The U.S. Bureau of Labor Statistics reports that annual real hourly earnings went up by 0.2% on average in May, a figure that takes into account inflation. After declining since March 2021, this marks the first instance of real earnings going up. If these figures continue to increase, the regular household can expect to have a higher standard of living in the future than what they have had for the past two years.
Workers saw their buying power rise again in May, the first time it has happened in two years, as inflation falls from its pandemic-era high. If the trend continues, this could be beneficial for households who rely on their paychecks instead of savings or credit cards for day-to-day spending, economists said. The United States Bureau of Labor Statistics observed an average rise of 0.2% in "real" hourly earnings in May 2021 when compared to May 2022. This figure takes into account the cost of basic household goods and services, as indicated by the consumer price index, CPI. A positive number here means that the average worker holds more economic power than they did in the past year. On the other hand, a negative number would indicate the opposite. May's reading marked the first positive year-on-year change since March 2021. In the period prior to this, average workers endured a 25-month period of diminishing buying power, the longest stretch ever recorded, according to Aaron Terrazas, chief economist at Glassdoor.
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Terrazas stated that inflation is beginning to decline, which in turn caused real wages to become positive, though not necessarily enough to bring individuals up to where they were two years prior.
Workers experienced a surge in wage growth in 2021 as business demand for employees skyrocketed with the reopening of the US economy in the wake of the pandemic. Companies have had to increase wages at a rate not seen in decades to appeal to the limited workforce available. According to Julia Pollak, chief economist at ZipRecruiter, "many companies did unprecedented pay increases during the pandemic". Even with inflation taken into account, some employees have been able to earn higher incomes by relocating to better-paid jobs.
For the general population, though, inflation far eclipsed any wage increases. This meant increased costs for food, rent and gasoline outpaced wages. The Consumer Price Index (CPI), a measure of inflation, saw its peak of 9.1% in June 2022 - the highest point in 40 years - but has since decreased to an annual rate of 4%. In tandem, wage growth has slowed down but at a more gradual rate, providing citizens with a net financial advantage in May compared to the previous year. Pollak affirmed, "The positive shift is good news for consumers, who have persevered extremely well during the period and, consequently, will become even more secure."
There is other evidence that suggests household wellbeing has improved. Real disposable personal income (both on aggregate and per capita) has been growing for 10 consecutive months since June 2022, per data from the U.S. Bureau of Economic Analysis. This information is more comprehensive than simply wage growth, since it encompasses interest income, rental income and dividends. Mark Zandi, chief economist at Moody's Analytics, attested to their strength.
The news for consumers is "very encouraging," Zandi said, considering the high levels of credit-card debt and high interest rates seen by the end of March. Additionally, the Covid-19 pandemic caused Americans to save an estimated $2.5 trillion by September 2021, Moody's estimates, which was equal to 10% of U.S. economic output. However, by April, aggregate savings had decreased to $1.4 trillion, a notable dip.
Experts suggested that if real wages and incomes remain positive, it would benefit both households and the economy. "Continued spending from consumers is what will help us dodge recession," Zandi commented. "The current evidence shows that the firewall against economic contraction remains strong."
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