There are signs that the Washington metropolitan area is feeling the effects of the economic chill that is spreading across the country.

For example, housing starts over the past year have fallen by 17% and existing house prices are down an average of 5.1%. Nevertheless, the metro area's unemployment rate has increased by a mere 0.1 percentage points over the past year and, at 3.3%, its jobless rate is by far the lowest of the 25 largest metro areas in the country. Therefore, Washington's signs of distress are still fairly benign.

Taking into account that the metro area's labor force has grown by less than 0.5% over the past year, employers are clearly having difficulty finding enough staff. Also, despite the weakening of housing demand, overall construction employment was up by 2.0% year over year due to solid growth of commercial and retail building activity.

Furthermore, over the past year, employment has increased in financial services (+1.7%), professional services (+2.9%) and leisure and hospitality services (1.6%). It is worth noting that employment in government services, which accounts for 20% of the metro area's jobs, increased by a modest 0.5% year over year in the final quarter of 2007.

Looking ahead, two recent forward-looking economic indicators suggest that the Washington economy is likely to slow over the near term.

First, the most recent (November 2007) Fairfax County Economic Index suggests that the near-term outlook for the county, in the heart of the Washington metro area, is weak due to a significant tightening of credit conditions. As a result, consumers will likely rein in their purchase plans in the first half of 2008.

At the same time, the most recent Manpower Employment Outlook Survey reported that, while area employers expect to hire at a brisk pace in the first quarter of 2008, they have scaled back their plans compared to the fourth quarter of 2007. Together, these two indicators suggest that growth in Washington will definitely slow early in 2008, but it is unlikely that it will stop.