And they have committed to make sure this program of initiatives is sustained until the foundation for recovery is fi rmly established, a commitment the IMF will monitor closely, and that we will be able to act together when the G-20 Leaders meet again in the United States this fall. We are starting to see some initial signs of improvement. The global recession seems to be losing force. In the United States, the pace of decline in economic activity has slowed. Households are saving more, but consumer confi dence has improved, and spending is starting to recover. House prices are falling at a slower pace and the inventory of unsold homes has come down signifi cantly. Orders for goods and services are somewhat stronger. The pace of deterioration in the labor market has slowed, and new claims for unemployment insurance have started to come down a bit.
The financial system is starting to heal. The clarity and disclosure provided by our capital assessment of major U. S.banks has helped improve market confi dence in them, making it possible for banks that needed capital to raise it from private investors and to borrow without guarantees. The securities markets, including the asset backed securities markets that essentially stopped functioning late last year, have started to come back. The cost of credit has fallen substantially for businesses and for families as spreads and risk premia have narrowed.
These are important signs of stability, and assurance that we will succeed in averting fi nancial collapse and global deflation, but they represent only the first steps in laying the foundation for recovery. The process of repair and adjustment is going to take time. China, despite your own manifest challenges as a developing country, you are in an enviably strong position. But in most economies, the recession is still powerful and dangerous. Business and households in the United States, as in many countries, are still experiencing the most challenging economic and financial pressures in decades.
The plant closures, and company restructurings that the recession is causing are painful, and this process is not yet over. The fallout from these events has been brutally in discriminant, affecting those with little or no responsibility for the events that now buffet them, as well as on some who played key roles in bringing about our troubles. The extent of the damage to fi nancial systems entails signifi cant risk that the supply of credit will be constrained for some time. The constraints on banks in many major economies will make it hard for them to compensate fully for the damage done to the basic machinery of the securitization markets, including the loss of confi dence in credit ratings. After a long period where fi nancial institutions took on too much risk, we still face the possibility that banks and investors may take too little risk, even as the underlying economic conditions start to improve.
And, after a long period of falling saving and substantial growth in household borrowing relative to GDP, consumer spending in the United States will be restrained for some time relative to what is typically the case in recoveries. These are necessary adjustments. They will entail a longer, slower process of recovery, with a very different pattern of future growth across countries than we have seen in the past several recoveries.
Laying the Foundation for Future Growth
As we address this immediate fi nancial and economic crisis, it is important that we also lay the foundations for more balanced, sustained growth of the global economy once this recovery is fi rmly established. A successful transition to a more balanced and stable global economy will require very substantial changes to economic policy and fi nancial regulation around the world. But some of the most important of those changes will have to come in the United States and China. How successful we are in Washington and Beijing will be critically important to the economic fortunes of the rest of the world. The effectiveness of U. S.policies will depend in part on Chinas, and the effectiveness of yours on ours.
Although the United States and China start from very different positions, many of our domestic challenges are similar. In the United States, we are working to reform our health care system, to improve the quality of education, to rebuild our infrastructure, and to improve energy effi ciency. These reforms are essential to boosting the productive capacity of our economy. These challenges are at the center of your reform priorities, too.
We are both working to reform our fi nancial systems. In the United States, our challenge is to create a more stable and more resilient fi nancial system, with stronger protections for consumer and investors. As we work to strengthen and redesign regulation to achieve these objectives, our challenge is to preserve the core strengths of our fi nancial system, which are its exceptional capacity to adapt and innovate and to channel capital for investment in new technologies and innovative companies. You have the benefi t of being able to learn from our shortcomings, which have proved so damaging in the present crisis, as well as from our strengths.
