A Double Boost: Rising Wages, Slow Price Increases

By Robert Hughes

Wages – average hourly earnings – rose a decent 0.3 percent in January for production and nonsupervisory workers, and an even more impressive 0.5 percent for all workers. Both are up 2.5 percent from a year ago, about as strong a gain as we’ve seen in the current expansion, but well below the peak rates of about 4 percent per year in prior expansions.

But that’s only part of the story. When wages are adjusted for price changes, real wages are up at a 2.1 percent annual rate through December. The pace has been above 2 percent since January 2015, and is well above the long-term average pace of just 0.3 percent since 1985. That faster pace of growth has helped real hourly earnings rise back above the $9.00 point for the past 12 straight months – the first time since the mid-1970s (see chart).

Faster nominal wage growth would be helpful to consumers, and that may happen soon if labor markets continue to tighten. But the double benefit of rising nominal wages and slow price increases shouldn’t be overlooked.

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Robert Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.