growth rate of real gross domestic product ( gdp ) in the fourth quarter may understate the economy ’ s forward momentum. that is because real gdp growth in the quarter was held back by a sharp slowing in the pace of inventory accumulation. the revival in demand, production and confidence strongly suggests that we may be much closer to establishing a virtuous circle in which rising demand generates more rapid income and employment growth, which in turn bolsters confidence and leads to further increases in spending. the only major missing piece of the puzzle is the absence of strong payroll employment growth. we will need to see sustained strong employment growth in order to be certain that this virtuous circle has become firmly established. with respect to the labor market, there are conflicting signals. on one hand, the unemployment rate has fallen sharply over the past two months, dropping to 9. 0 percent from 9. 8 percent two months earlier ( chart 4 ). this is the biggest two - month drop in the unemployment rate since november of 1958. on the other hand, payroll employment gains have remained very modest – rising by only 83, 000 per month over the last three months bis central bankers ’ speeches ( chart 5 ). such modest payroll growth is not consistent with a sustained drop in the unemployment rate. the true story doubtless lies somewhere in between – but probably more on the side of the household survey that tracks unemployment. that is because measured payroll employment growth in january was probably temporarily depressed by unusually bad winter weather. although some of the recent decline in unemployment is due to a drop in the number of people actively seeking work, the household survey does show a pick - up in hiring. other labor market indicators, such as initial claims and the employment components of the ism surveys for manufacturing and nonmanufacturing, have also shown improvement recently ( chart 6 and chart 7 ), which suggests that the weakness in payroll growth is the outlier. although there is uncertainty over the timing and speed of the labor market recovery, i do expect that payroll employment growth will increase considerably more rapidly in the coming months. we should welcome this. a substantial pickup is needed. even if we were to generate growth of 300, 000 jobs per month, we would still likely have considerable slack in the labor market at the end of 2012. in monitoring employment trends, we also need to recognize that the data are likely to be quite noisy on a month - to - month basis. this is particularly the case during the winter months, when

that inflation, over time, is at levels consistent with the dual mandate. the committee said it now anticipates that economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. the committee also released a statement of longer - run goals and monetary policy strategy within the context of the dual mandate, and published information on individual participants ’ expectations of the appropriate future interest rate path. as chairman bernanke explained in his press conference on wednesday, the strategy statement “ should not be interpreted as indicating any change in how the federal reserve conducts monetary policy. rather, its purpose is to increase the transparency and predictability of policy. ” further details on the discussion at the meeting will be available when the minutes are published in three weeks. i will not comment on monetary policy any further today beyond stating that monetary policy has done and will continue to do its part in supporting the recovery – but it is not all - powerful. other complementary policy actions in housing, fiscal policy and structural adjustment or rebalancing of the economy will be essential if we are to achieve the best available recovery. regional economic conditions turning now to the regional economy, growth slowed in late 2011 in new york city and new york state, whereas new jersey has seen a modest pickup. as attendees at previous regional press briefings may recall, the new york fed produces economic activity indexes to help monitor the performance of the regional economy. 2 based on these measures, economic activity has leveled off in both new york state and new york city since the summer, following above - average growth in the first half of 2011. in contrast, new jersey ’ s economy, which was sluggish throughout 2010 and into the first half of 2011, has picked up noticeably in recent months. we monitor puerto rico using an index produced by the government development bank for puerto rico. this index suggests that the island ’ s recession, which started back in 2005, may finally be ending. after bottoming out last august, activity has risen fairly sharply – reaching a one - year high in november. still, puerto rico ’ s recovery has had a number of “ false starts ” before and this measure is noisy. thus, the recent improvements will need to be sustained for longer before we can confidently declare that the island ’ s recession is over. turning to the employment situation, our region finished 2011 on a mixed note. in new jersey, private - sector job growth was quite robust in the fourth quarter, despite a small dip