As was the case last month, the only positive nonresidential construction market drivers are office starts, construction equipment shipments and, marginally, local tax receipts. This is not enough to keep the problems originating in the housing and energy markets from spilling over into nonresidential construction. The office boom is nearing the end, signaled by ebbing rents and marginally rising vacancies in many markets. The strength in construction equipments is entirely in export sales; domestic purchases are declining. The rise in state and local tax receipts is compared to a year ago and includes inflation plus large annual payments on 2007 capital gains and bonuses. 1st quarter tax receipts dropped 5.3% after inflation from a year ago so the funds available for public construction are shrinking.

While nominal nonresidential construction spending is still rising, the volume of activity is still shrinking after adjusting for inflation which has jumped to the 6-8% range. The outlook is for more declines until cost pressures ebb and the domestic demand outlook improves with a rebounding economy next year.

Key Indicators of the U.S. Market Environment — June 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)	234	204	W/E Jul 15th	181	Avg.	Falling
10-Year T-bill rate, % level (FRB)	5.1	4.15	W/E Jul 11th	3.9	Low	Steady
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)	38	36	May	24	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	Avg.	Steady
Airline revenue passenger miles, % change y/y (RCD)	2.7	1.4	Jun	-0.5	Avg.	Falling
Real price of gasoline (June 08 = 100), $s/gal. (U.S. Energy Dept.)	3.22	4.07	Jun	4.06	High	Rising
Hotel construction starts ($s), 3-mon. ave. y/y (RCD)	69	-18.0	Jun	-45.0	High	Falling
Retail rent, 54 metro areas, % change y/y (PPR)	4.3	1.7	Q1	0.6	Avg.	Falling
Retail vacancy rate, 54 metro areas, % level (PPR)	9.9	10.8	Q1	11.4	Avg.	Rising
Retail sales, % change y/y (U.S. Census Bureau)	4.0	2.1	June	3.2	Avg.	Steady
Consumer confidence index (The Conference Board)	105.3	58.1	June	50.4	Low	Falling
Consumer real income growth, % change y/y (U.S. Commerce Dept.)	1.7	2.0	May	8.6	High	Rising
Retail construction starts ($s), 3-mon. ave. y/y (RCD)	29	-14.0	June	-26.0	High	Falling
Industrial
Warehouse rent, 54 metro areas, % change y/y (PPR)	4	2.9	Q1	2.1	Low	Falling
Warehouse vacancy rate, 54 metro areas, % level (PPR)	8.6	8.8	Q1	9.0	Avg.	Falling
Business inventory, % change y/y (U.S. Census Bureau)	4.2	5.3	May	5.2	Avg.	Steady
Business sales, % change y/y (U.S. Census Bureau)	3.8	6.9	May	6.6	Avg.	Steady
Warehouse construction starts ($s), 3-mon. ave. y/y (RCD)	-12.0	-42.0	June	-17.0	Low	Falling
Capacity utilization rate, % level (FRB)	79.6	77.6	June	77.6	Avg.	Falling
Manufacturing production index (FRB)	114.4	113.7	June	113.9	Low	Steady
Goods trade (EX + IM), $ billions (U.S. Commerce Dept.)	259	293	June	294	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 — June 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, % of Exp. (National Governors assn.)	10.5	n/a	FY 08	8.0	High	Falling
Stock market index (Dow Jones Industrial)	13,851	11,843	W/E Jul 14th	10,963	High	Falling
K-12 enrollment, millions of people (U.S. Education Dept.)	55.762	n/a	2007-08	55.966	Avg.	Steady
Higher-education enrollment, millions of people (U.S. Education Dept.)	17.598	na/	2007-08	18.264	High	Rising
Hospital receipts, $ billions (U.S. Health & Human Services Dept.)	648.2		2007	696.7	High	Rising
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.)	15,002	10,659	Jun	9,979	Low	Falling
Electric power capacity utilization rate, % level (FRB)	84.9	84.9	Jun	86.5	High	Steady
Airline revenue passenger miles, billions (RCD)	2.7	1.4	Jun	-0.5	Avg.	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.)	1008.1	964.90	Jun	960.0	High	Falling
Construction equipment shipments, % change y/y (U.S. Census Bureau)	-31.1	18.9	May	7.7	Avg.	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.