of $ 40 billion per month, and has stated its intention to continue purchasing assets until it sees substantial improvement in the outlook for the labor market, conditional on ongoing assessment of benefits and costs. combined, these actions are intended to ease financial conditions and thereby help to establish a selfsustaining economic expansion. turning to recent developments, incoming data on the u. s. economy have been mixed of late. based on the advance estimate, real gdp declined slightly in the final quarter of 2012, which was below the consensus expectations of an increase of around one percent. in addition, in january payroll employment rose by just 157, 000, below the 200, 000 average monthly gain in the fourth quarter, and the unemployment rate edged up to 7. 9 percent. offsetting these soft indicators, we see evidence beneath the surface that private demand firmed in the final months of 2012 and has been reasonably well maintained thus far this year. taking into account price changes, the january retail sales data were reasonably strong. consumer spending, particularly for durable goods such as motor vehicles, has clearly strengthened. light - weight motor vehicle sales in january were well above the average pace of the first quarter of 2012. this stronger durable goods spending reflects some improvements in labor market conditions, consumer confidence, household balance sheets and access to credit. another major plus for the economy entering 2013 is the housing market, with upward trends evident in housing starts, home sales and home prices. to see why this is so important, in 2009 residential investment was a 0. 4 percentage point drag on growth of gdp, while in 2013 it is likely to provide a boost to growth on the order of 0. 5 percentage point – a swing of nearly a full percentage point. business investment in equipment and software, another component of private final demand, strengthened in the fourth quarter, and orders for nondefense capital goods have moved higher in recent months. indicators of the u. s. manufacturing sector have begun to look a bit brighter as well, with the ism manufacturing index at its highest level since last april. survey - based indicators of manufacturing activity also have begun to improve in several other major economies around the world. of course the quickening pace of auto, home, and capital goods sales and orders, all interest - sensitive goods, is consistent with the highly accommodative stance of monetary policy, which not only lowers interest rates but enhances credit availability as well. along with these positive economic developments, there has been a notable increase

and building a business, and by building better transportation, power and telecommunications infrastructure. and they are about broadening access to and improving the quality of public education. allowing competitive pressures to operate is undoubtedly the best way to foster the investment, innovation and risk - taking that is central to raising an economy's long - run sustainable growth rate. but markets can't solve all problems, and they don't always function perfectly. this means that the policy imperative isn't simply to reduce regulation ; it is to improve the design of the regulations that are important to dealing with market failures. finally, future growth outcomes will depend importantly on the success of governments in fostering the development of the domestic financial system. this requires not only stronger financial intermediaries and better supervisors, but deeper and more liquid capital markets that provide greater access to capital for firms and greater freedom for households to borrow and to invest their savings. certain features of today's emerging economies, notably the size of current account surpluses and the high levels of reserves, tend to be seen principally as sources of comfort against future crises. but you can also look at these phenomena as measures of the incompleteness of the institutional changes achieved in the monetary and financial arena, and as a sign of the persistent ambivalence in the emerging world about financial integration. the current account surpluses are, of course, the mirror image of the high rates of savings relative to investment. there are a range of factors that affect the flows of goods and services across international borders, but the sustained outflow of funds from some emerging economies witnessed in recent years may have as much to do with the limited intermediation capacity of the local financial systems as with the scarcity of profitable domestic investment opportunities. and in this sense you can read a large current account surplus as a sign of financial sector under development rather than of financial strength and maturity. the pattern of intervention in exchange markets and the scale of reserve accumulation provides a similar perspective on the challenges ahead. policymakers in many emerging markets still reveal a substantial degree of reluctance to allow the exchange rate to adjust to market forces. part of this is aversion to appreciation, and part of it aversion to variability in the exchange rate. in this sense, the high level of reserves today could be read less as an indication of fundamental strength than as an indication of the need for more progress toward completing the transition to a modern monetary policy regime. even though reported inflation in most emerging economies has been moderate