Perspective On The Employment Release

Figure 3: Average hourly earnings, $/hr (blue, left log scale), aggregate weekly hours index, 2002=100 (red), both seasonally adjusted. NBER defined recession dates shaded gray. Source: BLS, NBER.

With rapid see-saws in inflation taking place, it’s important to think about real earnings (it would be better to look at earnings by categories or by income deciles, but I haven’t had a chance to do that). Figure 4 shows real average hourly earnings, calculated using the CPI-all (and the Philadelphia Fed’s nowcast for July).

Figure 4: Real average hourly earnings in total private sector, 2019$/hr, seasonally adjusted (blue), real earnings based on Philadelphia Fed nowcast (teal +), and 2016-19 stochastic trend (red), both on log scale. NBER defined recession dates shaded gray. Source: BLS, Philadelphia Fed, NBER, and author’s calculations.

Real average hourly earnings have come down substantially — of course not adjusted for composition. They now seem to be relatively flat going from June to July. If the July nowcast proves accurate, then real average hourly earnings are only about 1.5% above the 2016-19 trend.

As noted in this post, reported CPI probably understated inflation in 2020, and overstated inflation in 2021. If that is the case, then the fall in real average earnings since 2020M04 is probably smaller, and the deviation relative to trend in July 2021 larger.

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