Wages Fall While Prices Climb Faster
American wages are falling in real, inflation-adjusted terms according to the U.S. Labor Department.
American wages are falling in real, inflation-adjusted terms according to the U.S. Labor Department. Average hourly earnings rose 0.13% last month, a 5 cents per hour increase before taxes. Consumer prices rose in September by 0.53%, four times faster than earnings. Over a year, average earnings rose 3% while prices rose 3.6%, wiping out workers’ gains in real purchasing power.
“If the latest jobs report shows falling wages.” That line sits in my notes from last week. It feels true today. Most people, including many Republicans, are unhappy about the economy. The math is plain. Paychecks grow slower than bills.
Last month, prices rose at an annualized rate of 6.5% according to the Cleveland Fed estimate. That number lands hard when you are buying gas, groceries, or rent. It lands harder when you remember the 1970s. Real average wages fell by 7% over that decade. Prices ate pay. People felt it in their kitchens and at the pump.
This story reminds me of something documented that happened before. The 1970s brought stagflation. Growth stalled. Prices climbed. Wages lost ground. Workers watched their buying power shrink year after year. The pattern then was clear. The pattern now looks similar in some ways. It breaks in others.
Then, oil shocks drove prices up. Now, energy costs are rising again. Supply chains strained then. They strain now. Then, the Federal Reserve raised rates late and hard. Now, the Fed has raised rates fast, but inflation has proved sticky. Then, real wages fell for a decade. Now, they have fallen for months. The duration is the question.
Over the past year, nearly 1 million fewer native-born Americans have jobs while an extra half-a-million immigrants are employed. That shift shows in local labor markets. It shows in wage pressure. It shows in the politics of work. People feel the squeeze even when the headline unemployment rate looks low.
I test today’s numbers against the 1970s record. Between Jan 1, 1970 and Jan 1, 1980, the S&P 500 earned 4% above inflation in total over the decade. Stocks barely kept pace. Cash did worse. Holding Treasury bills or short-term cash lost 11% in real, inflation-adjusted terms between 1970 and 1980. Holding investment-grade corporate bonds lost 17% and 10-year Treasury bonds lost 35% in real, inflation-adjusted terms between 1970 and 1980.
Energy stocks doubled in value after inflation during the 1970s. Gold increased over 500% after inflation during the 1970s. Those assets rose when prices rose. They protected purchasing power. They did not make everyone rich. They kept some people from falling behind.
Today, investors look for similar protection. iShares 0-5 Year TIPS Bond ETF has low volatility and can guarantee returns beating inflation by 2.5 percentage points annually. Longer TIPS bonds have real yields up to about 3.3%. These instruments did not exist in the 1970s. They offer a path that was not available then. They offer a way to match inflation with a margin. They do not solve the wage problem. They help on the savings side.
The pattern from the 1970s says prices can outrun pay for years. It says stocks can lag. It says cash can lose. It says some assets rise with inflation. It says policy can come late. It says workers bear the cost. The pattern breaks when new tools appear. TIPS are new. Global supply chains are different. Energy markets are more complex. The labor force has changed. Immigration has shifted the mix of workers.
I feel quiet concern when I read these numbers. Real wages down. Prices up. Jobs shifting. The feeling is not panic. It is a steady worry. It is the kind of worry that makes you check your budget. It makes you ask what you can control.
Hope for the best, plan for the worst. That line sits next to the wage data in my notes. It fits this moment. It fits the 1970s lesson. It fits a decade where buying power shrank and assets behaved in strange ways.
What could come next is not a forecast. It is a set of possibilities the pattern suggests. Prices could keep rising faster than pay. Wages could catch up if labor stays tight. Energy could spike again and push inflation higher. Policy could shift and cool demand. Stocks could lag for years or find new leaders. Cash could lose value in real terms. TIPS could hold their edge if inflation stays elevated.
The human problem is simple. Everyday costs feel heavier. Paychecks feel lighter. People make choices. They cut back. They switch brands. They delay big purchases. They look for side income. They rethink retirement plans. They ask if their savings will last. They wonder if the next decade will look like the last one or the one before that.
I do not know which path we take. I know the 1970s left a mark. I know today’s numbers echo that mark. I know workers feel it first. I know investors feel it next. I know policy moves slow. I know markets move fast. I know patterns help until they break.
The next jobs report will add data. The next inflation print will add data. The next Fed meeting will add signals. The next energy shock could change everything. The next wage gain could ease the pressure. The pattern says watch the gap between pay and prices. It says watch the assets that move with inflation. It says watch the labor mix. It says watch the policy response.
Most people want stability. They want pay to cover bills. They want savings to grow. They want a plan that works. The 1970s showed that plans can fail when inflation runs hot. They also showed that some plans can hold. The question now is which plans hold this time.