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FMI’s

Construction Outlook
Director of The Conference Board Consumer Research Center. “This continued weakening suggests that not only has the feeble level of growth in the first quarter spilled over into the second quarter, but that economic conditions may have slowed even further. And, not only are lackluster business and job conditions eroding confidence, but rising gasoline prices are undoubtedly heightening concerns. Consumers’ inflation expectations continue to rise and this measure now matches the all-time high reached in the aftermath of Hurricane Katrina. The percentage of respondents intending to take a vacation over the next six months has fallen to a 30-year low, another sign of consumers turning more cost conscious. Looking ahead, consumers’ outlook for the economy, the job market and their income prospects remains quite pessimistic and little changed from last month. Or, in other words, the glass remains half empty.” Credit tightening remains an area of concern for the Federal Open Market Committee, or the Fed. The Federal Reserve has lowered the target federal funds rate from 5.25% in September to 2.0% at the end of April. The Fed stated, “Recent information indicates that economic activity remains weak. Household and business spending has been subdued, and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.” The Federal Open Market Committee (FOMC) expects inflation to moderate in coming quarters, reflecting a projected leveling-

Second Quarter 2008 Report
“The Fed continues cutting rates to stimulate the economy, but inflation is becoming a threat and a pause is likely.”
The outlook for 2008 remains much the same. However, the outlook for 2009 has been revised down slightly because a downturn in nonresidential construction usually lags a slow down in the general economy. The economic indicators released over the past three months are somewhat mixed. Housing remains a drag on the economy although a few early signs point to the bottom possibly nearing. Credit tightening is still an issue, but also shows some signs of potential easing. Consumer spending, while still positive, continues to slow, and the employment situation appears to be steadying, albeit at a lower level. The Fed continues cutting rates to stimulate the economy, but inflation is becoming a threat and a pause is likely. While the general economy might be beginning to stabilize somewhat, nonresidential construction is expected to falter late in 2008 and into 2009. Real GDP growth in the first quarter was 0.9%, according to preliminary estimates released by the Bureau of Economic Analysis. Fourth quarter GDP grew at a dismal 0.6% according to final estimates. Growth is expected to remain slow in 2008 before picking up slightly in 2009. The employment situation appears to be holding fairly steady; however, it can change quickly. Employment and the unemployment rate in April were essentially unchanged. The employment rate remained at 5.0%. Employment decreased by 20,000 in April to 146.3 million following job losses that totaled 240,000 in the first three months of the year. Construction employment decreased by 61,000 in April and has fallen by 457,000 since its peak in September 2006. The Conference Board’s Consumer Confidence Index, which declined sharply in March, fell further in April. The Index is now 62.3, down from 65.9 in March. The Expectations Index rose slightly to 50.1 from 49.4. The Present Situation Index decreased to 80.7 from 90.6. The Consumer Confidence Index is viewed as a leading indicator for consumer spending, which drives two-thirds of the U.S. economy. Decreasing consumer confidence has just begun to translate into a slow down in consumer spending. “This month’s decline in Consumer Confidence was the result of yet another sharp decline in the Present Situation Index,” says Lynn Franco,

