.

Visitor spending in nominal dollars, meaning not adjusted for inflation, eclipsed pre-­pandemic levels in 2022 in large part due to high inflation. DBEDT expects nominal visitor spending to fall slightly this year to $20.7 billion from $20.9 billion in 2023, and then rise to $21.7 billion in 2025.

Inflation in Hawaii has been particularly high since 2021, and since November has been above the national average.

The inflation rate for Honolulu, according to federal data, surged to 3.8% in 2021 from 1.6% in 2020. Over the past two years, the rate jumped to 6.5% in 2022 then eased to 3.1% in 2023. In July it was 4.5%, down from 5.2% in May.

DBEDT said the high May and July inflation rates were mainly driven by higher home rental costs, which rose 12.4% in May and 10.8% in July compared with the same months a year earlier.

Hawaii’s 1.3% forecast economic growth this year is a measure of all goods and serv­ices known as gross domestic product, which is adjusted for inflation.

Separately on Thursday, the state Council on Revenues updated its projection for how much state tax revenue will come in for the fiscal years 2025, which began July 1, and 2026.

The council, which weighs a variety of data including economic forecasts, unanimously voted to adopt 6% growth projections for both fiscal years before factoring expected impacts from historic tax cuts approved earlier this year by the Legislature and Gov. Josh Green.

The tax cuts are being phased in annually through 2031, and will increase the standard deduction for personal income taxes this year, followed in 2025 by an adjustment to tax brackets that delivers even bigger savings for taxpayers.

Some of the additional income retained by taxpayers is expected to be spent, and thus increase tax revenue to the state through general excise taxes. So the impact of the tax cuts are not totally a negative factor on state tax revenue.

The state Department of Taxation estimates the tax loss for the state due to the new law will amount to $40 million in the current fiscal year and $240 million next fiscal year.

After adjusting for this impact, forecast state tax revenue gains by the council drop to 3.5% in the current fiscal year and to 2.2% for next fiscal year.