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American households have seen their purchasing power increase




American households have seen their purchasing power increase

Rudi_suardi | E+ | Getty Images

Americans have seen a year-long increase in their purchasing power amid falling inflation and a strong labor market, which could be welcome news for households struggling to afford everyday purchases.

The average private sector worker saw them real hourly wages According to data from the U.S. Bureau of Labor Statistics, the economy will grow 0.8% between May 2023 and May 2024.

‘Real’ earnings measure the net growth of workers’ wages after inflation. In other words, the average private sector worker received a net pay increase from May 2023 to May 2024, after taking into account price growth of consumer goods and services. Today, their salaries buy more than they did a year ago.

The trend of annual real earnings growth has continued since May 2023, according to BLS data. Data shows that the situation was particularly stark for rank-and-file employees working in non-management positions.

That marks a reversal between April 2021 and April 2023, when inflation spiked and eclipsed growth in average worker pay.

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“The latest year of real wage increases is a big and important step forward for working families,” said Chris Tilly, a professor and labor economist at the University of California, Los Angeles.

“It means they can buy more while working the same number of hours,” he added. ‘Or they can reduce the total number of household working hours – for example by reducing two jobs to one, or moving one earner back to part-time in dual-income families – while purchasing an equivalent amount. “

What happened to real income

Real profits tend to grow at a positive pace in “normal” times, said Maximiliano Dvorkin, an economic policy adviser at the Federal Reserve Bank of St. Louis.

However, the dynamics in the US economy during the pandemic have upset that balance, economists said.

First, inflation has soared, peaking in the last four decades in mid-2022.

Meanwhile, the labor market was on edge as the U.S. economy reopened after the pandemic-induced lull. Job vacancies were at an all-time high, unemployment was near an all-time low, and workers were quitting at record levels because it was easy to find better-paying jobs elsewhere.

For example, job openings peaked at more than 12 million in March 2022, up from about 7 million before the pandemic. That month the average employee saw them pay for growth increase annually to approximately 6%. Before the pandemic, average wage increases were no higher than 4%, according to the BLS, which traces such data back to 2007.

The average worker got a bigger raise than they have in decades, but the pay increase wasn’t enough to eclipse inflation, which peaked at more than 9% in June 2022. That resulted in two years of falling real wages.

However, inflation has since eased and the labor market remains strong, although it has largely cooled since 2022, around pre-pandemic levels.

“What we have observed over the past year is a return to more normal economic conditions after the disruptive forces of the Covid pandemic subsided,” Dvorkin said.

“This is good news for consumers” because it generally equates to an increase in their well-being over time, he added.

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Average “nominal” wage (i.e. before inflation) for all employees Is on almost 23% to $34.91 per hour since January 2020. Pay has grown even faster for regular employees, with an increase of more than 25% to $30 per hour.

The consumer price indexa key measure of inflation, is up a smaller 21% in that time.

While consumer confidence has been improveWorkers are still angry about the American economy. The gap between the overall strength of the economy and the perceived weakness among households is known as a ‘vibe cession’.

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