The economic environment for all nonresidential markets remains mixed. Many of the demand drivers remain positive, such as commercial occupancy rates and public tax receipts, although less so than last year. Some of these appear to be headed into the negative zone in the next few months, if only briefly. In spite of this, project starts trends are weakening notwithstanding the large pickup in March over February. Overall, the economic environment is at best neutral this spring and could be briefly negative for several months.

The environment will become clearer once the character of the ongoing recession is better known. Very low consumer and business confidence is the major restrain on nonresidential construction for the rest of 2008. Confidence can change quickly if there is good news on housing activity, energy prices, mortgage availability and cost, jobs or consumer spending. Reed construction Data believes that enough good news in one of these areas is likely in the spring to provide the needed confidence boost to keep the stall in nonresidential construction spending from becoming an extended downturn.

It is noteworthy that two of the largest contributors to the March surge in the value of construction starts were public office buildings and hotel renovation. At $857 million, public office starts were nearly double any month in the last five years. March hotel starts tripled from February to the highest level in a year. In both markets, confidence remains high enough to execute plans made during better economic times. This is a reminder that much of nonresidential construction lags current economic trends by a year or more. The consequence of this is that the weaker economy in the last nine months will have a limited negative impact on nonresidential market in the first half of 2008. The flip side of this is that the negative impact will be delayed until later this year and next year when economic conditions are anticipated to be better than now.

Key Indicators of the U.S. Market Environment — March 2008
Commercial and Industrial Construction (Driven mainly by cyclical factors)

	Year Ago	Previous Month or Qtr.	Latest		Level	Recent Trend	Impact on Const.
Commercial
Dow Jones composite REIT, index (Dow Jones)	260	200	W/E Apr 11th	209	Average	Rising
10-Year T-bill rate, % level (FRB)	4.74	3.51	W/E Apr 11th	3.54	Low	Falling
Office rent, 54 metro areas, % change y/y (PPR)	6.7	8.7	Q4	8.7	High	Rising
Office vacancy rate, 54 metro areas, % level (PPR)	15	14.7	Q4	14.8	High	Steady
Office employment, % change y/y (U.S. Labor Dept. and RCD)	1.7	1.1	Q4	1.2	High	Falling
Office construction starts ($s), 3-mon. ave. y/y (RCD)	47.9	-32.7	Mar	-14	High	Falling
Hotel room rate, 54 metro areas, % change y/y (PPR)	6.7	6.7	Q4	8.7	High	Rising
Hotel occupancy rate, 54 metro areas, % level (PPR)	67.3	67.3	Q4	67.4	Average	Steady
Airline revenue passenger miles, % change y/y (RCD)	3.6	1.2	Feb	5	High	Rising
Real price of gasoline (July 07 = 100), $s/gal. (U.S. Energy Dept.)	237	3.03	Mar	3.24	High	Rising
Hotel construction starts ($s), 3-mon. ave. y/y (RCD)	18	-31.6	Mar	25	High	Rising
Retail rent, 54 metro areas, % change y/y (PPR)	4.5	2.8	Q4	1.5	Average	Falling
Retail vacancy rate, 54 metro areas, % level (PPR)	9.7	10.5	Q4	11	Average	Rising
Retail sales, % change y/y (U.S. Census Bureau)	3.2	3.3	Mar	2.3	Average	Falling
Consumer confidence index (The Conference Board)	108.2	76.4	Mar	64.5	Low	Falling
Consumer real income growth, % change y/y (U.S. Commerce Dept.)	5.3	-0.6	Feb	0.6	Low	Falling
Retail construction starts ($s), 3-mon. ave. y/y (RCD)	14.8	-1.8	Mar	-13.6	High	Falling
Industrial
Warehouse rent, 54 metro areas, % change y/y (PPR)	3.9	3.3	Q4	3.1	Average	Falling
Warehouse vacancy rate, 54 metro areas, % level (PPR)	8.6	8.6	Q4	8.7	Average	Steady
Business inventory, % change y/y (U.S. Census Bureau)	5.4	4.1	Jan	4.8	Avg.	Steady
Business sales, % change y/y (U.S. Census Bureau)	1.2	6	Jan	8.6	Avg.	Rising
Warehouse construction starts ($s), 3-mon. ave. y/y (RCD)	41.6	-7.9	Feb	-54.3	Average	Falling
Capacity utilization rate, % level (FRB)	79.4	79.4	Jan	79.1	Average	Steady
Manufacturing production index (FRB)	121.3	125.4	Feb	124.9	Low	Steady
Net imports of goods, $ billions (U.S. Commerce Dept.)	65.8	69.4	Feb	72.9	High	Steady

Abbreviations: y/y = year over year; WE = week ending; FRB = Federal Reserve Board;
PPR = Property & Portfolio Research; RCD = Reed Construction Data.
Table: Reed Construction Data and Reed Construction Data - CanaData.

Key Indicators of the U.S. Market Environment — March 2008
Institutional and Engineering Construction
(Driven by demographics and government finances, as well as cyclical factors)

	Year Ago	Previous Month or Qtr.	Latest		Level	Recent Trend	Impact on Const.
Institutional
State & local govt. capital spending, $ billions (U.S. Commerce Dept.)	321	352	Q4	364	High	Rising
State & local government tax receipts, $ billions (U.S. Commerce Dept.)	1245	1296	Q4	1315	High	Rising
State budget reserves, % level (Rockefeller Institute of Govt.)	7.1	n/a	FY 06	9.8	High	Falling
Stock market index (Dow Jones)	12,612	11,894	W/E Apr 17th	12,325	High	Falling
K-12 enrollment, millions of people (U.S. Education Dept.)	54.725	n/a	2006-07	54.993	Average	Steady
Higher-education enrollment, millions of people (U.S. Education Dept.)	17.35	na/	2006-07	17.664	High	Rising
Hospital receipts, $ billions (U.S. Health & Human Services Dept.)	611.566		2006	651.751	High	Steady
Prison population, % change y/y (Pew Charitable Trust)	4.5	n/a	2006-07	2.5	High	Falling
Heavy/Engineering
Federal highway trust fund, $ billions (U.S. Treasury Dept.)	13,731	12,619	Feb	11,378	Low	Falling
Electric power capacity utilization rate, % level (FRB)	90.7	88.1	Feb	84.7	High	Rising
Airline revenue passenger miles, billions (RCD)	3.6	1.2	Feb	5	High	Rising
State & local govt. capital spending, $ billions (U.S. Commerce Dept.)	321	352	Q4	364	High	Rising
State and local government tax receipts, $ billions (U.S. Commerce Dept.)	1245	1296	Q4	1315	High	Rising
Heavy contractor employment, 000s (U.S. Labor Dept.)	1007.5	977.6	Mar	972.5	High	Falling
Construction equipment shipments, % change y/y (U.S. Census Bureau)	-35.7	5.6	Feb	22.5	Average	Steady

Abbreviations: y/y = year over year; WE = week ending;
FRB = Federal Reserve Board; RCD = Reed Construction Data.
Table: Reed Construction Data and Reed Construction Data - CanaData.

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