High Inflation, Low Wage Growth Hurt Worker Purchasing Power In February

Workers fell behind in the tug-of-war between wages and inflation in February as elevated inflation and low wage growth combined to reduce the purchasing power of paychecks.

Real hourly wages fell 0.4% in February, the Bureau of Labor Statistics said Tuesday. It was the first setback for inflation-adjusted worker pay in seven months. Over the last year, pay has risen faster than the cost of living, with average hourly pay growing by 4.3% compared to a 3.2% rise in the Consumer Price Index as of February, BLS data shows.

Taking a longer view, paychecks have grown faster than prices since the pandemic hit despite a burst of inflation beginning in 2021. 

Still, that’s behind the pre-pandemic trend. Between 2013 and 2019, real hourly earnings rose 1.4% faster than inflat💫ion each year, according to an analysis by Julia Pollak, chief economist at ZipRecruiter. If that trend had continued, wages would have grown 25.6% since February ꦰ2020, compared to the 21.1% wage growth we actually got. Only workers in the leisure and hospitality sector have seen their earnings grow faster than the pre-pandemic rate.

Fed Report Shows More Hours Worked Results in Higher Lifetime Pay

澳洲幸运5官方开奖结果体彩网: Long hours may pay off.

That’s the conclusion of a report from the St. Louis Federal Reserve, which showed that working more hours can boost♛ liꦡfetime earnings.

In studying the lifetime work and pay of 3,006 males over 40 years of employment, the report identified a trend showing that the more hours you work, the more likely you are to make more money. The writers of the study said they followed only men because they are "more likely to have uninterrupted employment histories than female workers during the period we are examining."

Specifically, it shows that after workers surpass about 2,250 hours worked a year, or about 45 hours a week with two weeks of vacation, their observed earnings began to surpass what their hours worked would normally indicate.🍷

The report showed that workers clocking in between 2,500 and 2,749 hours a year worked 25% more than workꦿers who registered between 2,000 and 2,249 annual hours, but they got paid about 40% more.

The effect also worked in the opposite direction, with employees who worked fewer hours each year taking home less than what they hypothetically could make, the report showeܫd. One key level was at 1,500 annual hours worked, or about 30 hours a week, which is the level of work where earnings begin growing above the ordinary rate.

“Working more hours is often a means to gain work experience, accumulate skills and acquire new knowledge,” the report said. “All of this raises work-re🧸lated human capital and makes workers more productive in the future, increasing the possibility of promotions and better job opportunities.”

-Terry Lane

Economists Dissect 'Ugly' Inflation Report

Economists are digging into the Bureau of Labor Statistics' report on inflation in February, which was 澳洲幸运5官方开奖结果体彩网:a mixed bag with little to celebrate for anyone hoping to see consumer price increases decelerate.

Here’s what experts are saying:

“Unfortunately, the details of the ♋report looked just as ugly as the headline,” Scott Anderson, Ph.D., Chief U.S. economist at BMO Capital Markets, said in a commentary. 

Not only did the year-over-year inflation rate rise to 3.2% from 3.1% in January because of rising rent and gas prices, but a few prices that had been falling in recent months reversed direction and rose, including for apparel and commodities.

Stubbornly high inflation makes it less likely that officials at the Federal Reserve will cut the central bank’s benchmark interest rate anytime soon, Anderson said.

“Inflation remains the number one problem they still have yet to solve,” he wrote. “Clearly, restrictive monetary policy has not yet fully done its work and a patient and slightly hawkish Fed must remain in place for the monetary medicine to fully take effect.”

Others noted that because most of the inflation in February came from housing, particularly a measure called “澳洲幸运5官方开奖结果体彩网:owners equivalent rent,” they still expect overall inflation to cool down in the coming months. That’s because rent increases have been slowing recently, and that data can take up to a year to 澳洲幸运5官方开奖结果体彩网:make it into off🐭icial inflation measures like the Consumer Price Index. The crucial OER measure rose 0.4% in February from January, less than the 0.6% monthly increase the previous month.

