reserve, r & s is itself the source for some of the most important data on the economy and the financial system. our consumer credit data provide financial markets and the public with a vital indicator of the strength of household spending and balance sheets. each month, the industrial production report gives us insights into how well certain sectors of the economy, especially in the manufacturing realm, are operating. r & s is also responsible for the financial accounts of the united states, a quarterly compendium of assets, liabilities, and transactions for different segments of the economy. and every three years, r & s conducts the survey of consumer finances, a premier source of detail and insights about how households are faring in the economy. the latest survey was published just last month. these and other data series produced by r & s are a significant public service. 1 / 2 bis - central bankers'speeches i want to focus in more detail on the forecast, perhaps the most important of r & s's roles. the u. s. economy baseline forecast produced by r & s, along with the simulation of a half - dozen plausible alternative paths, constitutes the largest part of the essential bedrock that enables our pursuit of our dual - mandate goals. some people are attracted to extremely challenging tasks. the people of r & s are those people, having chosen such a task in forecasting the path of the u. s. economy, eight times a year for fomc meetings, with ongoing updates between meetings. they do this work on the biggest stage and with the highest stakes, knowing that the economy very often surprises us. several qualities are required to do this work well. i will start with an intense commitment. the work requires everything you have to give. you have to love this work to do it well. the job also requires integrity - policymakers count on r & s to give us their best thinking, not shading the results for any reason. regular forecasting also demands a systematic approach and a high degree of intellectual rigor. ask stacey and her colleagues to explain a certain aspect of the forecast, and you will find that they have a clear explanation grounded in a rigorous framework. that intellectual rigor has to be combined with flexibility and agility. economic models can do a reasonably good job of capturing the working of the economy over past decades. of course, even with state - of - the - art models and even in relatively calm times, the economy frequently surprises us. but our economy is flexible

10 % since 1993, it is a precise quantification of this difference is not easily possible, since the forecasts of future developments are also of importance for estimates at the end of the series. for example, the oecd currently assumes a potential growth of the us economy of 3½ %, whereas the imf predicts 2¾ %. only in the last two years that germany has seen a recovery of investment in machinery and equipment, albeit not with double - digit rates of growth ( 1998 : 9. 2 %, 1999 : 5. 1 % ). 4 if the different pace of economic growth is examined more closely, it becomes apparent that us output growth is supported by a sharp increase in both employment and in labour productivity. this is a strong indication that a balanced growth process is existing, in which labour and capital complement each other in terms of their contribution to output. with an average growth rate of 2 %, labour productivity in germany was quite close to the us figures in the nineties. 5 when analysing this development, however, it has to be remembered that the productivity gains in germany are also attributable to a fall in employment. the contrasting developments in labour productivity and employment point to an extensive substitution of labour by capital. it is, of course, not sufficient to look only at the highly aggregated level. 6 the oecd comes to the conclusion that the development towards a services society has also made considerable advances in germany : in a comparative study, it puts the share of “ knowledge - based industries ” in the united states and in germany at just over 50 % in each case. 7 and within the category of investment, as in the united states, investment in software shows by far the highest growth rate in germany. 8 the pioneering role which the united states has assumed in the development of new technologies is, however, likely to be unchallenged. a study by the munich - based ifo institute on the spread of new information and communication technologies, for example, concludes that generating such technologies has not been a very prominent feature in germany over the last decade as compared to the united states or japan. 9 this finding is broadly consistent with oecd studies on investment in r & d activities in the industrialised countries : whereas the share of these expenditures as a percentage of gdp declined in germany during the nineties, it has been rising again in the united states over the past few years following a decline in the early nineties. 10