Wage growth disappoints

Marketplace

The August jobs report showed strong job growth with 162,000 new positions added, exceeding expectations, but average hourly earnings rose o

Key takeaways

• Strong job growth masks underlying weakness in wage increases, which are failing to match inflationary pressures.
• Employers hold significant leverage in the current low-hire, low-fire labor market, limiting worker bargaining power.

Main topics

• Wage growth vs. inflation
• Labor market dynamics and employer leverage

Notable quotes

"I make more and more every year, but everything else is more and more expensive." – Kyle Wallace, HVAC technician

Conclusion

While job creation remains robust, stagnant wage growth relative to inflation continues to challenge

Transcript preview

Speaker 1 (0:01) Well, that jobs number was a surprise. Now what? From American Public Media, this is Marketplace. In New York, I'm Kristen Schwab, in for Kyrizdahl. It's Friday, September 4th, and it's good to be here with you. The Fed has really just two jobs, maximum employment and stable prices. And according to the August jobs report we got today, the maximum employment part is going pretty well, like better than expected. Here to talk about what that means for the Fed and the economy, we have Catherine Rampell at MS Now in the Bulwark and Courtney Brown from Axios. Hey, you two. Hey, Kristen. Hey, Kristen. So the numbers are 162,000 jobs added, a steady unemployment rate of 4.1%. Courtney, what do you think of those numbers? Really great. I do have like a little bit of whiplash, though, because today's jobs report. Speaker 1 (1:06) was almost the mirror image of July when you consider the revisions underneath the hood. I felt like the July report headline number, blech, not great. And then the revisions made the past look a little bit worse as well. And then today we get the jobs report headline number super strong. And then you look at the revisions and made the past look a little bit better. I mean, the number of jobs in July, we thought that the economy shedded jobs. It turns out with the revisions, the economy. Speaker 1 (1:35) actually gained some jobs. So the summer slowdown that we thought, the summer slowdown was not as bad as we thought. And it looks like the labor market is set up for a decent fall, maybe, maybe, fingers crossed, that jobs growth continues the way that it looked to boom in August. Well, Catherine, what do you think the Fed thought of this? I mean, the 12 voting members have been pretty split lately. Do you think this, I don't know, cements their feelings, changes their minds? The markets seem to think so. If you look at the market reaction to today's jobs report, markets seem to think that this has encouraged the Fed to raise rates at their coming meeting, that if the Fed was essentially worried about the stagflation quandary, the idea that they would have to face stagnation and inflation simultaneously, and those imply Speaker 1 (2:30) different courses of action for interest rates, maybe the stagnation problem is kind of off the table or it's at least less worrisome. As you just heard Courtney say, the jobs numbers were quite good. The inflation numbers, still not terrific. And so that's not great, but at least it can kind of maybe focus the minds of the members of the FOMC so that they can raise interest rates. There are going to be a lot of complications with that, even if they think that's the right course of action for the economy, of course, not least because the guy in the White House has been pretty clear in tweeting all day that he does not want that to happen. Right. Catherine, well, we do get CPI and PPI next week. Do you think that could change anything? Speaker 1 (3:16) If the numbers come in better than expected, if inflation does seem to be easing, and to be fair, we've gotten some better than expected numbers in the past month or so on the inflation front, yeah, maybe that would change the course of action. But if you listen to what Kevin Warsh, the Fed chair, said in Jackson Hole, was it last week? I think it was last week. It certainly sounded like it would take... quite a bit of relief on the inflation front to change the Fed's mind about what they needed to do, or at least how seriously they needed to take high price growth. Courtney, I want to switch over to the bond market. Long-term bonds hit record highs again this week. Are you concerned? Speaker 1 (4:06) Yes and no. I feel like I've been living in this world where I have some people, including many people in the Trump administration. I spent some time with Treasury Secretary Scott Best in Asheville at the G20 finance minister track this week. He seemed to think that this was happening for like, okay, reasons like this is a sign that, you know, investors are really confident about a strong economy in the future and the big AI bet that we can get, you know, non inflationary growth. So that is their message. And so when you hear that, you're like, okay, maybe. But on the other side, when you talk to some of the global finance ministers who were in Asheville this week. Speaker 1 (4:48) This is the global phenomenon, right? This is not just in the U.S. They're like, yeah, we think this is a message that, you know, we've not been as fiscally responsible as we should have been. And maybe this is the bond market, you know, throwing up their hands and starting to get a little less willing to, you know. lend the government money at cheap rates. And that's obviously been a huge phenomenon, mostly in the 2010s. And are the 2020s going to be a story where bond market says no more? And so there's different stories happening here. And if it's the reason why some of the foreign finance ministers believe this is happening, that seems not great. If it's the reason why, you know, Secretary Scott Besant says, I mean, Speaker 1 (5:34) fine. I think the ultimate outcome is the same, right? I mean, it means higher borrowing costs for consumers, no matter the reason. So I think that is going to be something to watch. How much does this continue to weigh on a consumer we know struggling with affordability? Yeah, we're already seeing that a bit. Catherine, I'm wondering, you know, borrowing costs coming full circle here, talking about the bond market. Is there a way here where the bond market does some of the Fed's job? Well, it is the case that when interest rates go up, whether they're at the short end of the curve or at the long end of the yield curve, that tightens financial conditions. So yeah, for some sectors that are particularly sensitive to