worldwide and its means of financing, global saving, into equality. we can directly observe only the actual flows, not the saving and investment tendencies. nonetheless, as best we can judge, both high levels of intended saving and low levels of intended investment have combined to lower real long - term interest rates over the past decade. since the mid - 1990s, a significant increase in the share of world gross domestic product ( gdp ) produced by economies with persistently above - average saving - - prominently the emerging economies of asia - - has put upward pressure on world saving. these pressures have been supplemented by shifts in income toward the oil - exporting countries, which more recently have built surpluses because of steep increases in oil prices. the changes in shares of world gdp, however, have had little effect under current law, those longer - run pressures on the federal budget threaten to place the economy on an unsustainable path. large deficits could result in rising interest rates and ever - growing interest payments on the accumulating stock of debt, which in turn would further augment deficits in future years. that process could result in deficits as a percentage of gross domestic product rising without limit. unless such a development were headed off, these deficits could cause the economy to stagnate or worse at some point over the next couple of decades. dollar interest rate swaps five years forward and maturing in ten years declined 19 basis points per year on average over the same period. comparable euro ( pre - 1999, deutschemark ) swaps declined 27 basis points, sterling swaps 35 basis points, and yen swaps 23 basis points. term premiums measure the extent to which current prices of bonds discount future uncertainties. 3 / 5 on actual world capital investment as a percentage of gdp. the fact that investment as a percentage of gdp apparently changed little when real interest rates were falling, even adjusting for the shift in the shares of world gdp, suggests that, on average, countries'investment propensities had been declining. 4 softness in intended investment is also evident in corporate behavior. although corporate capital investment in the major industrial countries rose in recent years, it apparently failed to match increases in corporate cash flow. 5 in the united states, for example, capital expenditures were below the very substantial level of corporate cash flow in 2003, the first shortfall since the severe recession of 1975. that development was likely a result of the business caution that was apparent in the wake of the stock market decline

one of sustained economic growth and contained inflation pressures. in our view, realizing this outcome will require the federal reserve to continue to remove monetary accommodation. this generally favorable outlook, however, is attended by some significant uncertainties that warrant careful scrutiny. with regard to the outlook for inflation, future price performance will be influenced importantly by the trend in unit labor costs, or its equivalent, the ratio of hourly labor compensation to output per hour. over most of the past several years, the behavior of unit labor costs has been quite subdued. but those costs have turned up of late, and whether the favorable trends of the past few years will be maintained is unclear. hourly labor compensation as measured from the national income and product accounts increased sharply near the end of 2004. however, that measure appears to have been boosted significantly by temporary factors. other broad measures suggest that hourly labor compensation continues to rise at a moderate rate. the evolution of unit labor costs will also reflect the growth of output per hour. over the past decade, the u. s. economy has benefited from a remarkable acceleration of productivity : strong gains in efficiency have buoyed real incomes and restrained inflation. but experience suggests that such rapid advances are unlikely to be maintained in an economy that has reached the cutting edge of technology. over the past two years, growth in output per hour seems to have moved off the peak that it reached in 2003. however, the cause, extent, and duration of that slowdown are not yet clear. the traditional measure of the growth in output per hour, which is based on output as measured from the product side of the national accounts, has slowed sharply in recent quarters. but a conceptually equivalent measure that uses output measured from the income side has slowed far less. given the divergence between these two readings, a reasonably accurate determination of the extent of the recent slowing in productivity growth and its parsing into cyclical and secular influences will require the accumulation of more evidence. energy prices represent a second major uncertainty in the economic outlook. a further rise could cut materially into private spending and thus damp the rate of economic expansion. in recent weeks, spot prices for crude oil and natural gas have been both high and volatile. prices for far - future delivery of oil and gas have risen even more markedly than spot prices over the past year. apparently, market participants now see little prospect of appreciable relief from elevated energy prices for years to come. global demand for energy apparently is expected to remain strong, and market participants