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By HaleStewart November 20, 2013 7:59 am
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Yellen's Benchmarks

Last week, Janet Yellen testified before Congress as part of the confirmation process.  Her opening statement was short.  However, there are some key data points contained within it that deserve to be highlighted:

Today the economy is significantly stronger and continues to improve. The private sector has created 7.8 million jobs since the post-crisis low for employment in 2010. Housing, which was at the center of the crisis, seems to have turned a corner--construction, home prices, and sales are up significantly. The auto industry has made an impressive comeback, with domestic production and sales back to near their pre-crisis levels.

The above paragraph contains some very important economic metrics which are obviously very important to Ms. Yellen.  Let's highlight these data points.

Establishment jobs was the first metric she listed, and with good reason.  A healthy economy creates jobs in sufficient quantities to do at least absorb population growth. 

She also focuses on two important durable goods purchases: homes and autos.  While she doesn't explain the logic behind her citing these two pieces of data, I beleive it's fair to assume that the underlying nature of these transactions (they both require long-term financing and hence serve as a  barometer of consumer confidence) signals the overall health of the household sector.  Let's look at both metrics.

New home construction clearly bottomed in 2010.  But over the last few years, it has also bounced back, most likely aided in part of record low interest rates.

New homes sales have followed a similar trajectory as starts, although the recent rebound has dipped.

Finally, we have auto sales which have clearly rebounded.

At the same time, she notes there is still plenty to so and plenty of policy room to use:

We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession. Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential. At the same time, inflation has been running below the Federal Reserve's goal of 2 percent and is expected to continue to do so for some time.

Here, she clearly signaled that the economy has much healing to do, with unemployment far too high.  She also notes there is plenty of room to do it in with inflation at what are clearly mundane levels.

Obviously there are many more details to an economy the size of the US' (or any economy, for that mater) that should be used to determine economic policy.  However, Ms. Yellen has publicly used several very important metrics, telling us what she thinks is important when making policy decisions.

 

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