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Wages Overtake Inflation

U.S. wages are now growing faster than inflation for the first time in two years, helping workers but muddling Federal Reserve attempts to lower price increases, according to The Wall Street Journal (subscription).

What’s going on: “Inflation-adjusted average hourly wages rose 1.2% in June from a year earlier, according to the Labor Department. That marked the second straight month of seasonally adjusted gains after two years when workers’ historically elevated raises were erased by price increases.”

  • In manufacturing, wages are up 5.6% over a year ago, according to NAM Chief Economist Chad Moutray.

More to enjoy: “In addition to enjoying solid wage growth, Americans are taking comfort in slower price increases for everyday items—such as gasoline and groceries—that have the biggest influence on their perception of inflation.”

  • However … Adjusted for inflation, pay growth “remains below the trend in the five years before the pandemic,” one source told the Journal.

Why it’s important: If wages continue to surpass cost increases, they could encourage more spending, which could help the economy avoid a recession.

  • In recent months, Journal-polled economists have been less confident that there will be a recession in the next 12 months. However, Americans in general continue to expect a recession, according to the article.

The Fed’s role: The Federal Reserve has increased the benchmark interest rate 10 times in the past 16 months and has indicated it will raise it again later this month.

  • “‘It’s great to see wage increases, particularly for people at the lower end of the income spectrum,’ [Federal Reserve Chairman Jerome] Powell said [in June]. ‘But we want that as part of the process of getting inflation back down to 2%, which benefits everyone.’”

The last word: “With manufacturers continuing to cite workforce challenges, even in a cooling labor market, wage growth remains significant,” Moutray said. “The average manufacturer pays $26.41 [an hour] nationally for production and nonsupervisory workers, up 5.6% from one year ago, a very solid rate. Relief on growth in consumer inflation will allow those employees to realize the purchasing power of those dollars more fully.”

Further resources: For more workforce solutions and insights, check out the resources of the Manufacturing Institute, the NAM’s 501(c)3 nonprofit workforce development and education affiliate.

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