The future still looks a little rocky for the U.S. economy, but the recovery has begun. That's the bottom line of Federal Reserve Board chairman Alan Greenspan's semiannual monetary policy report to the Senate Committee on Banking, Housing, and Urban Affairs.

The central bank has raised its economic growth forecasts for the year by 0.5%, so it will range from 3.5% to 3.75%, Greenspan says. And the growth rate is projected to be 3.5% to 4% next year. "The U.S. economy has confronted very significant challenges over the past year or so," Greenspan said Tuesday. "Those problems, however, led to only a brief and mild downturn in economic activity, reflecting the underlying strength and increased resiliency that the economy has achieved in recent years."

Technology is at the core of that resiliency, as shown in the productivity statistics. Despite the economic slump, output per hour has increased approximately 7% compared with six months ago, and Greenspan sees evidence of continuing growth in productivity. "But the magnitude of the recent gains would not have been possible without ongoing benefits from the rapid pace of technological advances and from the heavy investment over the latter half of the 1990s in capital equipment incorporating such advances," Greenspan said.

Of course, automated productivity has decreased the need to add jobs, but Greenspan hopes the unemployment rate will be 5.25% to 5.5% by the end of next year. The unemployment rate for June was 5.9% (see Employment Stats Don't Inspire Confidence).

While technology is helping the economy, it also helped cause some problems. Greenspan says the recent economic downturn was caused by a slower demand for capital goods as companies realized they'd overstocked inventories during the economic boom. The backlash hit tech and communications sectors particularly hard. And the sales lost by these companies had a trickle-down effect on other industries. In addition, Greenspan said, "the collapse of many Internet firms and the difficulties of the high-tech sector more generally led to a significant drop in the demand for office space that was exacerbated as the economic slowdown widened beyond the tech sector." He added that "overall, the level of real business-fixed investment plunged about 11% between its quarterly peak in the final months of 2000 and the first quarter of this year."

But, Greenspan said, there's been a recent growth in production. In fact, the Federal Reserve Board reported Tuesday that U.S. computer makers last month were busier than a year earlier. Though industrial production for computers and related products edged up only 0.8% from May to June, it's 11.1% higher than a year earlier. That compares favorably with industrial production for all industries, which increased a minute 0.2% during the past year.

The capacity-utilization rate for computer makers remained at 68.2% in June, the same as May, but 2.1 percentage points higher than it was a year earlier. Still, the output from factories that build computers is well below the average level of the past 33 years, 80.7%, but slightly higher than the average rate of 66.9% that followed the last recession a decade ago. Yet the capacity-utilization level for computer makers trails the rate for all industries, which stood at 76.1% last month.