FMI’s Construction Outlook – Second Quarter 2008
out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. The Fed will continue to monitor developments closely. They believe the substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help promote moderate growth over time and mitigate risks to economic activity. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability. CPI is the most widely used measure of inflation and has remained low by historical standards. Core CPI (CPI minus volatile food and energy) rose 0.1% on a seasonally adjusted basis in April after increasing 0.3% in March. This translates into an increase of 1.8% over the past four months, near the Fed’s 2% target range. Rising general inflation, plus some rapidly rising material costs could become perilous for nonresidential construction. Steel prices continue to rise and copper prices remain elevated. Housing will be a drag on the economy again in 2008. It is not expected to begin recovering until 2009. All segments of the residential sector will remain down, led by single family (-19%), followed by multi family (-10%) and then finishing with improvements (-2%). Total construction in 2008 and 2009 will be down 4% and 1%. The decline in 2008 is based upon large decreases in residential construction that will not be offset by gains in nonresidential and nonbuilding construction. The decline in 2009 will be driven by a decrease in nonresidential construction for the first time since 2003. Flat residential and steady nonbuilding construction will not mitigate the nonresidential loss. However, public works construction will fare better than the rest of the market. Public safety construction will remain fairly strong, increasing 8% in 2008 to almost $10.7 billion and increasing another 2% in 2009 to $10.9 billion. The current highway bill, SAFETEALU, expires in 2009. FMI predicts an extension of this bill rather than a new authorization until the elections are over, despite the dire predictions that the Highway Trust Fund will shortly incur a deficit. Congested highways and corroding bridges are clearly a problem for our nation. However, funding to correct these problems is an issue. Escalating highway and street construction costs are only adding pressure, and there are now new doubts as to whether public-private partnerships (PPP) are the answer to our problems. Therefore, FMI expects highway and street construction to increase 4% per year from 2008 to 2010. Water is an important concern in our nation. Aging infrastructure, population growth and net migration are fueling demand for new and replacement construction. As the population grows, more need is placed on the systems. Net migration also plays a role in where these needs are. The Sunbelt will have the most need for new and replacement construction due to general population growth and positive net migration to this area. The Rustbelt will require replacement construction due to the age of its systems, but will have less population than before. Terrorism threats will also add to the need for additional spending for our water and sewer systems. Water supply and sewage and waste disposal construction will increase by 2% and 3% in 2008 and by 2% and 4% in 2009. These increases come despite a decrease in state and federal revenues. The outlook for 2008 and 2009 remain negative for total construction put in place. However, there are a few bright spots in the nonresidential and nonbuilding sectors. Public construction will help to mitigate some of the loss.

Heather Jones Construction Economist
Heather Jones is a construction economist in the Research Services Group. She is responsible for design, management and performance of primary and secondary market research projects and related research activities, including economic analysis and modeling, construction market forecasting and database management. Heather’s particular expertise is in the areas of market sizing and modeling, competitive analysis, sales and market performance evaluations, buying practices and trends analysis.

FMI Corporation 5171 Glenwood Suite 200 Raleigh, NC 27612 Tel: 919.785.9335 Fax: 919.785.9320 E-mail: hjones@fminet.com Web sites: www.fminet.com www.fmisource.com

FMI’s Construction Outlook – Second Quarter 2008

Millions of Current Dollars 2nd Quarter 2008

Construction Put in Place Estimated for The United States
1998 201,053 29,152 91,371 321,576 15,333 47,426 59,116 21,887 46,421 6,662 9,631 17,072 19,228 12,636 41,015 296,427 24,012 45,842 9,027 7,096 2,798 1999 225,601 32,289 100,072 357,963 16,512 51,977 63,329 22,797 52,456 7,433 9,762 19,525 19,525 18,617 33,107 315,041 24,796 50,248 10,071 7,617 3,076 2000 237,867 32,607 109,908 380,382 16,850 61,001 67,873 24,615 58,848 8,071 10,049 20,168 22,887 18,958 32,184 341,503 32,289 54,002 10,949 8,587 3,362 2001 251,063 35,610 109,798 396,471 15,486 59,495 68,506 24,776 64,960 8,806 9,558 20,207 24,409 20,173 30,364 346,739 35,025 60,554 12,006 9,397 3,967 2002 265,889 38,133 123,154 427,176 10,869 44,277 62,520 27,139 73,862 8,339 7,827 17,328 25,781 18,457 22,926 319,325 36,804 57,484 16,237 12,442 3,621 126,588 873,090 2003 310,575 40,200 130,381 481,156 10,712 39,418 61,529 29,329 74,316 8,569 7,161 16,847 24,710 14,550 21,508 308,649 41,450 57,139 16,581 12,492 3,935 131,597 921,403 2004 377,557 45,298 147,480 570,335 12,363 42,404 67,057 32,184 74,250 8,159 7,019 16,695 25,059 15,546 23,808 324,544 35,395 58,623 17,929 12,620 4,044 128,611 1,023,487 2005 433,510 52,598 160,845 646,953 12,840 45,763 70,242 34,430 79,687 7,735 7,314 15,236 25,052 18,906 30,040 347,245 35,466 64,139 19,867 14,028 4,453 137,953 1,132,149 2006 415,997 58,791 172,628 647,416 18,047 54,644 75,518 39,525 85,992 7,700 7,806 18,248 27,038 21,653 34,461 390,632 39,106 71,929 22,990 14,842 5,322 154,189 1,192,238 2007 303,471 54,735 173,122 531,328 29,922 65,359 85,398 45,037 98,441 7,538 9,866 20,555 31,305 26,200 37,646 457,267 49,784 77,139 24,603 15,601 5,690 172,817 1,161,412 2008 245,812 49,262 169,660 464,733 31,118 63,399 81,128 48,190 102,379 6,784 10,655 20,144 33,810 27,772 40,281 465,659 55,758 80,225 25,342 15,913 5,918 183,154 1,113,546 2009 240,896 47,784 176,446 465,125 26,139 53,889 68,959 49,153 104,427 5,970 10,868 18,331 34,486 28,328 41,892 442,441 61,334 83,434 26,355 16,231 6,154 193,508 1,101,074 2010 252,940 49,217 185,268 487,426 27,185 56,044 71,027 53,577 109,648 6,030 11,520 18,881 37,590 30,027 43,568 465,097 66,854 86,771 27,936 17,205 6,524 205,289 1,157,812 2011 273,176 50,694 198,237 522,106 28,816 58,847 75,999 60,006 119,516 6,211 12,441 20,014 40,597 31,529 45,311 499,287 74,876 91,977 29,613 18,237 6,850 221,553 1,242,946 2012 292,298 54,242 208,149 554,689 31,121 62,377 81,319 67,207 130,273 6,459 12,939 21,014 43,032 32,790 47,576 536,109 83,861 97,496 31,093 19,513 7,124 239,088 1,329,886

