In the business sector, investment in new equipment continues to expand at a good clip, boosted by robust sales as well as ongoing replacement and upgrading needs. In addition, as I'll discuss in a moment, corporate financial conditions are favorable for investment.

The growth of profits and the related buildup of cash have been broadly distributed across industries. And with the sound corporate financial positions, credit spreads remain narrow, and bank lending terms remain favorable. These beneficial financial conditions, combined with rising utilization rates, bode well for further increases in business capital expenditures.

Despite the upheavals in several sectors of the economy, such as the auto industry, business investment is also expected to contribute to growth in 2006.  Strong growth of corporate earnings combined with low borrowing costs over the past two years have led to marked improvements in firms' balance sheets...Looking ahead, while there may be some slowing from recent performance, most private sector forecasters expect profit growth will provide fundamental support for investment spending.

In all likelihood, this investment cycle will unwind too with the arrival of higher rates. As this occurs the speculation present in some markets will eventually dissipate and prices will stabilize.

The business sector is in good financial shape...In my view, even with a rise in interest rates and some moderation in profit growth, the business sector should remain financially strong and continue to expand.

The limited evidence since the November easing has supported our view that the U.S. economy has been working its way through a soft patch. And the patch has certainly been soft. The labor market has remained subdued, as businesses apparently have been reluctant to add to payrolls. The manufacturing sector remains especially damped, and nonresidential construction has trended lower. By all reports, state and local governments continue to struggle with deterioration in their fiscal conditions. Oil prices have recently risen and, not least, the economies of most of our major trading partners have shown little vigor.

Eventually, the high-tech correction will abate, and these industries will reestablish themselves as a solidly expanding, though less frenetic, part of our economy. When they do, growth in that sector presumably will not return to the outsized 50 percent annual growth rates of last year, but rather to a more sustainable pace.