The only positive nonresidential construction market drivers are office starts, construction equipment shipments and, marginally, local tax receipts. Soaring materials costs from the strong economy overseas and slumping space and facility demand from the weak domestic economy have downgraded all other market drivers to neutral or negative. While nominal construction spending is still rising, the volume of activity is still shrinking after adjusting for inflation. The outlook is for at least several more months of decline until cost pressures ebb and the domestic demand outlook improves with a rebounding economy.

The weal environment will eventually catch up to the office market. But now, rents are still rising making new project starts profitable. Tenants who sign leases now are paying substantially more than they die in their expired leases originally signed during the last construction recession. While activity remains very strong, the hotel market has the most serious risk given the nature of the current weakness in the economy. The large flight cutbacks and fare increases announced over the last month by many airlines will reduce travel and hotel occupancy and room rates later this year. And the 2004-08 surge in room rentals to foreign visitors is certain to subside with the slower growth in the world economy which has already begun and the end of the decline in the $US.

In spite of a surge in heavy project starts in May, this market is being restrained by both soaring costs, which may be as much as happened in 2004, and the rapidly slipping availability of public construction funds. Highway funds are shrinking as fuel usage falls. Congress now appears unlikely to provide supplemental funds this year.

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	215	W/E Jun 6th	215	Average	Steady
10-Year T-bill rate, % level (FRB)	4.84	3.83	W/E May 30h	4.03	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)	7.0	23.0	May	37.0	High	Rising
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)	2.3	-3.4	May	1.4	High	Falling
Real price of gasoline (May 08 = 100), $s/gal. (U.S. Energy Dept.)	326	3.46	Apr	3.67	High	Rising
Hotel construction starts ($s), 3-mon. ave. y/y (RCD)	59.0	-14.0	May	-16.0	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	Apr	2.3	Average	Falling
Consumer confidence index (The Conference Board)	108.5	62.8	May	57.2	Low	Falling
Consumer real income growth, % change y/y (U.S. Commerce Dept.)	4.1	1.8	Apr	2.2	Low	Falling
Retail construction starts ($s), 3-mon. ave. y/y (RCD)	10.0	-23.0	May	-13.0	High	Falling
Industrial
Warehouse rent, 54 metro areas, % change y/y (PPR)	4	2.9	Q1	2.1	Low	Falling
Warehouse vacancy rate, 54 metro areas, % level (PPR)	8.6	8.8	Q1	9.0	Average	Falling
Business inventory, % change y/y (U.S. Census Bureau)	4.7	5.0	Mar	5.2	Avg.	Rising
Business sales, % change y/y (U.S. Census Bureau)	3.2	6.9	Mar	6.3	Avg.	Rising
Warehouse construction starts ($s), 3-mon. ave. y/y (RCD)	18.0	-54.0	May	-42.0	Average	Falling
Capacity utilization rate, % level (FRB)	79.3	78.3	April	77.6	Average	Falling
Manufacturing production index (FRB)	113.6	114.4	April	113.5	Low	Falling
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)	13,424	12,746	W/E Jun 2nd	12,210	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.)	17.350	n/a	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)	86.8	85.8	Apr	85.9	High	Steady
Airline revenue passenger miles, billions (RCD)	2.3	-3.4	May	1.4	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.)	1003.9	966.30	May	964.3	High	Falling
Construction equipment shipments, % change y/y (U.S. Census Bureau)	-31.8	8.5	April	20.9	Average	Rising

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.