Rising Wages, Falling Inflation: American Workers Reap Benefits Of A Strong Economy

Recent numbers from the Labor Department in the US released Wednesday revealed good news for American workers. According to the Labor Department, wages are increasing at a rate that puts them not only on par with inflation but actually beyond it. 

This growth in workers’ paychecks marks the largest gain for wages since the recovery began a decade ago. Real average hourly earnings — which compares the nominal rise in wages with the change in the cost of living — rose 1.7 percent last month on a year-over-year basis. And the month before, average hourly earnings rose at a rate of 1.3 percent showing steady growth month-over-month. 

To put things into perspective, the real average hourly earnings rose by a meager 0.7 percent last year. In fact, before November 2018’s 1.1 percent gain, real average hourly earnings were growing at a rate of less than 1 percent for two consecutive years. American workers will certainly welcome the addition to their paychecks as these factors can translate to workers paying down more debt and learning how to start investing to maximize the increase in take-home pay — both of which are good signs in a steady economy. 

Inflation on the Decline 

Also included in the Labor Department’s report was news of flat inflation over the course of January, thanks in part to the lowering cost of gasoline. What’s more is that the Consumer Price Index remained unchanged for the third consecutive month, marking the smallest increase in annual inflation for Americans in over a year. That, combined with a tight labor market and increased wages, means that workers are finally starting to reap the benefits of a strong economy.

Tight Labor Market

Combined with the decreasing rate of inflation is another important economic factor that’s been on the rise lately, a tight labor market. At the start of 2019, American companies added more than 300,000 jobs in the month of January — the largest increase in nearly a year.

However, even with the strong growth in jobs, employers are still struggling to find more workers. More recent data from the Labor Department’s Job Openings and Labor Turnover Study, or JOLTS, released in February show that there are now 7.34 million job openings that need to be filled. In addition, the rate for employees quitting remained at 2.3 percent, showing that employees still have high confidence when it comes to finding another job. 

What are Workers Doing with the Increase?

Given the economic climate, many workers are finding themselves in more stable financial positions than in the past. And yet, US retail sales are actually dropping, not increasing, according to recent data showing a decrease in the month of December through most major categories (outside automotive and building materials).

One alternative consumer can turn to is investing the additional padding in their paychecks. As things currently stand, an unfortunate amount of Americans aren’t investing with as much as 84 percent of all stocks owned by the top 10 percent in the US. With increases in real hourly wages meaning that earnings are keeping up with, and even surpassing, inflation and cost of living, it’s a good time for American households to start investing. 

Whether looking at starting a retirement account or entering the market on your own, data shows time and time again that investing is the key for households to build long-term wealth.