susan schmidt bies : productivity and economic outlook for the united states remarks by ms susan schmidt bies, member of the board of governors of the us federal reserve system, before the tech council of maryland's financial executive forum, bethesda, maryland, 18 january 2006. * * * i appreciate the opportunity to speak with you today about productivity and the outlook for the u. s. economy. as you know, long - term growth in productivity is critically important to improving the standard of living in any economy. the rate of growth of productivity can significantly affect inflation and economic expansion. but before i comment on productivity, i'd like to begin with a review of recent economic developments. economic developments real economic activity has continued to expand at a solid pace. clearly, the tragedy that hurricanes inflicted on new orleans and surrounding areas of the gulf coast will have major implications for the people and the economy in those regions for a long time. however, for the nation as a whole, employment and industrial production indicators were only briefly disrupted by the hurricanes during the late summer and early fall. at the national level, consumer spending has been well maintained, and the fundamentals - - such as income growth and household balance sheets - - remain supportive. many news reports and anecdotes suggest that the housing market is cooling and that investors are participating less actively. however, the construction of new homes has remained near recent highs. in the business sector, investment in new equipment continues to expand at a good clip, boosted by robust sales as well as ongoing replacement and upgrading needs. in addition, as i'll discuss in a moment, corporate financial conditions are favorable for investment. turning to prices, core inflation has stayed relatively low in recent months despite the run - up in energy costs. for example, the twelve - month change in the price index for personal consumption expenditures excluding food and energy, a widely watched indicator of core inflation, moved down from 2. 3 percent in november 2004 to 1. 8 percent in november 2005. although energy prices have receded from the highs last fall, crude oil costs are still well above yearearlier levels. as a result, gasoline prices remain elevated despite a decline of about 70 cents per gallon from the peak recorded in the aftermath of the hurricanes. the prices for home heating oil and natural gas will add to consumers'budget pressures this winter ; although spot prices have moved lower in recent weeks, they are still well above year earlier levels. higher energy prices have also affected

that our motherland shall always back up the development of the msar. under the auspices of the central government, we shall weather the storm and pass the test. moreover, under the outline of the plan for the reform and development of the pearl river delta and the framework of cepa, the prospect for economic and financial cooperation between the msar and the mainland appears to be broad and bright. the temporary measure adopted by the msar at the beginning of the financial tsunami to provide full cover for all deposits will expire at year end. amcm is proactively consulting market participants about a subsequent arrangement. we hope to arrive at an solution satisfactory to all parties concerned. as usual, under the leadership of our chief executive, mr. fernando chui and the guidance of our secretary for economy and finance, mr. francis tam, in addition to the support and cooperation of the practitioners, amcm shall sturdily fulfil its duties in upholding the stability of the local financial system and promoting the enhancement of market development. shoulder to shoulder with our practitioners, we shall strenuously promote the development of our financial industry to become an important element in the course of economic diversification of the msar. the financial industry shall act as an economic lever to provide the necessary driving force with a view to achieving sustainable economic development and prosperity and hence the stability of the community of the msar. thank you!