this is not evident from recent data. business investment increased over the spring and summer, and the household sector remains in good financial health and has demonstrated a continued willingness to spend. let me now discuss these recent economic developments in more detail. households in the household sector, real personal consumption expenditures rose briskly over the summer, with strength widespread among the various types of goods and services. supporting these gains have been large increases in real disposable incomes, higher stock prices, and favorable buying attitudes among consumers. the reductions in income tax withholding and the advance refund checks for the child tax credit mailed in late july and august likely added to the magnitude of the spending increases. homes sales and new residential construction remained very strong during the summer, although the rise in mortgage rates could result in some cooling in the housing sector in coming months. although households have been borrowing rather heavily to finance the rise in spending, they also have taken steps to keep the repayment burden of that debt in check. notably, many homeowners have taken advantage of low interest rates to refinance their mortgages, some having done so several times over the past couple of years. in more than one - third of these “ refis, ” the borrower took cash out during the transaction, often to pay down loans with higher interest rates. the resulting drop in the average interest rate on household debt, combined with the increase in after - tax income, has helped households stay current on their loan obligations. indeed, delinquency rates on consumer and mortgage loans held by banks have been trending lower, and most other measures of household loan performance have been stable on net this year. businesses capital spending by businesses increased at an annual rate of 7 - 1 / 4 percent in the second quarter, and orders and shipments of nondefense capital goods - a key indicator of equipment spending - rose briskly over the june - to - august period. moreover, the tenor of anecdotes from the corporate sector seems more upbeat, as corporate managers see sales picking up and the financing environment improving. four important factors have contributed to this improvement in financial conditions : a widespread restructuring of corporate liabilities over the past two years, a bounceback in corporate profitability from its trough in 2001, a narrowing in market risk premiums, and low interest rates. i will discuss each factor in turn. first, pulled by low long - term rates and pushed by nervous investors burned by a few high - profile,

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