RESIDENTIAL BUILDINGS Single Family Multi Family Improvements* Total Residential NONRESIDENTIAL BUILDINGS Lodging Office Commercial Health Care Educational Religious Public Safety Amusement and Recreation Transportation Communication Manufacturing Total Nonresidential Buildings NONBUILDING STRUCTURES Power Highway and Street Sewage and Waste Disposal Water Supply Conservation and Development

Total Nonbuilding Structures 88,776 95,808 109,190 120,949 Total Put in Place 706,779 768,811 831,075 864,159 *Improvements include additions, alterations and major replacements. It does not include maintenance and repairs.

Change From Prior Year - Current Dollar Basis 2nd Quarter 2008

Construction Put in Place Estimated for The United States
2001 6% 9% 0% 4% -8% -2% 1% 1% 10% 9% -5% 0% 7% 6% -6% 2% 8% 12% 10% 9% 18% 11% 4% 2002 6% 7% 12% 8% -30% -26% -9% 10% 14% -5% -18% -14% 6% -9% -24% -8% 5% -5% 35% 32% -9% 5% 1% 2003 17% 5% 6% 13% -1% -11% -2% 8% 1% 3% -9% -3% -4% -21% -6% -3% 13% -1% 2% 0% 9% 4% 6% 2004 22% 13% 13% 19% 15% 8% 9% 10% 0% -5% -2% -1% 1% 7% 11% 5% -15% 3% 8% 1% 3% -2% 11% 2005 15% 16% 9% 13% 4% 8% 5% 7% 7% -5% 4% -9% 0% 22% 26% 7% 0% 9% 11% 11% 10% 7% 11% 2006 -4% 12% 7% 0% 41% 19% 8% 15% 8% 0% 7% 20% 8% 15% 15% 12% 10% 12% 16% 6% 20% 12% 5% 2007 -27% -7% 0% -18% 66% 20% 13% 14% 14% -2% 26% 13% 16% 21% 9% 17% 27% 7% 7% 5% 7% 12% -3% 2008 -19% -10% -2% -13% 4% -3% -5% 7% 4% -10% 8% -2% 8% 6% 7% 2% 12% 4% 3% 2% 4% 6% -4% 2009 -2% -3% 4% 0% -16% -15% -15% 2% 2% -12% 2% -9% 2% 2% 4% -5% 10% 4% 4% 2% 4% 6% -1% 2010 5% 3% 5% 5% 4% 4% 3% 9% 5% 1% 6% 3% 9% 6% 4% 5% 9% 4% 6% 6% 6% 6% 5% 2011 8% 3% 7% 7% 6% 5% 7% 12% 9% 3% 8% 6% 8% 5% 4% 7% 12% 6% 6% 6% 5% 8% 7% 2012 7% 7% 5% 6% 8% 6% 7% 12% 9% 4% 4% 5% 6% 4% 5% 7% 12% 6% 5% 7% 4% 8% 7%

