The Montgomery County economy is booming but could be hampered soon without road building and commercial construction, according to a generally rosy analysis released this week that gives county officials high marks for managing the local economy.

The second annual "economic report card" was presented to County Executive Douglas M. Duncan (D) by the Economic Advisory Council of Montgomery, a group of business leaders and academics headed by Mahlon Straszheim, chairman of the Economics Department at the University of Maryland at College Park. The idea for the annual grades emerged during a local business summit three years ago as a way to track Montgomery's economic performance over time.

The report, which grades county officials in five broad categories, shows improvement from last year in every area of the economy except in attracting and retaining business and developing the retail sector. Part of the reason, the report states, is that a shortage of quality office space is preventing businesses from expanding inside Montgomery and discouraging others from moving in.

The report also says the county could do a better job promoting itself as a place to do business, an issue the County Council partly addressed last month by budgeting more money for marketing over the next year.

Duncan received his highest marks for encouraging private-sector employment growth, especially in such areas as high-tech manufacturing and business services and for overseeing dramatic increases in income tax revenue mostly resulting from the rising stock market. Among several improved areas is the balance Duncan has reached in his budget between taxing and spending; his B from 1997 jumped to an A in 1998.

"The county is in the midst of a robust, broad-based expansion and is doing substantially better than 18 months ago," Straszheim said. "The county business climate is improving, and there is a more favorable sense in the business community generally."

The report raises only two red flags over the lack of commercial development and road construction--and endorses a controversial solution to help solve the latter. It firmly endorses construction of the intercounty connector, the long-planned $1.1 billion highway that would join Interstate 270 and Interstate 95 north of the Capital Beltway.

Duncan and many business leaders have called the road essential to spur economic growth by providing a new route between the commercial centers of Baltimore and Northern Virginia, while environmentalists say it would damage sensitive natural habitat and fail to solve east-west traffic congestion. Last week, a state task force endorsed construction of an east-west parkway across northern Montgomery.

"Inadequate transportation capacity is a growing problem, making it more difficult to attract workers from other jurisdictions," states the report, which gave the county a C- in transportation spending. "The committee recommends increasing the rate of investment in transportation infrastructure. . . . This includes the Intercounty Connector."

The advisory council also gives the county a D in commercial construction, just as it did last year. It calls accelerating commercial construction "a high priority," warning that until it does, "shortages of both housing and commercial space will continue to limit growth in the immediate future."

Straszheim said, "We're getting to the point where the vacancy rates can't go down much more."

But most of the report is filled with good news, portraying Montgomery as a county with a talented labor pool and core of existing high-tech business that positions it perfectly to prosper in the modern economy.

Meanwhile, the county's fiscal health is strong, with huge budget surpluses and brimming reserve funds to protect against recession. The combination allowed Duncan and the County Council to cut property and income tax rates for the fiscal year beginning July 1.

"There are a couple problem areas," said Duncan, adding that he was most worried about the lack of commercial construction. He said transportation issues would be addressed in the next county capital budget and the state transportation program. "Overall, though, it's a very good report. We've made tremendous strides."