bank of japan ’ s september report of recent economic and financial developments1 bank of japan, 16 september 2003. * the bank ’ s view * * economic activity still continues to be virtually flat as a whole, although signs of improvement have been observed in such areas as the environment for exports. with regard to final demand, business fixed investment is recovering gradually. meanwhile, private consumption continues to be weak, housing investment remains sluggish, and public investment is declining. net exports are virtually flat. industrial production continues to be basically level in response to these developments in final demand, and corporate profits are on a moderate uptrend. as for the employment situation, although the number of regular employees continues to decline, the total number of employees including both regular and non - regular employees has stopped falling. the pace of decline in wages has also slowed, and thus the decline in household income is gradually coming to a halt. however, the unemployment rate continues to be high, and hence the employment and income situation of households overall still remains severe. turning to the economic outlook, with respect to overseas economies, the likelihood is gradually increasing that the growth rate of the u. s. economy will accelerate and that the east asian economies as a whole will resume a growth trend. hence, exports and industrial production are likely to turn up gradually. with respect to domestic demand, public investment is projected to follow a declining trend, and private consumption is likely to remain weak for some time since the employment and income situation is unlikely to improve markedly. meanwhile, the recovery trend in business fixed investment is expected to become clearer in the period ahead, mainly in large manufacturing firms, whose investment has been thus far significantly restrained despite the recovery in their profits. however, as long as the pace of increase in exports and production continues to be gradual, the recovery in business fixed investment is likely to remain moderate. overall, with the recovery in overseas economies, the uptrend in exports and production will resume gradually, which in turn will initiate the momentum for an economic recovery in japan. however, a selfsustaining recovery in domestic demand is unlikely to gain momentum for some time due to persisting downward pressures from structural adjustments, such as firms ’ reduction of excess debt and labor costs. in addition, as for the outlook for the environment for exports, there still remains uncertainty overall, as the employment situation in the united states continues to be sluggish and the pace of recovery in some east asian economies such as south korea is slow.

susan schmidt bies : economic outlook and developments in mortgage markets remarks by ms susan schmidt bies, member of the board of governors of the us federal reserve system, at the eller college of management distinguished speaker series, tucson, arizona, 18 january 2007. * * * to begin, i would like to thank dean portney and everyone at the eller college of management here at the university of arizona for the invitation to speak this evening. i know that this audience includes both experienced business leaders as well as students preparing to apply the knowledge they have learned in the classroom to the real world. accordingly, my remarks will first touch on the economic outlook. then, i will offer some thoughts on the challenges facing consumers as they navigate today ’ s changing mortgage loan market. economic outlook economic activity slowed in the middle part of last year. after rising at an annual rate of 3 - 1 / 4 percent over the previous two years, real gross domestic product ( gdp ) increased at an annual rate of 2. 6 percent in the second quarter of last year. real gdp growth in the second half of last year slowed after accounting for some measurement difficulties in the automotive sector. despite the recent slowing in output, however, resource utilization remains relatively high by historical standards and thus continues to be a potential source of upward pressure on inflation. in the aftermath of the 2001 recession, the federal open market committee ( fomc ) eased monetary policy substantially. however, the degree of easing in place in 2003 and 2004 was clearly unsustainable. since mid - 2004, the fomc has gradually moved monetary policy from an accommodative stance to a more neutral position. as a consequence, the elements now appear to be in place for some easing of resource utilization rates over the next year or so and a reduction in inflationary pressures. however, substantial uncertainty surrounds the near - term outlook. in determining the future path of interest rates, the fomc will be guided by the incoming data on both output and prices, so let ’ s begin by reviewing recent developments. economic activity the slowdown in the growth of real gdp since last spring largely reflects a cooling of the housing market : sales of both new and existing homes dropped sharply after their peak in the summer of 2005, the inventory of unsold homes has soared, and the number of single - family and multifamily housing starts has fallen nearly 30 percent since the beginning of last year. at the same time, homes are appre