1998 1999 2000 RESIDENTIAL BUILDINGS Single Family 13% 12% 5% Multi Family 6% 11% 1% Improvements* -1% 10% 10% Total Residential 8% 11% 6% NONRESIDENTIAL BUILDINGS Lodging 14% 8% 2% Office 19% 10% 17% Commercial 4% 7% 7% Health Care -2% 4% 8% Educational 5% 13% 12% Religious 14% 12% 9% Public Safety 11% 1% 3% Amusement and Recreation 5% 14% 3% Transportation 9% 2% 17% Communication 0% 47% 2% -19% -3% Manufacturing 7% Total Nonresidential Buildings 7% 6% 8% NONBUILDING STRUCTURES Power 20% 3% 30% Highway and Street 4% 10% 7% Sewage and Waste Disposal 0% 12% 9% Water Supply 3% 7% 13% Conservation and Development 2% 10% 9% Total Nonbuilding Structures 7% 8% 14% Total Put in Place 8% 9% 8% *Improvements include additions, alterations and major replacements. It does not include maintenance and repairs.

FMI’s Construction Outlook – Second Quarter 2008

FMI’s Construction Market Forecasts
BENEFITS
A Construction Market Forecast from FMI’s Research Services Group can: • Supply the market-oriented, economy-driven dimension essential for preparing, implementing and monitoring strategic plans. • Be a significant aid in defining, targeting, implementing and monitoring other critical corporate decisions, such as long and short-term sales goals, or redirecting resources; for example, on a geographic or a product-line basis. • Provide the basis for estimating sub-markets. • Provide the basis for comparing performance among markets. • Provide the basis for identifying activities that are beneficial or detrimental to performance.

BASIS
• Historical information in FMI’s standard Construction Market Forecast is based on building permits and construction put in place data as provided by the U.S. Commerce Department. Forecasts are based on econometric and demographic relationships developed by FMI, on information from specific projects gathered from trade sources, and on FMI’s analysis and interpretation of current and expected social and economic conditions.

OTHER REPORTS
• Reports on state and federally financed highway construction are available for most counties or combinations of counties. • Custom reports on a wide variety of constructionrelated topics can be prepared by FMI. • Reports are based on multiple sources and are appropriate for preliminary analytical and planning purposes, but contain little or no direct observation of the area described and are not guaranteed to be accurate by FMI.

FEATURES

Each Standard Construction Market Forecast: • Details construction put in place in three residential building, 11 nonresidential building and five nonbuilding structure categories. It covers the current year, eight previous years and five forecasted years. It is available for any county in the U.S., or any combination of counties, metropolitan statistical areas, states, regions, etc. • Includes both construction values and annual percentage changes. Delivery time depends on the size of the request but is usually only a few days. It can be delivered in printed or electronic form, in most major text or spreadsheet formats. Graphs can be provided at additional cost.

For more information, call 919.785.9335

FMI’s Construction Outlook – Second Quarter 2008

About FMI
Founded in 1953 by Dr. Emol A. Fails, FMI provides management consulting and investment banking for the worldwide construction industry. FMI, management consultants and investment bankers to the building and construction industry, delivers innovative solutions to contractors, architects and engineers, construction materials producers, manufacturers and suppliers of building products and construction equipment, private owners, residential builders, utilities, government agencies, surety companies and trade associations. FMI’s management consulting practice provides a wide array of services, including strategy, training and talent development, leadership and organizational development, market research, project execution, business development and compensation consulting. FMI’s investment banking practice provides merger and acquisition advisory services, capital placement and financial advisory services.

About FMI’s Research Services Group
As the construction industry becomes increasingly competitive, market intelligence becomes an important tool for the building industry. A more complete understanding of the market, market trends, customer perceptions, buying practices, competitor profiles and other market influencers will enhance craft labor studies. Since 1953, FMI has provided consulting and training services specialized for the construction industry. FMI’s market research includes both secondary and primary research designed to meet clients’ specific needs. Both types of research are used to provide accurate assessments in a timely, efficient and concise manner for clients. Typical project work performed includes customer buying practices, competitive analyses, market-size modeling, market forecasts and trends, channel performance analyses, customer satisfaction surveys and sales performance evaluations.

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