of increase in unit costs of output, inasmuch as profit margins have increased significantly since 1993. a pickup in the growth of labor productivity — beyond the effects of the business cycle — appears to have been an essential factor behind the slowing in inflation. growth in labor productivity, which had averaged less than a 1 percent annual rate in the early 1990s, rose to approximately 3 percent in the four quarters ending in the first quarter of 1999. increased labor productivity growth has directly lowered the growth of unit labor costs. and that reduction in costs, in combination with declining import prices, has also apparently engendered lower price inflation and inflation expectations that, in turn, have curbed both nominal wage growth and unit interest costs. consolidated unit nonlabor costs, excluding interest, have played little role in the inflation accounting exercise in recent years. apparently, the effects of falling equipment prices have matched the upside influence of shorter service lives on the average depreciation rate to keep unit capital consumption charges stable. i say that accelerated labor productivity is arguably at the root of declining domestic valuedadded price inflation because it can be misleading to identify a single variable as the exogenous force in an essentially interactive process of cause and effect. but in this case, the notion that labor productivity acceleration has been largely, though not wholly, exogenous, appears persuasive. its unexpected emergence also apparently explains much of the shortfall in forecasting of overall economic growth in recent years. i have hypothesized before this group on several occasions that the synergies that have developed, especially among the microprocessor, the laser, fiber - optics, and satellite technologies, have dramatically raised the potential rates of return, not only on new telecommunications investments, but more broadly on many types of equipment that embody or utilize the newer technologies. the newest innovations, which we label information technologies, have begun to alter the manner in which we do business and create value, often in ways not readily foreseeable even five years ago. i do not say we are in a new era, because i have experienced too many alleged new eras in my lifetime that have come and gone. we are far more likely, instead, to be experiencing a structural shift similar to those that have visited our economy from time to time in the past. these shifts can have profound effects, often overriding conventional economic patterns for a number of years, before those patterns begin to show through again over the longer term. there was far

mr greenspan discusses the us economy in a world context remarks by the chairman of the us federal reserve system, mr alan greenspan, at the 35th annual conference on bank structure and competition of the federal reserve bank of chicago on 6 may 1999. any evaluation of the international financial crisis of the past two years would be incomplete without an understanding of the extraordinary strength of the u. s. economy that has acted as a buffer for much of the rest of the world. there can be little doubt that the marked widening in our trade deficit on goods and services has played an important, possibly a critical role in supporting world stability during these trying years. domestic demand growth in the united states has accounted for about one third of the world total since 1996. now that there are tentative signs that we may be through the worst of the crisis abroad, an issue to which i shall return shortly, it would be useful to address the benevolent, but bedeviling, question of how the american economy, at least to date, has managed to remain an oasis of prosperity, in sharp contrast to badly sagging economies in the developing world, recession in japan, and tepid growth in much of europe. and, can we project how long our economy will be able to provide support to the rest of the world? forecasts of inflation and of growth in real activity for the united states, including those of the federal open market committee, have been generally off for several years. inflation has been chronically overpredicted and real gdp growth underpredicted. an increase in inflation doggedly forecast to follow the ever lower unemployment rate — now the lowest in three decades — has not occurred. in fact, even after accounting for the reduced bias in our price statistics resulting from methodological improvements, some measures of inflation have even continued to ease. subdued inflation, of course, has resulted, in part, from the sharp fall in oil prices from mid1997 through early this year. moreover, there has been a significant weakening in non - oil import prices since 1995, owing largely to a combination of declining world commodity prices and a strengthening dollar in our foreign exchange markets through last summer. the decline in prices of oil and non - imports are clearly “ one - off ” events. indeed, oil prices have moved up sharply of late. the remaining easing in the inflation rate owes to disinflation in domestic value added excluding oil. the latter, in turn, is more than accounted for by a decline in the rate