installing new cables. for many years, companies in the united states have been at the forefront of new technology developments. with demand for it continually evolving, taking a moment to review the u. s. role in the production of it equipment is worthwhile. despite the globalization of high - tech production, the u. s. capacity to produce high - tech products is still increasing. the federal reserve board's estimates of capacity in industries that manufacture high - tech equipment - - which includes semiconductors and related electronic components, computers, and communications equipment - - increased more than 20 percent between the fourth quarter of 2004 and the fourth quarter of 2005, after rising at an annual average rate of about 8 percent during the previous three years. so, what high - tech equipment do we produce in the united states, when every item at the local computer store appears to have been made abroad? a significant portion of the u. s. capacity for hightech production focuses on leading edge products and on customized products for which close proximity to customers is an advantage. most desktop computers sold in this country are assembled here, as are many high - end computer servers and storage network devices. within the category of communications equipment, much of the high - end networking equipment ( such as the routers and switches used by telecom service providers ) is produced domestically. u. s. factories also produce leading - edge microprocessors, certain flash memory products ( used in portable media players, digital cameras, and cell phones ), and a variety of semiconductors used in communications equipment. in contrast, laptops tend to be imported in a nearly completed state, and we are largely importers of mobile phones, computer peripherals ( monitors, printers, and so forth ), consumer communications equipment ( such as home routers ), and a great variety of semiconductors. but we must keep in mind that, even for products that are produced abroad and imported, u. s. companies continue to perform a significant share of the research and development that those products entail. because the development and the production of it products play a vital role in the u. s. economy, the federal reserve continually watches for new developments in the pace of technological change and tries to gauge the likely influences of these developments on productivity growth. in most cases, data on the pace of technological change are hard to come by, so we carefully examine data on production and price trends. for example, the production of communications equipment dropped sharply during the last recession

, and these products accounted for a large share of the capital overhang in high - tech equipment. however, since its trough in 2002, the federal reserve board's industrial production index for communications equipment has risen about 75 percent, with particularly pronounced increases in the production of high - end routers and switches. these devices are needed to support advanced mobile technologies, the upgrading of telecom service provider equipment, and the attempts to solve the so - called " last - mile " problem - - that is, a low - cost way to bring a fiber - optic speed data pipe down your street and into your home or business. the pace of change in communications equipment and computers is, to some degree, related to the pace of change in the components of these products, particularly semiconductors. even in the semiconductor industry, however, measuring the pace of technological change is difficult and fraught with uncertainty. the difficulty is partly that improvements along one dimension may introduce challenges along other dimensions. for example, as the industry shrinks the features of a semiconductor, such as the microprocessor in your personal computer, the chip can conduct calculations more quickly, but it also produces more heat. another part of the difficulty is determining exactly when changes occur and how much of any change is due to a particular improvement. industry data, for example, suggest that the introduction of improvements in calculation speed accelerated in the late 1990s and may have decelerated around the beginning of this decade. however, the exact dates are difficult to pin down, and they tend to vary with the type of semiconductor. in addition, any deceleration in the pace of introducing faster semiconductors may have been offset by innovative efforts to reduce energy consumption or to improve wireless capabilities. with the growing use of mobile, battery - powered communications technologies and computers, energy consumption and connectivity may be just as important as speed. in light of the difficulties and uncertainties that are associated with measuring the pace of technological change, i want to take a moment to comment on the risks for the appropriate conduct of monetary policy that are associated with technology and productivity. because technology feeds into various macroeconomic aggregates - - including household and business spending, productivity, and inflation - - its implications for the u. s. economy will continue to necessitate careful observation, improved measurement, and study. members of the federal reserve staff, both at the board and at the reserve banks, have contributed significantly along all three of these dimensions by improving measures of high - tech prices and