Financial institutions are able to measure and manage risk much more effectively. Risks are spread more widely, across a more diverse group of financial intermediaries, within and across countries. These changes have contributed to a substantial improvement in the financial strength of the core financial intermediaries and in the overall flexibility and resilience of the financial system in the United States. And these improvements in the stability of the system and efficiency of the process of financial intermediation have probably contributed to the acceleration in productivity growth in the United States and in the increased stability in growth outcomes experienced over the past two decades.

With the IT revolution continuing and a flexible U.S. economy operating in a more global marketplace, I expect labor productivity to grow by around 2-1/4 percent per year. These estimates imply a potential for output growth of about 3 percent per year on a sustained basis.

And the ability of the U.S. economy to generate ongoing productivity gains through use of technology, through the flexibility of our labor and capital markets has been most impressive. And we expect good productivity gains to continue for the next few years.

One implication of this perspective on recent productivity trends is that the current expansion in business investment is laying a foundation for future growth in total factor productivity, and thus provides at least some grounds for optimism that productivity growth might come in at 2.5 percent or higher, rather than the long-run trend rate of 2.25 percent.

As in the mid- to late-1990s, resilient productivity growth appears to be helping contain the inflationary pressures that might otherwise be expected to accompany a narrowing margin of resource slack. That said, we at the Federal Reserve will remain vigilant for any sign of a deterioration in the inflation outlook...The core inflation rate has stayed relatively low in recent months, as rapid gains in productivity have tended to offset cost increases.

Continued increases in industrial productivity have enabled a relative shift of employment into the production of services. Although manufacturing employment has fallen sharply in recent years, both in absolute terms and as a share of total employment, the output of the nation's manufacturers has continued to increase because of impressive productivity gains.

The rise of the US current account deficit over the past decade appears to have coincided with a pronounced new phase of globalization that is characterized by a major acceleration in US productivity growth and the decline in what economists call home bias.

Anecdotal, circumstantial, and some statistical evidence is suggestice that the historically large current account deficit of the United States may be part of a broader set of rising unconsolidated deficits and accumulated debt that is arguably more secular than cyclical.  The secualr updrift in deficits and debt doubtless has been gradual...The acceleration of US productivity, which dates from the mid-1990s, was an important factor in the process.

As monetary policy makers, we are constantly tracking productivity growth because it is a key determinant of our standard of living. And an important factor driving productivity growth is worker quality, which includes the education and the experience of the workforce.

I draw two lessons from that late '90s experience [the changing view of productivity growth]. The first is that you don't just look at the conventional measures, you look at the data quite deeply and try to understand how the data are constructed and how they relate to each other, because there may be anomalies that'll be instructive. And that was the case in the late '90s. The other is that published government data is not the only source of information. It's also important to talk to people in the marketplace, to talk to business people.

As both an employer and an economist, it is clear to me that the relationship between education, productivity, and economic growth has never been more closely linked. While states and regions once prospered based on an abundance of physical capital and natural resources, today the quality of a region's human capital is paramount.

As economic growth returned [in the latest recovery], firms found that they could meet the increased demand for goods and services without hiring additional workers.  This resulted in strong gains to productivity, which is an important source of long-term growth for the economy, but it meant that employment gains were weaker than in prior recoveries.

Labor costs may increase for firms as the pool of available workers continues to shrink.  Thus far in the current economic expansion, firms have benefited from strong increases in productivity that have allowed them to offer higher wages to workers without affecting their profitability.  But as the labor market has tightened and as productivity growth has slowed, further efforts to expand may result in faster wage growth.

While other countries have suffered sluggish growth to achieve lower inflation, the US did not.  This is because our disinflationary monetary policy could be made against the backdrop of a step up in productivity growth.  We were also successful because monetary policy did not adhere to a rigid mechanical rule, but adapted to the incoming evidence on inflation and output.

It's very encouraging that even after a downward adjustment, structural productivity still appears to be growing somewhat faster than the robust rates achieved in the second half of the 1990s, and it remains quite strong by historical standards.