Real average hourly earnings at lowest reading since 2012
President Donald Trump has presided over an accelerating economy and the lowest unemployment in years, but American workers still aren’t seeing it in their wallets.
U.S. average hourly earnings adjusted for inflation fell 0.2 percent in July from a year earlier, data released on Friday showed, notching the lowest reading since 2012. While inflation isn’t high in historical terms, after years of being too low following the 2007-2009 recession, its recent gains are taking a bigger bite out of U.S. paychecks.
“Inflation has been climbing and wage growth, meanwhile, has been flat as a pancake,” said Laura Rosner, senior economist at MacroPolicy Perspectives LLC in New York. “In a very tight labor market you would expect that workers would negotiate their wages to at least keep up with the cost of living, and the picture tells you that they’re not.”
U.S. unemployment at 3.9 percent in July was near a 50-year low and a core measure of inflation that excludes food and energy prices has pushed to 2.4 percent, the highest reading in almost a decade. But wages are just not keeping up and part of the reason is probably a lack of bargaining power on the part of U.S. workers.
Ryan Sweet, an economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said given that inflation has been low in recent years, “the sense of urgency” hasn’t been there to negotiate for higher wages. In the post-recession labor market, workers have forgotten how to bargain.
“As the labor market came back, workers were just happy to have survived,” Sweet said. “They value their job security more than asking for a higher wage.”
What will determine real wages in the coming months is not inflation as much as what happen to wages, he said. “I do anticipate nominal wage growth picking up which should help drive up real wage gains over the next few months.”
- Reade Pickert With assistance by Sho Chandra - Bloomberg
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