“Owners Equivalent Rent (OER) has begun to tick lower, and given its heavy weighting in the CPI, a continued downward trajectory by June or July could certainly assuage Fed concerns regarding inflation remaining stubbornly higher," Quincy Krosby, Chief Global Strategist for LPL Financial, wrote in a commentary.

Several commentators said while the Fed remains likely to cut the fed funds rate in June, the chances diminished for a rate cut at the central bank policy committee’s meeting in May.

“While the Fed appears inclined to cut rates the data isn’t there to justify it,” James Knightley, chief international economist at ING, wrote in a commentary. “We think it will be by June, but a May rate cut is a very remote possibility now.”

The spike in gas and heating fuel prices was also worrisome even though the Fed mainly considers “core” inflation rates that exclude energy prices when setting monetary policy, Gus Faucher, chief economist at PNC, wrote in a commentary with other economists at the bank.

“Though not part of the core CPI metric that aligns with the Federal Reserve’s inflation-targeting mandate, energy prices are nonetheless influential on the health of household balance sheets—especially as more workers have resumed a regular commute for in-office work,” Faucher wrote. “Higher energy prices remain inescapable both at home and on the road.”

There were some silver linings in the report, including that food prices stayed flat on a monthly basis, suggesting that inflation is still on a downward trajectory despite some bumps in the road.

“While a downward trend in inflation remains in place in our view, the slow progress seen over the past few months is likely to keep the Fed searching for a bit more confidence that inflation is on a sustained path back to its 2% target,” Sarah House and Michael Pugliese, economists at Wells Fargo Securities, wrote in a commentary. 

Small Business Optimism Hits Lowest Level Since May

Small business owners were more pessimistic in February, as their outlook for near-term business conditions remained near 50-year lows and 澳洲幸运5官方开奖结果体彩网:inflation remained a top problem.

The National Federation of Independent Business (NFIB) monthly Small Business Optimism Index fell to 89.4 in February, the lowest reading for the survey of business owners since May. It also marked the 26th straight month be꧂low the 50-year ave🦩rage.

The number of owners raising prices was at the lowest point since January 2021, but more than in the prior month said 澳洲幸运5官方开奖结果体彩网:inflation was their most pressing problem. Additionally, more owners expect their sales to move higher, 澳洲幸运5官方开奖结果体彩网:rebounding from January’s fall. 

“While inflation pressures have eased since peaking in 2021, small business▨ owners are still managing the elevated costs of higher prices and interest rates,” said NFIB Chief Economist Bill Dunkelberg in a prepared statement. 

While labor cost troubles remain at near 50-yea🍨r highs in the survey, February showed some improvement in the labor market, with fewer business owners reporting labor quality as its biggest problem. 

“The labor market has also eased slightly as small business ಞowners are having an easier time attracting and retaining employees,” Dunkelberg said. 

-Terry Lane

This blog post has been updated to clarify when optimism was last this low.

February Inflation Hotter Than Economists Predicted—Again

In🌟flation was stickier than expected for a second month in a row.

The Consumer Price Index showed prices rose 3.2% over the previous 12 months in February, more than January's annual rate of 3.1%. "Core” inflation, which excludes volatile prices for food and energy, declined to 3.8%, down from 3.9% in January. Both numbers were slightly more than economists expected, according to a survey by Dow Jones Newswires and the Wall Street Journal.

Prices rose 0.4🔯% over the month, an acceleration from the 0.3% monthly inc❀rease in January.

This is the 澳洲幸运5官方开奖结果体彩网:second consecutive month that inflation 𝓀was more stubbo൲rn than forecasters thought, driving concerns that price increases could be reaccelerating.

Read more about the inflation report here.

This blog post has been updated to include additional information about the prior month's CPI and included a link to an article.