The housing market slump has begun to drag down the overall local economy, according to an index of San Diego County's economy released Thursday.

Dropping by 0.5 percent since April, the index fell to 138.3 in May, according to the latest University of San Diego Index of Leading Economic Indicators, released Thursday. A year ago, the index stood at 142.7.

Job losses in the housing industry are taking dollars out of circulation for the rest of the economy, Alan Gin, an economist who compiles the report, said in a Thursday interview. The housing and real estate industry accounts for 10 percent of local employment, Gin said.

"With May's drop, the USD Index of Leading Economic Indicators has now fallen in 13 of the last 14 months," wrote Gin, a professor at the School of Business Administration at the University of San Diego, in the report. "The slump in the housing market has begun to affect other parts of the local economy."

There is now a slim but real chance of the local economy going into recession, Gin said in the interview, describing his more gloomy outlook as a recent development.

Gin pointed to the most recent state unemployment report, which found a year-over-year loss of 6,900 jobs in construction in San Diego County. Overall, total nonfarm employment rose by 4,200 jobs since May of last year, compared to an 18,000 gain in jobs for all of 2006. That indicates a rapid deceleration in job growth, Gin said.

A number of factors have sent the housing market into reverse. Local residential real estate prices roughly doubled in the first half of the decade. But in the last year or so that trend has ground to a halt. The number of existing homes for sale has risen, sating the once apparently insatiable demand. In turn, that has caused new home construction to fall. And turmoil in the subprime market has caused companies such as Accredited Home Lenders of Carmel Mountain Ranch to lay off employees.

Those setbacks have clouded the otherwise optimistic outlook for San Diego County's economy, Gin said.

However, the region's main business organization, the San Diego Regional Chamber of Commerce, said the county's vitality in technology will help it weather the bad news.

San Diego County needs to concentrate on its strengths in well-paying technology jobs, said Scott Alevy, a chamber spokesman. Moreover, he said slackening housing demand has a beneficial effect in that it brings prices down to match the lowered economic activity. That helps even things out.

Alevy said the Chamber's position on how to deal with slowdowns is to get rid of the excess regulations, so the free market can work unfettered to bring those factors back into balance and let growth continue.

The index is a composite of six indicators. Two rose in May: local stock prices and the national economy's index of leading economic indicators. Four fell: building permits, unemployment insurance, consumer confidence and help wanted advertising.

"The four negative components in the month overwhelmed the two positive ones to produce the largest monthly drop in the Index since August of last year," Gin wrote.

Contact staff writer Bradley J. Fikes at (760) 739-6641 or bfikes@nctimes.com.