U.S. Jobs Report: How the 2023 Average Pay Growth Compares to Inflation

The recent U.S. Jobs Report has unveiled a complex economic landscape marked by a nuanced combination of job growth, wage increases, lower inflation, and high-interest rates. While significant labor market performance and wage growth exist, lingering high prices from last year's inflation push persist. The question is, how does the increase in wages compare to the aftermath of high inflation that everyone is still dealing with? 

The current jobs situation

The U.S. Bureau of Labor Statistics reported a modest increase in total nonfarm payroll employment by 199,000 in November. This growth, while below the average monthly gain of the preceding 12 months, is aligned with recent trends. Job gains were notable in health care, government, and manufacturing, the latter reflecting workers' return from a strike. However, the retail trade sector experienced a decline in employment.

Regarding unemployment, the rate edged down to 3.7%, with minor changes observed across various demographic groups. While jobless rates for adult men, adult women, Whites, Asians, and Hispanics remained relatively stable, the rate for teenagers decreased slightly. The number of long-term unemployed individuals, jobless for 27 weeks or more, also experienced a marginal reduction.

Despite these positive indicators, the report reveals challenges in part-time employment for economic reasons. The number of persons employed part-time for economic reasons decreased. However, 4 million individuals still found themselves in this category, working fewer hours than desired due to reduced hours or the inability to secure full-time positions.

The juxtaposition of these employment figures with wage data provides a critical perspective. In November, average hourly earnings for all employees on private nonfarm payrolls increased by 12 cents, reaching $34.10. Over the past 12 months, there has been a 4.0% growth in average hourly earnings. Over the same period, the Consumer Price Index has increased by around 3.2% in all major categories and 4.0% in all major categories less food and energy.

Wages are still not enough to overcome inflation

The key question arises: How does this wage growth compare to inflation? If average pay growth outpaces inflation, it could signify increased consumer purchasing power. However, consequences such as more people paying off credit card debt, and the financial strain that has been hitting those in debt, end up becoming apparent if it falls short. 

As it currently stands, household purchasing power does not outpace the elevated level of prices. By some estimates, the labor market would need to continue its growth, interest rates would need to decrease, and wage growth would need to persist for households to outgrow inflation and its effects.

Should the average pay growth lag behind inflation, it poses a significant economic challenge. With the rising cost of living, workers may find it increasingly difficult to make ends meet, leading to a surge in credit card debt—a phenomenon already evidenced by the highest credit card debt ever reported. The ramifications extend beyond individual households, potentially affecting the broader economic landscape.

Conversely, if average pay growth surpasses inflation, individuals can keep up with rising costs and invest the surplus income wisely. As we navigate these economic waters, it is crucial to recognize the interconnected nature of job growth, wages, and inflation. The report hints at a delicate equilibrium, with positive strides in employment tempered by concerns over inflationary pressures. 

Consumers would be wise to keep a cap on their spending despite a strong job market and wages. Credit card debt and notably high-interest rates are still at historic levels. In short, if you have debt, now is the time to get rid of it and look for ways to save as you shop.

Bottom line

In conclusion, the U.S. Jobs Report for November serves as a snapshot of the nation's economic health. The puzzle of job growth and wage increases against the backdrop of high-interest rates and debt unveils a multifaceted scenario. The challenge lies in fostering an environment where the workforce secures employment with meaningful improvements in real wages — meaning higher salaries with higher quality of life, not simply playing catch-up.