Bank of Hawaii has lowered its economic forecast for the state, cutting its projections for jobs, personal income and visitor arrivals for this year and next.

The latest quarterly revision by Paul Brewbaker, the bank's chief economist, stops short of saying the state is in a recession but includes projections showing parts of the economy are contracting.

"We're reducing the economic forecast slightly," said Brewbaker. "The second half of the year is proving to be more challenging than the first half of the year."

Hawai'i's economy is reeling from a number of shocks to tourism and jobs brought on by a slowing U.S. economy, high oil prices, subprime mortgage problems and in recent weeks, a financial market crisis. That resulted in visitor arrivals tumbling 19.5 percent and unemployment reaching a seven-year high in September.

Brewbaker's revised forecast is similar to other forecasts this year in that it lowers most projections. While some of his estimates — he forecasts visitor arrivals will drop by 10.6 percent this year and the number of jobs will shrink by 0.4 percent — are slightly more negative than other economists locally, the state and the University of Hawai'i Economic Research Organization are expected to revise their numbers downward in coming weeks.

"It's the slowing that has continued," Brewbaker said.

"There will be a modest contraction in terms of personal income and employment."

Prior to his revision, Brewbaker was forecasting a 6 percent downturn in visitor arrivals this year along with a 0.3 percent drop in jobs.

His forecast calls for a slight decline in personal income that's adjusted for the effects of inflation, which some economists use as a rough proxy for gross state product. It is projected to shrink by 0.3 percent this year and 0.8 percent next year.

Brewbaker had previously estimated the income measure would fall 0.2 percent in 2008 and rise 0.9 percent in 2009.

The forecast also shows a shrinking construction sector this year and next. Brewbaker, who teamed with UH economists for this portion of the report, estimates the industry will contract 6 percent this year and 3.2 percent next.

In terms of bright spots, the Bank of Hawaii report calls for the decline in visitor arrivals to moderate to just 0.2 percent next year. Brewbaker said he expects the decline in arrivals to continue through the first half of 2009, but for a mild recovery to begin in the second half led by a rebound in Mainland visitors.

But that won't be enough to offset 2009's first-half decline and yearlong softness in international arrivals.

Moreover, Hawai'i does seem to be doing better than many Mainland states where mortgage delinquencies and the credit crunch have slowed economic activity, Brewbaker said. Hawai'i's foreclosure rate remains one of the lowest compared with most states, and unemployment at 4.5 percent compares with the national rate of 6.5 percent.

"We're doing better than the average," Brewbaker said. "There are exceptions, with tourism being the principal one."