The think tank initially predicted island construction jobs would decline 1 percent in 2007, but the research group said it now expects construction jobs to rise by 3 percent, or 1,050 jobs, to 36,930.

The reversal stemmed from an unexpected surge in nonresidential building permits late last year that resulted in $500 million more in construction work than should sustain industry growth through 2007, the report said.

The authors, economist Carl Bonham and Bank of Hawaii chief economist Paul Brewbaker, said there was a 45 percent increase last year in nonresidential permits, which include hotel, time-share, warehouse and retail projects.

As measured in 2005 dollars, construction activity in the islands will rise this year by 4.4 percent to $6.6 billion, the report said. A 1.9 percent decline had been predicted as recently as October.

Despite the good economic news, the contraction of the construction industry is still in Hawai'i's future, Bonham and Brewbaker said.

"The overall slowing trend has been pushed back by one year," they wrote. "Hawai'i's construction cycle is near or past its peak."

The authors predict construction spending declines of about 3 percent in each of the next two years, with the construction job count reduced by 1,000, to 35,930, in 2009.

It has been two years since residential construction permitting peaked in the islands as demand began to fall with many hopeful buyers priced out of the market.

Residential permit values in 2005 totaled $2.26 billion, about $1 billion more than nonresidential permits. The situation turned around last year with residential permit values totaling $1.65 billion, compared with $1.78 billion in nonresidential permits, the report said.