Janet Yellen recognizes the progress in the labor market but acknowledges there’s more to do
While the labor market has been steadily improving, it’s nowhere near where it was pre-recession. While the unemployment rate has been falling, the decline has been largely due to a drop in the labor force participation rate, which is part of the reason why this recovery has been so unsatisfying. The Fed anticipates unemployment to move steadily downward. However, given the drops we saw in the December and January reports, we could see a revision in this forecast at the March FOMC meeting.
Receive e-mail alerts for new research on TOL:
Interested in TOL?
Don’t miss the next report.
On job creation
Yellen addressed the labor market this way in her prepared remarks:
Yellen said the following on unemployment:
Structural versus cyclical issues
When asked about the decline in the labor force participation rate, Yellen said that the issue is “mostly structural.” This means that demographics are driving the drop as much as the economy is. Of course, it’s difficult to separate the two effects, as they influence each other.
Yellen also stressed that she believes in the dual mandate, which directs the Fed to minimize inflation and unemployment.
Impact on homebuilders
Labor market conditions are the biggest driver of business for homebuilders like Lennar (LEN), D.R. Horton (DHI), PulteGroup (PHM), and Toll Brothers (TOL). In fact, labor markets are more important than interest rates. The first-time homebuyer is still having a difficult time getting their foot on the first rung of the ladder, which accounts for some of the difficulties we’ve seen in the sector. The return of the first-time homebuyer remains the last piece of the puzzle for the housing market.