, underlying risks will likely remain until global growth is on a stronger footing. growth and inflation remain stubbornly low for most of our major trading partners. in china, stimulus measures should support growth in the near term but may also slow china ’ s necessary transition away from its exportand investment - led business model. meanwhile, the ongoing buildup of debt there is notable. there is also some remaining uncertainty about china ’ s exchange rate policy. elsewhere, risks are posed by the upcoming “ brexit ” vote, ongoing pressures from refugee flows into europe, and challenging conditions for emerging economies such as brazil, russia, and venezuela. despite these downside risks, i see u. s. demand growing at a moderate pace, the labor market continuing to heal, and inflation returning over time to the fomc ’ s 2 percent objective. the economy is on track to attain the committee ’ s dual mandate of stable prices and maximum employment. supply - side considerations for several years after the crisis, economic activity remained far below its potential, and the need for highly accommodative policy seemed clear. as the shortfall of output from potential has narrowed, supply - side considerations such as the level and growth rate of potential output naturally begin to matter more for policy. i will turn now to a discussion of these issues. the tension between labor market and spending data is not a recent phenomenon. throughout the recovery period, forecasters have consistently overestimated both actual and potential gdp growth while underestimating the rate of job creation and the pace of decline of the unemployment rate ( table 1 ). for example, in 2007, the average expectation for longrun gdp growth from the blue chip survey of 50 forecasters was 2. 9 percent ( table 2 ). after successive reductions, the estimate now stands at 2. 1 percent. blue chip forecasters also underestimated the decline in the unemployment rate. other well - known forecasts followed this same pattern, including those of the congressional budget office, the survey of professional forecasters, and, yes, fomc participants. the pattern suggests that forecasters have only gradually taken on board the decline in potential in the wake of the financial crisis. output growth can be decomposed into increases in hours worked and changes in output per hour, or productivity growth. for the united states, much of the post - crisis decline in estimates of potential output growth appears to reflect weak labor productivity growth rather than damage to labor supply. labor productivity has increased

recent weakness in investment, ” feds notes ( washington : board of governors of the federal reserve system, november 21 ). their analysis indicates that investment growth over the expansion has been consistent with a model using business output growth and the user cost of capital. in a second model, they show that the modest increases in the capital stock are consistent with the increase in labor supply and tfp. over long periods of time total factor productivity is primarily driven by innovation, knowledge and the efficiency with which inputs are put to use owing to the evolution of business practices as well as the influences of public capital stock, government regulations and other factors. over shorter periods of time tfp will also capture the variations in the intensity of utilization of inputs, such as capacity utilization and hours per worker. disentangling tfp from capital deepening and hours worked can be challenging. see, for example, ryan decker, john haltiwanger, ron jarmin, and javier miranda ( 2014 ), “ the role of entrepreneurship in u. s. job creation and economic dynamism, ” journal of economic perspectives, vol. 28 ( summer ), pp. 3 – 24. see john fernald ( 2014 ), “ productivity and potential output before, during, and after the great recession, ” nber macroeconomics annual, vol. 29, no. 1 ( cambridge, mass. : national bureau of economic research ). some have argued that part of the tfp slowdown may actually be a measurement problem, owing to the difficulty in measuring the productivity of health care, information technology, and other services. others see the evidence for that claim as weak. for example, a recent paper finds little evidence that the slowdown arises from growing mismeasurement in information - technology - related goods and services. see david m. byrne, john g. fernald, and marshall b. reinsdorf ( 2016 ), “ does the united states have a productivity slowdown or a measurement problem? ” brookings papers on economic activity, march 4. on the pessimistic end of the spectrum are analysts such as robert gordon ; among the optimists are erik brynjolfsson and andrew mcafee. see robert j. gordon ( 2016 ), the rise and fall of american growth : the u. s. standard of living since the civil war ( princeton, n. j. : princeton university press ) ; and erik brynjolfsson and andrew mcafee ( 2014