Hawai'i business performance may have peaked last year, according to a recent survey of local companies.

Qmark Research and Polling surveyed 403 companies last month for the Business Banking Council and found that businesses are taking a dimmer view of their prosperity and of the state economy despite expert projections for continued economic expansion this year.

The survey, sponsored by American Savings Bank, said 52 percent of businesses reported higher revenue in the past year, down from 56 percent a year earlier, while 17 percent said revenue fell compared with 12 percent a year earlier.

Profit before taxes rose for 46 percent of companies surveyed, which was up from 39 percent a year earlier, though in the 2006 second quarter companies reporting higher profits reached 48 percent, a peak for the survey since its inception in 1998.

Considering revenue and pre-tax profit along with staffing, Qmark produced a business performance index of 124, up from 123 in the 2006 first quarter but off the peak of 131 in the 2006 second quarter.

Barbara Ankersmit, Qmark president, said seasonal differences affect results of the survey, typically conducted in the first and second quarter of each year, but that businesses appear not to be growing as much as previously.

"Things aren't bad," she said. "It's level. There's little growth going on."

OPTIMISM INDEX OFF

As performance sagged slightly last year, businesses were less optimistic about the year ahead when compared with optimism over the past several years.

The survey's optimism index was 119, down from 131 a year earlier and unchanged from the 2006 second quarter. The optimism index's peak was 138 in the 2005 first quarter.

"We're far from the peak we had in 2005," Ankersmit said.

Only 29 percent of survey respondents believe the state economy will improve this year, compared with the past three years when 32 percent to 54 percent held that view. Some 54 percent of businesses said they expect the economy to stay the same, which was the highest response in three years.

Local economists project that Hawai'i's economy will continue to expand this year, though at a slower pace than previous years because of softening job and income growth, a home-building slowdown and near-flat visitor arrivals.

Businesses surveyed cited rising costs of doing business and the state's ultra-tight labor market as the two biggest factors for their largely neutral economic outlook.

Hiring has been a particular challenge for companies as the state's unemployment rate during the past two years has been below 3 percent, which some labor experts consider full employment. In recent months, the unemployment rate has hovered at or just above 2 percent.

"This is becoming more and more of a problem," Ankersmit said, adding that most businesses are focusing efforts on employee retention.

Carol Pregill, executive director of the Retail Merchants of Hawai'i trade association, said retail is a high-labor industry facing a profound challenge finding employees.

The issue is expected to remain particularly acute as several national retailers including Nordstrom, Target, Walgreens and Whole Foods prepare to open their first stores in Hawai'i in the next year or so.

About 25 percent of survey respondents were retailers who in general were slightly more optimistic and said they performed a little better than the broader business community.

HOLIDAY SALES

Qmark also asked retailers questions about their industry, including holiday sales and visitor spending. Holiday sales — a critical measure for most retailers — grew for just 35 percent of retailers compared with about 50 percent in the two previous years. Holiday sales declined for 34 percent, up from about 20 percent in the two previous years.

Retailers who rely on tourists were hit hard by last year's roughly 9 percent drop in Japanese visitor arrivals and said eastbound visitors comprised 19 percent of their customer base, down from 38 percent last year and the lowest percentage since the question was asked four years ago.

The survey randomly interviewed 403 companies from Feb. 2 to 22. The sample was balanced to fairly represent the state's mix of small, medium and large businesses based on their number of employees. The sample size has a margin of error of about 5 percentage points with a 95 percent confidence level.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.