Weekly Economic and Commercial Real Estate Update: November 16th

Posted by Brian Uretzky on Nov 16, 2021 7:00:00 AM
Brian Uretzky

With November’s CPI showing the largest price pressures since the 1980’s last week, the market continues to be hyper-focused on drivers of inflation pressures. 

One area that is getting a lot of attention has been wage inflation.  Wages have been rising in 2021 mainly due to a lack of available labor, heavy stimulus, and a massive number of job openings with the U.S. economy in recovery over the past year. 

A popular narrative in the market is that rising wages are great because it means people have more money to spend on goods and services.  While I love the sound of rising wages myself, the story isn’t so great for wage earners today.  Despite rising wages, inflation is rising at a faster rate than wages; meaning purchasing power for wage earners is actually falling.

As an example, let’s take a look at two charts provided by the Bureau of Labor Statistics over the past week and a half.

First, November’s average hourly earnings numbers showed material earnings growth in October.  Average Hourly Earnings now sit right around 5% in terms of annual growth compared to a long term average of 2.7%:

Image-1-Nov-15th

Looks great, right?  But, look at earnings when adjusted for inflation on a monthly basis over the past year:Image-2-Nov-16th

Average Hourly Earnings (adjusted for inflation) over the past year is actually down 1.3%.  Purchasing power has been weaker over the past year despite heavy spending and the recovery.

The following chart shows a longer term history of Average Hourly Earnings (adjusted for inflation):

Image-3-Nov-16th

From 2013-2019, inflation adjusted average hourly earnings were positive, and I think most people would agree that the 2013-2019 period felt like a pretty healthy period for our economy as a whole.  

In many ways, a lot of the fears surrounding inflation and the recovery would disappear if we could just get inflation adjusted earnings to turn positive.

Topics: Commercial Real Estate, Capital Markets, The Economy