Goldilocks & the Fed

Was today’s June employment release a Goldilocks report? Payroll employment rose 372,000, and wages increased 0.3%—not too hot, not too cold. The problem is that consumer prices have been rising faster than wages for the past year or so. As a result, the purchasing power of our Earned Income Proxy for private wages and salaries in personal income has been significantly eroded by higher prices (chart). That’s why consumer confidence has been very depressed notwithstanding the strong labor market.

Interestingly, wages are up 5.1% y/y through June for all workers, 6.4% for lower-wage workers, and 2.5% for higher-wage workers. The lower-wage ones are still getting squeezed by price inflation since they spend more of their budgets on essentials like groceries, gasoline, and rent. Conversely, higher-wage workers can dip into their savings or simply reduce spending on discretionary goods and services to ease the impact of inflation on their households.