Money for Nothing?

May 11, 2022

Two-line chart showing U.S. average weekly earnings, comparing base to real. Chart subtitle: Real wages have been trending lower since early 2021. Chart visual description: Left Y-axis shows U.S. Average Weekly Earnings, ranging from $850 to $1,150, and corresponds to light purple line. Right Y-axis shows U.S. Average Weekly Real Earnings, ranging from $360 to $405, and corresponds to slate line. X-axis is dates spanning May 2019 through March 2022, in 3-month increments. Chart data description: Both lines begin near each other, with average weekly earnings at $958 and real at $375 in May 2019. At the onset of the coronavirus pandemic, both increased sharply, with average weekly earnings peaking at $1,031 and real earnings at $403 in May 2020. Since then, the Average Weekly Earnings has continued to climb relatively steadily and as of March 2022, hit $1,099. However, inflation has impacted Average Weekly Real Earnings significantly and despite a few slight upticks since May 2020, have steadily decreased and as of March, are only at $382. Chart source: Bureau of Labor Statistics as of March 31, 2022. End chart description.

Uncertainty remains at the forefront for the U.S. consumer, with decades-high inflation exacerbated by supply chain bottlenecks and geopolitical conflicts triggering a sharp change in monetary policy. April CPI rose 8.3% year-over-year, down slightly from March’s 8.5% but still well above the Fed’s 2% target and the second highest print since 1982. Supply side dynamics, with consumers facing shortages from baby formula to custom kitchen deliveries, complicate the job of the Fed, whose tools only impact the demand side.

Despite increases in nominal earnings in line with long-term trends, inflation has outpaced wage growth, resulting in a downtrend in real weekly earnings since early 2021. With job openings still far exceeding the number of unemployed workers, many sectors across the economy are looking to fill vacancies. While higher wages are one way to attract workers, the decline in real wages is unlikely to abate until inflationary pressures can be contained. Wage growth can be a double-edged sword, with higher wages helping the consumer but contributing to sustained inflation. As the Fed looks to engineer a soft landing, reining in inflation without tipping the economy into recession, health of the U.S. consumer will be key. So far, the U.S. consumer and the labor market remain strong, but there are many moving pieces and there is much more to be done to stabilize prices.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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