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particularly troubling is the unusually high level of long - term unemployment : more than 40 percent of the unemployed have been jobless for more than six months, roughly double the fraction during the economic expansion of the previous decade. uncertain job prospects, along with tight mortgage credit conditions, continue to hold back the demand for housing. although low interest rates on conventional mortgages and the drop in home prices in recent years have greatly improved the affordability of housing, both residential sales and construction remain depressed. a persistent excess supply of vacant homes, largely stemming from foreclosures, is keeping downward pressure on prices and limiting the demand for new construction. in contrast to the household sector, the business sector has been a relative bright spot in the current recovery. manufacturing production has increased 15 percent since its trough, and capital spending by businesses has expanded briskly over the past two years, driven in part by the need to replace aging equipment and software. moreover, many u. s. firms, notably in bis central bankers ’ speeches manufacturing but also in services, have benefited from strong demand from foreign markets over the past few years. more recently, the pace of growth in business investment has slowed, likely reflecting concerns about both the domestic outlook and developments in europe. however, there are signs that these concerns are abating somewhat. if business confidence continues to improve, u. s. firms should be well positioned to increase both capital spending and hiring : larger businesses are still able to obtain credit at historically low interest rates, and corporate balance sheets are strong. and, though many smaller businesses continue to face difficulties in obtaining credit, surveys indicate that credit conditions have begun to improve modestly for those firms as well. globally, economic activity appears to be slowing, restrained in part by spillovers from fiscal and financial developments in europe. the combination of high debt levels and weak growth prospects in a number of european countries has raised significant concerns about their fiscal situations, leading to substantial increases in sovereign borrowing costs, concerns about the health of european banks, and associated reductions in confidence and the availability of credit in the euro area. resolving these problems will require concerted action on the part of european authorities. they are working hard to address their fiscal and financial challenges. nonetheless, risks remain that developments in europe or elsewhere may unfold unfavorably and could worsen economic prospects here at home. we are in frequent contact with european authorities, and we will continue to monitor the situation closely and take every available step to protect the u