Q4 GDP Disappoints As Fed Transcripts Show Callousness To Unemployed

The BEA released its initial estimates of Q4 GDP today and it came in at a slightly disappointing 1.9%. That was under the consensus estimate of 2.2%. According to the BEA, "The deceleration in real GDP in the fourth quarter reflected a downturn in exports, an acceleration in imports, a deceleration in PCE, and a downturn in federal government spending that were partly offset by an upturn in residential fixed investment, an acceleration in private inventory investment, an upturn in state and local government spending, and an acceleration in nonresidential fixed investment".

On the one hand, a disappointing report like this might make some members of the Fed a little apprehensive about the December rate hike, as I'm sure they all remember what a disaster the December, 2015 rate hike turned out to be. On the other hand, PCE (Personal Consumption Expenditure), despite decelerating, still came in at a pretty healthy 2.5% in the quarter. That is definitely one of the important indicators that the Fed pays attention to and it will probably give the Fed a little more comfort with their decision.

The release of the Fed transcripts from 2011 will not make their job any easier. The disgusting bias of the banking set was on full display in a November, 2011 meeting, where Committee members blamed unemployment on drug use and a poor work ethic. Here is just a sampling of their clueless comments:

Dennis Lockhart, Atlanta Fed: "I frequently hear of jobs going unfilled because a large number of applicants have difficulty passing basic requirements like drug tests or simply demonstrating the requisite work ethic. One contact in the staffing industry told us that during their pretesting process, a majority—actually, 60 percent of applicants—failed to answer ‘0’ to the question of how many days a week it’s acceptable to miss work." At that point, the meeting broke into laughter.

The ever insidious inflation hawk Charles Plosser of the Philadelphia Fed said he had heard from one owner of a chain of McDonald's that it was hard to fill positions, saying "passing drug tests, passing literacy tests, and work ethic are the primary problems he has in hiring people."

Jeffrey Lacker, another deficit hawk from the Richmond Fed, reported, "Several firms told us of difficulty finding adequate workers, because they preferred to collect unemployment benefits or can’t pass drug tests." He had also spoke of this issue in the prior meeting in August when he said there were "widespread reports about hard drug use, OxyContin and methamphetamine, in Appalachia and other rural parts of our District—in particular, Appalachia." Again, this comment was apparently met with laughter from the rest of the Committee. Lacker continued, "It’s hard to pin this down quantitatively" and wondered if there was “something meaningful there as a contributor to impediments to labor market functioning." In fact, there was something meaningful contributing to drug abuse in West Virginia. The drug companies, pharmacies, and the state government were all colluding in an effort that poured over 780 million oxycodone and hydrocodone pills into the state in the span of 6 years. The number of pills sold in that state added up to 430 pills for every man, woman, and child in West Virginia.

Of course, the real answer to the problem for companies that have difficulty finding qualified applicants for a particular job is grounded in basic economics - offer a higher wage. That thought never seemed to cross the mind of any of the bankers on the Committee. The Fed is going to have enough trouble with Donald Trump trying politicize it. Transcripts like this are only going to add more fuel to the fire.