Inflation is hot just like the job market, but the March jobs report showed there aren’t a lot of jobs where wage growth is standing up to heated prices.
That is, with some exceptions — which may hint a lot about where consumer demand is going as pandemic concerns fade.
In a healthy-looking jobs report that showed the economy adding 431,000 jobs, the average hourly earnings increased to $31.73. That’s a 5.6% increase in average hourly earnings from the same point last year, the Bureau of Labor Statistics said on Friday
Make no mistake, a 5.6% increase is robust.
In fact, workers need to look back to the early 1980s, apart from quick moments early in the pandemic, to find year-over-year increases that large. The hourly earnings growth was 0.4% from February to March.
However, prices are increasing even faster, according to widely-watched inflation gauges.
The Consumer Price Index reached 7.9% in February, and some economists worry it will go even higher in March numbers that will capture the ripple effects from Russia’s invasion of Ukraine.
Another price gauge favored by the Federal Reserve, the personal consumption price index, reached 6.4% in February, according to data this week.
In that context, there are just a handful of sectors where, at least for the March jobs report, year-over-year wage growth is keeping pace with inflation:
• In transportation and warehousing jobs, the year-over-year growth rate in hourly earnings was 7.9%. Paying an average hourly rate of $27.79, these workers have been much-needed with e-commerce sales booming and supply chains trying to unsnarl. March jobs for this sector were “essentially unchanged,” after big gains in February and January, the Bureau of Labor Statistics said.
• In leisure and hospitality jobs, the year-over-year growth was even higher, at 11.8%. Hotels, restaurants and bars kept staffing up, accounting for roughly one-quarter of all the March jobs gains and paying an average $19.68 an hour in March. The sector is still down 1.5 million workers from before the pandemic, labor department numbers noted.
Apply the Fed-preferred measure on inflation, with its 6.4% read in February, and a couple other spots stand out.
• Jobs in retail trade saw 6.5% average hourly earnings growth, paying an average $22.89 per hour. This sector includes work in everything from grocery stores to gas stations, clothing, hardware and more. In March, retail trade employers hired on 49,000 more people.
• Jobs in “professional and business services” had a 6.6% increase, paying an average $38.18 an hour. In March, this sector — covering all sorts of white-collar work from accountants and lawyers to call centers and administrative staff — added 102,000 jobs.
“Jobs aside, the key number in this report is the modest 0.4% rebound in average hourly earnings, which rose by a mere 0.1% in February. One soft print, out of the blue, is easy to dismiss as noise, but two is harder to ignore; three would be definitive, so the April number is now hugely important,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note.
In times of high inflation, the worry is that a nasty feedback loop will develop, where high costs push wages higher, leading to even higher prices and higher wages in what’s called a “wage price spiral.”
“Without sustained rapid wage growth, an inflation spike can’t become a spiral,” Shepherdson wrote.
The latest report showed strong job growth, but there are downsides, and they will not be shouldered equally, according to Dawit Kebede, senior economist at the Credit Union National Association.
“Continued increase in wage growth will lead to more price increases as businesses transfer these costs to consumers. This impacts low-wage earners who are already struggling to make ends meet with price increases in broad consumer items.”
“People are making more money, they’re finding better jobs and — after decades of being mistreated and paid too little — more and more American workers have real power now to get better wages and to do what’s best for themselves and
their families,” President Joe Biden said Friday.
His Republican critics note it’s not that simple, hammering on wages getting gnawed by inflation — and government policies that, they say, are part of the problem.
Rep. Jim Baird, of Indiana, tweeted, “There’s very little relief for workers as inflation continues to outpace wage rates, & until Dems adopt fiscally responsible policies, the American people will continue to suffer.”