nonetheless, risks to the u. s. financial system do not appear to be flashing red in the way they did in the run - up to previous downturns. it is also possible that the natural rate of unemployment has moved lower or that the unemployment rate still may be overstating the strength of the labor market. while it is encouraging that the share of employees who work part time for economic reasons has continued to move down, there may well be slack remaining along this margin. and another key measure — the prime - age employment - to - population ratio — remains more than 1 percentage point below pre - crisis levels, and further improvement there would be welcome. the outlook looking at economic activity more broadly, although first - quarter gross domestic product ( gdp ) was soft, the data so far suggest a rebound in the second quarter. the weak q1 reading follows a recurring pattern in recent years, with the first quarter of the year often weaker than subsequent quarters. moreover, below the top - line number, there were some encouraging signs of strength : residential construction posted a double - digit increase and contributed 1 / 2 percentage point to first - quarter gdp growth. drilling for oil and natural gas is rebounding sharply, and nonresidential construction contributed 3 / 4 percentage point to first - quarter gdp growth. business spending on equipment and intangibles, which fell slightly in 2016, rebounded to a 7 percent annualized increase in the first quarter and contributed another 3 / 4 percentage point to the overall increase. a key reason overall gdp was so weak last quarter was consumer spending, which rose only 0. 6 percent at an annual rate. nonetheless, there are good reasons to think that the first - quarter weakness in consumer spending will not persist. household incomes should continue rising with the continued strengthening in employment and wages, home prices should be contributing through improved household balance sheets, and consumer sentiment remains upbeat. recent changes in financial conditions have, overall, been supportive of further gains in the real 3 / 7 bis central bankers'speeches economy. the s & p 500 index is up almost 8 percent since the start of the year. at the same time, a broad measure of the exchange value of the dollar is down about 4 percent so far this year, which should help boost net exports. after moving up sharply late last year, long - term interest rates have moved down somewhat so far this year. in addition, the balance of risks has shifted over the past two quarters, with a number of

community bank acquisitions and reorganizations. their findings on bank acquisitions echo both the findings of deyoung and his coauthors and the wisdom of many community bankers, namely that you increase your profits by sticking to what you know. post - acquisition performance of community banks is better, the closer the target bank is to the acquirer. while more - distant acquisitions might lead to greater diversification benefits, these appear to be outweighed by the greater difficulties in managing the performance of two banks operating far apart from each other. i should note that these findings could conflict to some extent with the antitrust responsibilities of financial regulators and the department of justice. while a merger with a crosstown rival might lead to the greatest efficiency gains, the federal reserve has a statutory responsibility to make sure that such consolidations leave a sufficient number of local firms to ensure a competitive banking environment. community bank profitability is affected by both external factors outside of bank control, such as local economic conditions, and factors within bank control, such as the composition and stability of the bank ’ s loan portfolio. the paper by amel and prager examines the effects of bis central bankers ’ speeches these two sets of factors on bank profitability over the past 20 years. they find that local economic conditions and demographic changes certainly affect bank profitability, but also that the quality of bank management and the stability of bank portfolio composition consistently have a very substantial impact on a bank ’ s level of profits. they find that any major change in a bank ’ s portfolio composition tends to lower bank profits, indicating yet again that banks tend to be better off when they stick to the markets and products that they know. the papers in this morning ’ s second session on supervision and regulation of community banks are of great interest to me, given my current responsibilities on the community bank subcommittee at the board. the papers in this session stress the need for flexibility in bank regulation and the need – subject to the constraints imposed by congress – to tailor regulations to fit banking organizations that cover a huge range, from quite simple to extraordinarily complex. the paper by bassett, lee, and spiller provides reassuring evidence that camels standards have been quite consistent over time, with no indication that camels ratings were unduly stringent during the recovery from the recent recession. however, they do find that there was a slight tendency for exam ratings to become more stringent as we entered both the recession of the early 1990s and the one we just experienced. this finding