that i have discussed - shallower recessions and structural change in the labor market - likely contain some elements of the truth. however, the structure of the economy is always in flux to some extent, and i think it probable that experiencing two hesitant recoveries in a row was largely a matter of coincidence. in each case, idiosyncratic factors that were specific to each episode combined in a way that inhibited the economic expansion in important sectors when other fundamentals would have favored a more typical cyclical upturn. i will discuss these factors now. idiosyncratic factors inhibiting recoveries the strength of a recovery may be related to the nature of the shocks that led the economy into recession. in contrast to earlier recessions, which were often sparked by tightening monetary policy, the 1990 recession was triggered by a pullback in aggregate demand not induced by monetary policy. in 1990, oil prices increased and consumer confidence dropped sharply ; both occurrences were at least partly related to the iraqi invasion of kuwait. in response, consumer spending dropped sharply. although the federal reserve had tightened policy in the late 1980s to restrain price pressures, it was loosening again by mid - 1989. similarly, before the 2001 downturn, the federal reserve was not aggressively tightening. rather, the 2001 recession seems to have been kicked off by unreasonable expectations about the profitability of investment in technology related to the internet. one manifestation of these overly optimistic expectations was that the nominal share of high - tech investment in overall equipment and software spending rose from about 35 percent in the mid - 1990s to almost 45 percent by the end of 2000. by the time more - sober assessments of the profitability of the high - tech sector came to the fore, huge sums of money had been sunk into capital equipment and software and into new enterprises. a serious reconsideration of these expenditures contributed to a sharp retrenchment of business investment. although the causes of these two most recent recessions were clearly different, they were similar along one important dimension : both were related to changes in the subjective appraisals by persons and businesses of fundamental economic prospects, and to heightened uncertainty about those prospects. in real time, it is extraordinarily difficult to determine the likely severity and duration of these types of shocks. using monetary policy to counter a shock of this nature is not as straightforward as reversing an earlier tightening. in retrospect, it is clear that during the two most recent recoveries these subjective views improved and uncertainty

postwar recoveries ( although, as i will discuss later, not with the one in the early 1990s ), when employment surged. similarly, with employment growth until recently having been wanting, the unemployment rate peaked more than a year and a half after the recession ended and has not yet fallen below its level at the time designated by the national bureau of economic research as the economic trough. and quite possibly the unemployment rate has been understating the amount of slack in the labor market because labor - force participation has been unusually weak, perhaps reflecting an assessment on the part of many households that job availability would be poor for those actually in the labor market. the output growth that largely defines the recovery resulted from impressive growth in labor productivity. during the two years of falling employment, productivity in the nonfarm business sector rose about 5 percent per year. part of this spectacular performance is typical. one expects productivity to rise quickly during the early stages of a recovery ; as utilization rates rise, companies find more for their workers to do. part of the growth of labor productivity may have to do with unusual, and transitory, hesitation on the part of businesses to hire, a topic to which i will return. happily, however, the recent increases appear to have an important structural component as well. whereas most recessions since world war ii had no productivity growth or had outright declines, productivity during this past recession rose at a rate of more than 2 percent. and this growth was a continuation of the rapid gains that characterized the latter half of the 1990s. the favorable performance of productivity likely is related to another unusual feature of this recovery : the behavior of prices. productivity growth in the years leading up to the business - cycle peak in early 2001 was one factor that contributed to keeping inflation low. core prices for personal consumption expenditures advanced at an average annual rate of less than 2 percent over the two years preceding the peak - despite unemployment rates down around 4 percent. moreover, prices decelerated during the recovery. at this time last year we observed core pce inflation in the vicinity of 1 percent. in fact, inflation was so low, especially once known biases in the price indexes are taken into account, that for several months the fomc was concerned more about the possibility of “ inflation becoming undesirably low ” than about the risk of a rise in inflation. these low rates of inflation coming into the recession and continuing into the recovery were one reason why the federal reserve responded so aggressively to the downturn