Now that we know December consumer inflation, we can see how the American working/middle class is “really” doing.

Nominally, average wages for nonsupervisory workers increased 0.2%, while prices deflated by -0.1%, meaning that “real” average wages increased 0.3% for the month:

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While this only returns them to April’s level, and -2.2% below their December 2020 interim peak, they are also 1.5% higher than their pre-pandemic levels, and more importantly 1.3% above their recent June 2022 lows. Essentially all of the volatility in 2022 can be laid at the feet of the huge increase, then a huge decrease, in gas prices.

Aggregate real payrolls tell us how much, in full, nonsupervisory workers are earning in “real” terms. As I noted again the other day, in the past whenever YoY inflation has been higher than YoY aggregate payrolls, a recession has either just started or was about to start:

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With the addition of December consumer prices, here’s what that graph looks like for the past year and a half:

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Since September, YoY aggregate payrolls and YoY consumer inflation have decelerated almost in lockstep, with payrolls growing faster than inflation by 1.0% +/-0.1%. In December it was just below 1.0%.

This is consistent with a very slow expansion.

I don’t have any special tools for divining how the net difference between the two will play out over the coming months, but I do suspect that the big decline in gas prices has ended, for seasonal reasons if for nothing else. If over the next 6 months till July 4 gas prices rise seasonally more in keeping with years’ past, let’s say to $3.75/gallon, that will probably give us a monthly inflation rate of about +0.3%. Here’s what that would look like in comparison with the past year and a half:

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Between January and June of 2022, consumer prices rose on average just shy of +0.9%/month. A decrease of -0.6%/month to +0.3% would give us a YoY CPI of about 3% at mid-year. It’s a decent possibility that aggregate payrolls remain above that number by then, which would mean we probably skirt a recession.

We’ll see.

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