Average American Wages Now Outpace Inflation: A Cause For Pausing Fed Rate Hikes?

Whether the Federal Reserve may take a breather when it announces its interest rate decision at 2 p.m. ET on Wednesday remains to be seen.

After 10 consecutive rate hikes, the Fed may assess the impacts of its battle against inflation.

Seth Golden, Chief Market Strategist at Finom Group, provided some insightful fodder for thought on Twitter. He also downplayed data from the National Bureau of Economic Research.

“Real wages likely continue to benefit from disinflation cycle, providing ballast for consumer spending and sustaining expansion cycle,” he said.

Real wages likely continue to benefit from disinflation cycle, providing ballast for consumer spending and sustaining expansion cycle, all else considered equal, NBER data is garbage.

Wage growth off peak of ~9%ish and falling, but not falling as quickly as #CPI pic.twitter.com/4Hb5pTqlBK

— Seth Golden (@SethCL) June 14, 2023

Golden’s assessment resonates with the unexpected deceleration of inflation in May. According to data issued by the BLS, the CPI rose 4% year-over-year in May, a fall from April’s 4.9%. It came in lower than the predicted 4.1%, marking the weakest inflation reading since March 2021.

Golden’s observations bring focus to the real wage data issued by the BLS, which complements the broader inflation narrative.

Real average hourly earnings for all employees grew by 0.3% from April to May. The change is attributable to a 0.3% climb in average hourly earnings against a marginal 0.1% increase in the CPI for All Urban Consumers (CPI-U).

The trend in real wages indicates a strengthening in the purchasing power of the average American worker, despite a dip in real average weekly earnings by 0.1% over the month.

Interestingly, production and non-supervisory employees fared even better. Real average hourly earnings gaining 0.4% over the month, boosted by a 0.5% rise in average hourly earnings while the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) held steady.

The increase in real wages isn’t just a snapshot occurrence — it’s demonstrating a year-on-year growth.

Real average hourly earnings saw a 0.2% increase from May 2022 to May 2023 for all employees. Production and non-supervisory employees saw a higher increase of 1.3% in real average hourly earnings over the same period.

The upbeat wage trends, coupled with a slowing inflation rate, underscore the strength of real wages and their potential role in driving consumer spending and sheds a positive light on those who believe a recession is looming.

Next: Deflation Pushes Producer Prices To 28-Month Lows Ahead Of Fed’s Interest Rate Decision