Real wages finally above 0%, because farmers are struggling

One item I’ve harped on for the last year is the fact that while the US economy continues to add jobs and have its unemployment rate drop to a near-50 year low, wages haven’t risen during that same time. In fact, the only thing that has gone up is the rate of inflation, while 12-month changes in wages have remained stuck between 2.5-2.9% since Donald Trump took office.

This means that “real” wages have been around, at or even below 0% for the last year. But there was a glimmer of hope in the most recent hourly wages report.

Real average hourly earnings for all employees increased 0.3 percent from August to September, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from a 0.3-percent increase in average hourly earnings combined with a 0.1-percent increase in the Consumer Price Index for All Urban Consumers (CPI-U).

Real average weekly earnings increased 0.2 percent over the month due to the increase in real average hourly earnings combined with no change in the average workweek.

Real average hourly earnings increased 0.5 percent, seasonally adjusted, from September 2017 to September 2018. The change in real average hourly earnings combined with the 0.6-percent increase in the average workweek resulted in a 1.1-percent increase in real average weekly earnings over this period.

That’s the best real wages have been in (a year), although it’s more because of a temporary decline in inflation than any wage growth. 12-month nominal wages are up 2.8%, which is no different than we’ve seen for 20 months, but it was the September Consumer Price Index that gave some help with that small 0.1% increase, and dropped 12-month inflation to its lowest level since February.

Digging into the CPI report, we find the reasons behind that leveling in inflation were related to price relief seen at the grocery stores, at the gas stations, and at the used car lots.

Change in CPI, September 2018
Food at home -0.1%
Energy -0.5%
Used cars and trucks -3.0%

Doing crude math, it shows that everything else in the CPI report (which is around 82% of the basket of expenses) went up by 0.3%, which isn’t so muted. But we’ll take it for now…at least until the recent increase in oil prices starts showing up at the gas pumps.

The flip side is that those food prices may not be coming up any time soon. That’s nice if you’re shopping, but it’s horrible if you’re a farmer struggling to make ends meet. Look at the Producer Price Index report, which tells you what producers are getting from stores and suppliers.

Change in Producer Price Index, Sept 2018
Dairy Products -0.7%
Oilseeds (soybeans) -3.9%
Fresh and dry vegetables -6.1%

And that continues a year-long trend of declining prices for those products

Change in Producer Price Index, Sept 2017 - 2018
Dairy Products -3.0%
Oilseeds (soybeans) -15.5%
Fresh and dry vegetables -12.7%

On the energy side, there was an odd split where some types had significant declines, while some heating items had major jumps.

Change in Producer Price Index, Sept 2018
Gasoline -3.5%
Residential Natural gas -0.5%
Home heating oil +8.7%
LP gas +18.0%

But go back one step, to the unprocessed goods stage, and both main types of energy were going up.

Change in Producer Price Index, Sept 2018
Natural Gas +1.1%
Crude petroleum +8.7%

So expect to paying that in a couple of months.

Still, there should be a small respite where real wages take a nice bump up for September and October. And if you aren’t working in agriculture, you might think things are looking up in the short term. But I wouldn’t recommend spending any small gain in real wages in the hopes that it’ll continue, because higher prices and reduced tax refunds are likely to both be on the docket in the next few months.