Keep a close eye on construction. Growth in the industry has slowed - from a 9 percent annual pace in October 2006 to just under 6 percent in February 2007. Construction permits fell from a 20 percent drop to nearly a 50 percent drop on a year-over-year basis during the fall, but revived by an astonishing 31 percent increase in January and 17.2 percent in February. A one-day sell-off on the stock market on February 27th was sparked in part by concerns about many financial institutions' exposure to the subprime mortgage market. These high-risk mortgages are not a major concern among Washington state banks. On balance, the construction permit data and stock market jitters suggest slower growth in home construction ahead. That raises concerns about activity levels in the wood products industry and about the future revenues of state and local government. Much of the state and local revenue gain of the last two years in Washington has been due to construction-related receipts expanding the sales, business and occupation, and property tax revenues. A slowing of the pace in construction will have a particularly negative impact on the coastal and Cascade mountain communities heavily dependent on wood products.

Paul Sommers is a professor at the Institute of Public Service and Albers School of Business at Seattle University.