The Washington area's meteoric economic growth is decelerating.

The Washington Metropolitan Council of Governments' coincident index, which measures the state of the local economy, dropped for the second straight month, from 117.5 in April to 116.6 in May, according to a recent report.

Three of the index's four components were negative in both April and May, indicating dips in consumer confidence, passenger volume at Reagan National Airport and retail sales of nondurable goods. But total employment bucked the trend, heading north for the fourth time this year.

"It still isn't obvious to businesspeople, but the area economy is slowly slackening," said Stephen S. Fuller, a professor of public policy at George Mason University and a co-developer of the index.

Other analysts said they feel that the second-quarter slowdown could be due to the mild winter, which pushed construction activities and some retail sales ahead to early this year. "Our measure of the regional economy showed growth at 6.7 percent annually, which suggests that some first-quarter strength was borrowed from the second quarter," said Mark P. Vitner, a vice president and economist at First Union Corp.

The month-on-month decline suggests that the region's economy may be coming off its peak, and that the months ahead will see more moderate growth. The leading index for the area, which projects nine to 12 months ahead, declined in April and May, thanks to drops in two of its five components. Total residential building permits were down, as were consumer expectations (read: future confidence).

But what could critically affect growth is the robust labor market. "It's an extremely tight labor market and companies are having trouble filling up positions," said Mark Zandi, chief economist at RSA Dismal Sciences in West Chester, Pa. Unemployment has dropped from 3.2 percent to 2.6 percent over the past 12 months, with the private sector creating 67,100 jobs and the public sector 6,100 jobs. Interestingly, almost two-thirds of the private-sector jobs were in the service sector. "There is no slowing in the region's high-tech growth, and people are continuing to move into the metropolitan area," Vitner said.

Still, there is evidence that the unemployment rate is inching up -- from 2.5 percent in April to 2.6 percent in May -- and that consumer spending will weaken over the remainder of 1999. Already, mortgage rates are up and the personal savings rate nationwide has been negative for several months. "It seems people are still paying off their Christmas debts," Fuller said. And don't forget, the year 2000 scare still looms large; people are going to either postpone purchases or stock up in anticipation of trouble.

The good news? The Washington economy is still way above last year's levels. Retail sales are up 7.1 percent from May 1998; new home sales -- despite the 0.75 percent increase in mortgage rates since January -- are 14.2 percent higher vs. the same period in 1998. "It's still a stellar economy, and I don't see any significant prospects of a downturn any time soon," said Zandi of RSA.

Other experts believe the slowdown may actually be healthy. "The economy has been growing at an unsustainable speed. It needs to slow down to correct some imbalances," Fuller said.

The bottom line? Unless the stock market crashes -- which could affect the area's rich households and high-tech companies -- or there's a major Y2K meltdown, you will still have a lot of reasons to be smiling in the wee years of the new millennium.

Economic Ups and Downs

Economic indicators for the Washington area:

What's Down

April 1999 May 1999

Consumer confidence (South Atlantic) 178.7 172.8

Airport domestic passengers, in millions 1,272.2 1,195.3

Nondurable goods retail sales, in billions 1,533.3 1,516.7

Total residential building permits 3,450 3,131

Consumer expectations (South Atlantic) 113 109.7

Initial unemployment claims 2,165 2,143.8

What's Up

April 1999 May 1999

Total wages and salary employment 2,597.3 2,615

in millions

Help wanted index 52 53

Durable goods retail sales, in billions 1,636.2 1,640.1

SOURCE: Institute of Public Policy, George Mason University