##d homes to more normal levels will likely involve further adjustments in production. the slowing pace of residential construction is likely to be a drag on economic growth into next year. growth in some manufacturing industries has also slowed of late, and data prepared by the federal reserve show that aggregate manufacturing production declined in september and october. the motor vehicle sector in particular has experienced weaker demand and an accompanying buildup in stocks of unsold cars and trucks over the past year. energy prices have contributed to these developments, as consumers have responded to high prices at the pump by reducing their demand for less fuel - efficient vehicles. the decline in sales caused inventories of these vehicles to surge this past spring. since then, automakers have cut production to reduce the overhang of inventories ; on a seasonally adjusted basis, the pace of light vehicle assembly in october was about 10 percent below the pace in the second quarter. the growth of production in some other manufacturing industries, notably those closely tied to the housing and automobile sectors, has also been slowing. elsewhere in the industrial sector, though, production in high - tech industries has been growing rapidly, and high prices for energy and other commodities have stimulated drilling and mining activity. the global economy continues to be strong, with cyclical recoveries under way in europe and japan and ongoing growth in the emerging - market economies ; this growth abroad should support the continuing expansion of u. s. exports of goods and services. outside of the housing and motor vehicle sectors, economic activity has, on balance, been expanding at a solid pace. perhaps the clearest evidence of this broader economic strength comes from the labor market. although the number of jobs in manufacturing and construction fell in october, most other sectors of the economy experienced solid job gains. private employers in industries outside of manufacturing and construction added nearly 125, 000 workers to their payrolls last month, following an average increase of 140, 000 jobs per month during the preceding three months. with labor demand continuing to expand over the past several months, the national unemployment rate fell to 4. 4 percent in october, its lowest level since may 2001. the strength of the labor market and the associated increases in wage and salary income have supported consumer spending. the data in hand indicate that, the slowdown in housing notwithstanding, inflation - adjusted outlays for personal consumption increased in the third quarter at about the average rate seen since the current economic expansion began in late 2001. the latest retail sales figures suggest an increase in consumption at roughly that pace

helped to draw investment banks to convert to bank holding companies. but the competition for deposits has raised their relative cost, and deposits cannot be expected to make up fully for reduced funding from other sources. the challenge for regulators and other authorities is to create an environment that supports greater bank intermediation, which should help to restore the health of the financial system and the economy. we want banks to be willing to deploy capital and liquidity, but they must do so in a responsible way that avoids past mistakes and does not create new ones. banks need access to funds to make loans – especially with securitzation markets impaired – and the authorities have taken several steps to enhance the supply of funds to banks. the treasury, working with the regulators, has used its authority under the emergency economic the views expressed are my own and not necessarily those of my colleagues on the federal reserve board and the federal open market committee. karen dynan, j. nellie liang, and sabeth siddique of the board staff contributed to these remarks. stabilization act, or eesa, to inject capital into banks so they will be stronger and more stable. the federal deposit insurance corporation has expanded its guarantee on deposits and is insuring new senior debt obligations of banking firms. the federal reserve has reduced the cost of borrowing at the discount window and created a new facility to provide term credit to banks. the federal reserve and the other federal banking agencies have also issued regulatory guidance to promote greater lending by banks. this guidance encouraged banks to meet the needs of creditworthy borrowers in a manner consistent with safety and soundness – specifically, by taking a balanced approach in assessing borrowers'ability to repay and making realistic assessments of collateral valuations. 2 additional capital, liquidity backstops, and regulatory encouragement should all reinforce financial stability and set the stage for increased bank lending. as it is neither realistic nor desirable for banks to meet all financial intermediation needs, the federal reserve and other authorities are also making efforts to stabilize financial markets more broadly. in this regard, the federal reserve has created facilities to lend to primary dealers, to purchase highly rated commercial paper at a term of three months, and to provide backup liquidity for money market mutual funds. we are also creating a facility to support the issuance of asset - backed securities collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the small business administration. in related actions, policymakers are taking steps to address the problems in