The economic environment for all nonresidential markets weakened over the past month. Business sales and growth inventory is still rising but this is due only to the recent pickup in commodity inflation. State and local government tax receipt growth increased in the first quarter but the trend is clearly reverse for the rest of the year. The only positive changes came from the financial markets in April, a month later than most of the other data. But they both have longer leadtimes. Stock indexes increased which is positive for institutional construction financing. Also, an index of the value of REIT (real estate investment trusts) increased marginally although it remains well below the year ago level. This is positive for commercial buildings. It is consistent with the Reed Construction Data construction starts and spending outlook which views the current weakness in the commercial building market as a brief pause/downturn and not the end of the building cycle to0 be followed by a sharp drop in development.

The environment will become clearer once the character of the ongoing recession is better known. Very low consumer and business confidence is the major restraint 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.

Key Indicators of the U.S. Market Environment — May 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)	253	207	W/E May 11th	216	Average	Rising
10-Year T-bill rate, % level (FRB)	4.65	3.54	W/E May 9th	3.85	Low	Rising
Office rent, 54 metro areas, % change y/y (PPR)	7.3	7.9	Q1	6.7	High	Falling
Office vacancy rate, 54 metro areas, % level (PPR)	14.9	14.8	Q1	15	High	Steady
Office employment, % change y/y (P&PR)	1.5	1.2	Q1	0.6	High	Falling
Office construction starts ($s), 3-mon. ave. y/y (RCD)	19.9	-14.0	Apr	19.0	High	Falling
Hotel room rate, 54 metro areas, % change y/y (PPR)	7.1	6.2	Q1	5.2	High	Falling
Hotel occupancy rate, 54 metro areas, % level (PPR)	67.1	67.2	Q1	66.9	Average	Steady
Airline revenue passenger miles, % change y/y (RCD)	5.5	1.7	April	-3.4	High	Falling
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)	105.0	-48.0	Apr	-40.0	High	Falling
Retail rent, 54 metro areas, % change y/y (PPR)	4.3	1.7	Q1	0.6	Average	Falling
Retail vacancy rate, 54 metro areas, % level (PPR)	9.9	10.8	Q1	11.4	Average	Rising
Retail sales, % change y/y (U.S. Census Bureau)	2.9	1.7	Mar	2.3	Average	Falling
Consumer confidence index (The Conference Board)	106.3	65.9	Apr	62.3	Low	Falling
Consumer real income growth, % change y/y (U.S. Commerce Dept.)	5.4	0.5	Mar	1.4	Low	Falling
Retail construction starts ($s), 3-mon. ave. y/y (RCD)	-5.6	-18.0	Apr	-21.5	High	Falling
Industrial
Warehouse rent, 54 metro areas, % change y/y (PPR)	4	2.9	Q1	2.1	Low	Falling
Warehouse vacancy rate, 54 metro areas, % level (PPR)	8.6	8.8	Q1	9.0	Average	Falling
Business inventory, % change y/y (U.S. Census Bureau)	4.7	5.0	Mar	5.2	Avg.	Rising
Business sales, % change y/y (U.S. Census Bureau)	3.2	6.9	Mar	6.3	Avg.	Rising
Warehouse construction starts ($s), 3-mon. ave. y/y (RCD)	62.0	-55.0	Apr	-55.0	Average	Falling
Capacity utilization rate, % level (FRB)	79.1	78.7	Mar	78.6	Average	Steady
Manufacturing production index (FRB)	113.1	114.7	Mar	114.7	Low	Steady
Goods trade (EX + IM), $ billions (U.S. Commerce Dept.)	252.6	286.6	Mar	278.1	High	Falling

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 — May 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.)	335	363	Q1	358	High	Falling
State & local government tax receipts, $ billions (U.S. Commerce Dept.)	1271	1305	Q1	1327	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 Industrial)	13,326	12,325	W/E May 8th	12,876	High	Rising
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.)	17.350	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.)	14,381	13,055	Apr	11,578	Low	Falling
Electric power capacity utilization rate, % level (FRB)	85.2	84	Mar	85.5	High	Steady
Airline revenue passenger miles, billions (RCD)	5.5	1.7	April	-3.4	High	Falling
State & local govt. capital spending, $ billions (U.S. Commerce Dept.)	335	363	Q1	358	High	Falling
State and local government tax receipts, $ billions (U.S. Commerce Dept.)	1271	1305	Q1	1327	High	Rising
Heavy contractor employment, 000s (U.S. Labor Dept.)	1005.6	975.10	Apr	959.4	High	Falling
Construction equipment shipments, % change y/y (U.S. Census Bureau)	-34.7	20.8	Feb	19.1	Average	Falling

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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