The quarterly forecast by the Department of Business, Economic Development and Tourism said the strong growth will come even though the tourism sector remains weak because of slow international arrivals.

The gross state product, the total of all goods and services sold, is now projected to grow by 4.7 percent this year, versus the 4.1 percent growth DBEDT expected back in June.

The 4.7 percent growth rate matches last year's rate and is well above the 2.8 percent growth achieved in 2001.

"It's a whole lot better than it was a year ago or anytime in the past five years," said John Arizumi, general manager for Carrier Hawaii, which sells and installs air-conditioning equipment. Arizumi's company expects sales to rise 5 percent this year.

While the report is good news for the rest of 2003, some economists have warned that the real-estate boom will provide only short-term relief from weakness in Hawai'i's primary industry, tourism. Job growth is projected to slow next year and visitor arrival numbers remain a moving target, depending on world events and the strength of the Mainland economy.

The forecast makes it clear that the engine driving the strong economy is construction. The construction industry has seen a 62 percent increase in private building permits issued in the second quarter of 2003 compared with the same quarter in 2002, the report said.

The DBEDT forecast, which is based primarily on data gathered in the second quarter, predicts personal income statewide to rise by 4.6 percent this year, which is up from previous expectations of 4 percent.

The report says total wage and salary jobs in the second quarter reached an all-time high of 574,600, which was an increase of 2.1 percent, or 12,000 jobs, compared with the second quarter of 2002. Total private building authorizations of $708 million for the second quarter were up 62 percent from the year-ago period.

Maui led the state with a 151.3 percent growth in the number of building permits, followed by O'ahu at 75.3 percent, Kaua'i at 36.6 percent and the Big Island at 35.8 percent.

Bankruptcy filings were down 6.4 percent statewide.

"Hawai'i's economy is doing well in spite of the fact that both the U.S. and Japanese economies are below their pre-9-11 levels and that international visitor arrivals are still weak," said Ted Liu, DBEDT director.

Amid the strengthening economy, foreign tourism stands out as one sector not enjoying a solid rebound. DBEDT trimmed its forecast for growth in visitor arrivals this year to 0.2 percent, down from an earlier prediction of 0.5 percent growth. Next year, DBEDT anticipates a 6.3 percent increase in visitors, but that is down from its earlier prediction of 7.3 percent growth.

Looking beyond this year, DBEDT sees job growth cooling to a 1.3 percent increase for 2004 — the same figure forecast in June.

The forecast predicts long-term job growth of 1.3 percent a year, visitor arrival growth of about 3 percent, and real personal income growth of about 2 percent.