Rents, houses, used and new vehicles, gasoline, groceries, forget it, hahahaha
By Wolf Richter for WOLF STREET.
One of the consequences of the very tight labor market is the surge in hourly wages, particularly for workers in the category of “production and non-managerial employees” in the private sector, where the average hourly wage jumped by 6.7% for the third consecutive month in March, compared to a year ago, according to the Bureau of Labor Statistics. Other than lockdown distortions in April and May 2020, this is the biggest gain since early 1982.
They are workers in all industries and all non-management jobs, ranging from waiters to Facebook coders and Goldman Sachs traders. In dollars, the average salary of production and non-supervisory employees increased by $0.11 from the previous month and $1.71 from a year ago, reaching $27.06.
The average wage distortions that occurred in April and May 2020 reflect the effects of the shutdowns, when many low-wage employers, such as restaurants and retailers, were closed and their employees were laid off. Their relatively lower salaries have fallen outside the averages, while many people in higher-paying service jobs, such as those in financial services, technology and other sectors, have shifted to working from home.
As millions of low-wage earners were laid off, high earners became a larger proportion of wage earners and drove up year-over-year gains in the average hourly wage. In April and May 2021, the weak year-over-year gains mirror the strong base a year earlier.
Average hourly compensation in the private sector as a whole rose 5.6% year over year in March. In dollar terms, the average rose $1.67 year over year to $31.73 per hour.
But these large wage gains have been overtaken by prices.
Despite the largest increases in the average hourly wage of production workers and non-supervisors since 1982, these people are worse off. They might feel better with their higher salary for a little while, until they try to buy something – and discover that prices have greatly exceeded these wage gains:
Rentals of apartments and single-family homes in the United States, according to the Zillow Observed Rent Index, which rose 17% a year ago, two and a half times the pace of wage gains.
Rents climbed 11% or more in the 14 largest cities, top: Miami (+32%, red line), Phoenix (+25%, blue line) and Atlanta (+20%, brown line). The smallest spike of the 14 largest metros occurred in Detroit (+11%).
The median house price in the United States jumped 15% from a year ago to $357,300, according to the National Association of Realtors. It was more than double the pace of wage gains:
Durable Goods Prices – dominated by new and used vehicles, but also furniture, consumer electronics, etc. to the 1950s (red line in the graph below).
This peak was more than two and a half times the pace of wage gains. It was fueled by the prices of used vehicles (+41.2% = 6x wage gains) and new vehicles (+12.4% = nearly twice the wage gains).
Prices of non-durable goods – led by food, gasoline, other energy and household supplies – climbed 10.7%, the worst price increases since July 2008 (purple line):
This is why inflation is an insidious force.
The biggest pay wins are happening at the top, with top corporate executives getting raises that run into millions of dollars, on top of huge equity compensation packages. And many of the highly paid employees of these companies are enjoying massive dollar compensation increases, as well as their stock compensation plans. Their holdings have exploded since March 2020, in line with the Fed’s money-printing orgy. These folks might complain about the higher costs and shake their heads at the gas pump, but they’ll be fine in this crazy inflationary environment.
But people who earn an hourly wage, they won’t do well. Their raises might help them feel better briefly — until they have to gas up their car, get groceries, pay the rent increase, or buy a car. And if they want to buy a house, well, forget it. Along with house prices that have eluded them, mortgage rates have now jumped. And that 6.7% salary increase is going to seem ridiculous compared to reality.
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