3 / 4 percentage points since august, to about 4. 8 percent. with sales of new homes up a bit and starts of single - family homes little changed from january through march, builders are seeing the backlog of unsold new homes decline – a precondition for any recovery in homebuilding. in contrast to the somewhat better news in the household sector, the available indicators of business investment remain extremely weak. spending for equipment and software fell at an annual rate of about 30 percent in both the fourth and first quarters, and the level of new orders remains below the level of shipments, suggesting further near - term softness in business equipment spending. recent business surveys have been a bit more positive, but surveyed firms are still reporting net declines in new orders and restrained capital spending plans. our recent survey of bank loan officers reported further weakening of demand for commercial and industrial loans. 1 the survey also showed that the net fraction of banks that tightened their business lending policies stayed elevated, although it has come down in the past two surveys. conditions in the commercial real estate sector are poor. vacancy rates for existing office, industrial, and retail properties have been rising, prices of these properties have been falling, and, consequently, the number of new projects in the pipeline has been shrinking. credit conditions in the commercial real estate sector are still severely strained, with no commercial mortgage - backed securities ( cmbs ) having been issued in almost a year. to try to help restart the cmbs market, the federal reserve announced last friday that recently issued cmbs will in june be eligible collateral for our term asset - backed securities loan facility ( talf ). 2 an important influence on the near - term economic outlook is the extent to which businesses have been able to shed the unwanted inventories that they accumulated as sales turned down sharply last year. some progress has been made ; the bureau of economic analysis estimates that an acceleration in inventory liquidation accounted for almost one - half of the reported decline in real gdp in the first quarter. as stocks move into better alignment with sales, a reduction in the pace of inventory liquidation should provide some support to production later this year. the outlook for economic activity abroad is also an important consideration. the steep drop in u. s. exports that began last fall has been a significant drag on domestic production, and any improvement on that front would be helpful. a few indicators suggest, again quite tentatively, that the decline in foreign economic activity may also be moderating. and, as has been the

repayments in the 12 months ahead would be woefully inadequate in small caribbean countries with fixed exchange rates and possibly even in small countries with floating exchange rates. in such regimes, experience suggests that the pool of foreign exchange reserves needs to be much higher. for the most part, holding foreign reserves in excess of short - term debt obligations could help to reduce the incidence of financial crisis. the level held in excess of short - term debt, however, depends on country - specific circumstances. issues such as the prevailing macroeconomic conditions, particularly whether there is a large and persistent external current account deficit that needs to be financed by international capital inflows, or an overvalued exchange rate that can lead to capital outflows, high levels of short - term public debt, and weak banking systems that can contribute to capital flight, are critical in this regard, and must be factored into the analysis. this underscores the need for a sound understanding of the interaction between reserves adequacy, vulnerability, and country - specific factors. for instance, in hungary, the targeting of reserve adequacy takes into account the amount of reserves needed to cover short - term debt as well as a mark - up ( a kind of assurance ) to reflect unfavourable macroeconomic fundaments – i. e., the potential for an increasing external current account deficit or real exchange rate appreciation. the imf has proposed that in addition to the benchmarking of foreign reserves to short - term debt, countries should undertake stress testing of the balance of payments. the results of these stress tests in different scenarios can serve as key inputs in the determination of reserve adequacy. for example, a ratio of one ( reserves to short - term debt ) is a simple stress test of the lack or otherwise of access to international markets for a single year, and represents a useful point of departure for more complex tests. more complex tests should reflect different market access for each type of capital inflow, be it fdi, portfolio investment or trade credits, the risk of capital flight and the need to finance an external current account deficit. however, since in the field of finance and currency crises, the experience of the past has not been a good predictor of the future, the stress tests should incorporate the maximum historical variations as a basis for potential or future variations in each balance of payments flow. it must be stressed that the balance of payments flows must be measured accurately to derive a