nonresidential building held up longer than residential activity in the
current recession, the nonresidential downturn now has started and is
expected to continue into 2010.

The timing of the rise and decline of these two construction
categories differs. The boom in spending on residential building,
measured as an inflation-adjusted component of Gross Domestic Product
(GDP), peaked in the fourth quarter of 2005. Residential spending
declined for the next 12 consecutive quarters, the longest sustained
housing decrease in the postwar period.

Nonresidential building began to increase strongly at the beginning
of 2006, just as residential activity started to sag. Double-digit
growth continued in seven of the next 10 quarters, propping up the
economy and partially offsetting the drag on GDP created by the
residential downturn. But nonresidential building hit the skids in the
fourth quarter with an annualized decrease of 5.9 percent. Now, looking
forward, analysts see no bottom in sight for nonresidential spending
during the current year.

Double-digit quarterly decreases are expected through 2009. This
contraction in nonresidential construction comes on the heels of an
expansion greater in magnitude than that recorded by residential
building during the recent housing boom. Residential spending grew by
25 percent between 2003 and 2006, while nonresidential spending
increased by 36 percent between 2006 and mid-2008.

Nonresidential building includes a diverse mix of structures,
including office and retail space, warehouses, health care facilities,
manufacturing plants, and even such facilities as golf courses. But
just as residential building has been hit by a weak economy,
nonresidential construction is now feeling the effects of reduced
demand for office space and facilities of all types.

Moreover, tighter credit standards, originally linked to residential
mortgage problems, are now affecting nonresidential financing.
According to surveys of bank loan officers by the Federal Reserve Board
of Governors, four out of five banks report tighter standards for
commercial real estate loans (see below).

Nonresidential building has posted many instances of sustained
downturns, the most recent being the six consecutive quarters beginning
with the fourth quarter of 2001, after the attacks of September 11. As
long as financial markets are tight and securitization barely exists,
it is unlikely that nonresidential building will show strong signs of