Friday's blockbuster jobs report, highlighted by a stunning 353,000 wage gains last month, again raised a nagging question: If the economy and job market are so strong, why aren't more Americans feeling it?
To be fair, people are doing better than in recent years. Consumer sentiment rose to its highest level since July 2021 in January due to easing inflation and rising incomes, according to a University of Michigan index also released Friday.
But the closely watched indicator is still well below its pre-pandemic level and a little below its long-term average.
Keep in mind that January's job gains were no surprise. Job growth in November and December was revised upward by a total of 126,000, meaning an average of 289,000 new jobs were added per month since November. And the average monthly increase of 255,000 last year, while smaller than 399,000 in 2022, is still robust.
So what is there?
Inflation, inflation, inflation
Sure, Americans like to see nice headlines about aggressive hiring.
But “consumers hate inflation,” said John Leer, chief economist at Morning Consult, a research firm that conducts a monthly survey of consumer confidence. And while monthly job reports can seem abstract, people are feeling the impact of high prices on their wallets.
But hasn't inflation slowed while wages have risen sharply?
Yes. Wage growth has been outpacing inflation since spring last year, meaning workers' inflation-adjusted wages are rising after falling for many months. Average annual wage growth rose to 4.5% from 4.3% last month, according to the jobs report.
And by some measures, total average wage increases since inflation began rising in mid-2021 have caught up with and exceeded total price increases. In other words, according to a recent Treasury Department study, Americans on average have more purchasing power today than they once did.
So why aren’t more consumers smiling?
Shoppers see gas and supermarket prices every day. They don't necessarily see or think about their paychecks, Leer says. And although price increases have slowed, most prices are not falling.
“It will take a while for (higher but stable prices) to take hold,” Leer said.
The Federal Reserve's preferred annual inflation rate was 2.6% in December, below the peak of 7% in summer 2022 but above the Fed's 2% target.
Even if inflation has fallen to 2%, “there is a very serious risk that we will get inflation under control,” but because prices themselves will not fall, “people will still be depressed.”
What boosts consumer confidence?
A record stock market, fueled by the prospect of Fed rate cuts this year, and relatively low gasoline prices have lifted sentiment, says Ian Shepherdson, chief economist at Pantheon Macroeconomics.
The prospects of higher-income Americans who are heavily invested in the market through stocks or mutual funds have improved significantly, Leer says.
But a far greater number of low-income households are still saddled with record-breaking credit card debt and delinquencies that are at their highest levels in 13 years. As income growth outpaces inflation, this group's mood is also improving, but it will take some time before they feel a big difference, Leer says.
Sentiment is also dampened: interest rates are still high and pandemic-related savings are dwindling, says Grace Zwemmer, economic analyst at Oxford Economics.
Fed officials have signaled they will cut interest rates this year as inflation continues to fall. However, they indicated this week that the first cut likely won't come for several months.
Shouldn't Americans at least feel good about the job market?
Yes, but overall job growth slowed last year. There are fewer job openings, but there are still many candidates looking for jobs, making it more difficult to find a job.
And although 353,000 new jobs were added last month, the number increased slightly due to seasonal adjustments. Because retailers hired fewer temporary furlough workers this past holiday season, fewer were laid off in January. This resulted in a seasonally adjusted gain of 45,000 retail jobs, even though the industry actually lost jobs.
And most workers' prospects are influenced more by news of layoffs than by job gains, Leer says.
Recently, companies such as UPS, Google, Amazon and Microsoft have announced thousands of layoffs, although overall job losses remain small.
Employees, he says, like stability.
“We are not in a stable phase at the moment,” he says.
Comments are closed.