– by a New Deal Democrat
There’s no major economic news today, so let’s update a few income metrics important to the average working American household. Namely, since we now have the inflation report for February as well as the payrolls, we can update average and total wages unattended.
Average hourly earnings of non-supervisory employees rose 0.5% on a nominal basis in February, the strongest reading since last June. But as consumer prices rose 0.4%, real average hourly wages rose just 0.1%:
The good news, as noted above, is that this is tied for the highest reading since last April (as I’ve noted many times, a $2 drop in gas prices can do wonders for economic statistics). The not-so-good news is that the above graph is normalized to 100 as of January 1973, the record high for non-supervisory wages before the pandemic. Which means we remain below that level, as we have been for almost a year.
Second, unsupervised aggregate real wages are an excellent way to look at the health of the American middle/working class as a whole. Nominal aggregate wages were unchanged in February, but in real terms fell by -0.3% in February from January’s record high:
Typically, real aggregate wage growth slows sharply before a recession and usually stops during a recession. In fact, negative year-over-year growth is a very good “fundamental” sign of a recession because when average American households have less money to spend overall, they shrink. And the reduction in consumption leads to a reduction in jobs.
And the year-over-year trend in real aggregate wages, while not negative, has declined sharply over the past year and is currently 1.4%:
In the long-term graph below, I subtract 1.4% of annual growth so that it shows on the zero line:
As you can see, this level is consistent with a sharp slowdown (eg 1967, 1994, 2016) as well as an impending recession. *If* consumer inflation continues to decline, then to indicate a recession, total wages would have to slow faster than they have been.