deterioration in short - term profitability and cash flow. pressures on profit margins and cash flows have been unrelenting. the earnings estimates of securities analysts for the s & p 500 in 2001, which presumably reflect the guidance that these analysts are getting from corporate management, have been revised downward by nearly 1 percent per week since february. to be sure, the pace of downward revision has slowed this month, but the adjustments remain negative. earnings weakness is evident pretty much across the board but especially for high - tech firms, where the previous extraordinary pace of expansion has left oversupply in its wake. much of the profit squeeze results from a rise in unit labor costs. gains in compensation per hour picked up over the past year, responding to a long period of very tight labor markets and the effects of an energy - induced run - up in consumer prices. faster increases in hourly compensation, coupled with the cyclical slowdown in the growth of output per hour, have elevated the rate of increase in unit labor costs. in effect, fixed costs, both labor and nonlabor, are being spread over a smaller production base for many industries. the sharp rise in energy costs has also pressed down directly on profit margins, especially in the fourth and first quarters. a substantial portion of the rise in total costs of nonfinancial, non - energy corporations between the second quarter of last year and the first quarter of this year reflected the increase in energy costs. prices paid for natural gas and petroleum products by these corporations continued to rise into the first quarter, but have eased this spring. electric power prices, however, continued to rise sharply through last month. going forward, the prospect for higher electricity costs is most pronounced, of course, in california. the rise in natural gas prices last quarter contributed directly and indirectly ( through its effect on the cost of electrical power generation ) much of the rise in overall energy costs for nonfinancial, nonenergy corporations. because we import little natural gas, higher prices largely result in a transfer of income from natural gas users to natural gas producers. nonetheless, these higher prices are likely to weigh on the economy in the short run because the increase in capital spending by energy producers is unlikely to offset the drag on spending by energy consumers. if overall final demand holds up reasonably well, the rate of inventory liquidation must begin to slow as inventory levels shrink toward operational targets. production and imports, taken together, would rise toward the level of final sales as inventories are brought into

have been active in supporting the basel committee in its work with the iasb ’ s technical advisory groups to enhance the iasb ’ s standards for financial instruments and bank disclosures and the basel committee ’ s projects with other international groups to promote sound global bank auditing practices. in conclusion, i believe that the european union should be encouraged to continue its program to strengthen and modernize the rules under which financial services firms operate in europe. this can only increase competition, enhance efficiency and contribute to economic growth in the eu and globally. we are pleased that the european commission is broadening its consultation and comment processes on proposals being considered under the fsap. supervisory and regulatory measures benefit significantly from an open and transparent process in which affected companies may participate. we would expect that the european commission and member state national authorities will apply the fsap ’ s measures to u. s. firms on a fair and national treatment basis. u. s. banking organizations are dynamic and more than competitive with the rest of the world. accordingly, we are confident that u. s. firms will benefit from a strengthened and more efficient european market for financial services.