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This week’s chart illustrates the year over year real average hourly earnings for all employees-inflation and seasonally adjusted. Most important in the graph is the recent trend since mid-2012: hourly earnings have been increasing at a rate greater than inflation. The primary reasons contributing to this are an improving labor force and falling inflation. The U.S. has recovered the bulk of the jobs lost during the recession, and as the unemployment rate continues to decline and we work through some of the slack in labor markets, employers will have to pay higher wages to attract and retain workers. Assuming the Federal Reserve can adequately control inflation in the future, the trend of improving real hourly earnings should continue. As earnings continue to increase, GDP should benefit as approximately 68% of GDP is driven by consumer spending.
Note: Real earnings during the 2008-2009 appear inflated, but this is really the result of the CPI declining precipitously during this time.
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