Latest / The Macro Memo with Fexingo: Daily Conversations on Inflation, GDP, and Federal Reserve Policy / Why Strong Jobs Mask A Quiet Wage Freeze
Transcript
- Lucas: The headline from Friday’s jobs report is undeniably strong. The economy added 165,000 jobs in October, pushing the unemployment rate down to 4.1 percent, which looks like a resilient labor market on paper. Luna: But when you look closer at the wage data, it feels like something is missing from that positive narrative, doesn't it? Lucas: Exactly. Average hourly earnings for private workers ticked up only slightly to 38 dollars from 37 dollars and 86 cents. That is a year-over-year increase of just about 4 percent, which is barely keeping pace with the core PCE price index sitting at 130.9. Luna: So we have plenty of jobs, but the purchasing power behind those jobs isn't really moving forward. It feels like we are running in place. Lucas: It is more than just running in place because the composition of those jobs matters. We are seeing a lot of re-hiring in sectors that typically offer lower wages, like retail and hospitality, while high-wage tech and professional services seem to be cooling off their hiring pace. Luna: That would definitely drag down the average even if total headcount is growing. Is the Fed aware of this divergence? Lucas: They certainly have to be looking at it. The Federal Funds effective rate is currently 3.88 percent, and they are trying to balance a labor market that is still adding people against an inflation environment where prices aren't falling fast enough. Luna: If wages aren't rising much, why is inflation staying sticky? Usually, weak wage growth should help cool demand. Lucas: Right, and that is the paradox. Service inflation remains elevated because businesses are raising prices to protect margins, not because workers are demanding massive raises. They are squeezing efficiency instead of passing costs along through payroll. Luna: So companies are absorbing the hit or cutting back on benefits rather than giving us bigger checks. That explains why the CPI is still at 336.3. Lucas: Precisely. And this connects to what we discussed last week about labor hoarding. Employers kept staff during the downturn, and now they are using that existing workforce to handle volume without needing to bring on new, higher-paid hires. Luna: It sounds like a defensive posture for corporations, but it leaves individual workers feeling squeezed. Lucas: It does. And here is the concrete thing to take away: if you are a worker relying on a raise to keep up with living costs, the broad labor market data is misleading you. You might have job security, but you do not have income growth. Luna: That is a crucial distinction. Security without growth is a different kind of risk. Lucas: Let's pause here for a moment. If walking through the economy with us has made something click, honestly, if today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. That is F. E. X. I. N. G. O. Luna: Yeah, it really helps keep these deep dives going without turning into a commercial break. Lucas: Back to the data then. The JOLTS report showed job openings rising to 7,523,000. Does that open position count mean anything if no one is getting paid more? Luna: It suggests there is still friction in the market. People are quitting less because they can't find better paying roles elsewhere, so vacancies stay high even if wages don't jump. Lucas: Exactly. When workers stop job-hopping, the natural upward pressure on wages disappears. We saw initial jobless claims drop to 189,000, which confirms that people are staying put. Luna: So the low firing rate we talked about earlier is directly causing this wage freeze. People are afraid to move. Lucas: Fear is a good word for it. Uncertainty about the broader economic outlook makes employees prioritize stability over negotiation. And until that mindset shifts, wages will remain flat. Luna: Does this change the Fed's calculus for future rate decisions? With inflation near 2.24 percent breakeven, aren't they waiting for wages to spark inflation again? Lucas: Not exactly. The Fed is watching core PCE closely. Since it is stuck at 130.9, they know inflation is persistent. But with such weak wage growth, they probably feel less urgency to hike rates aggressively right now. Luna: So they might actually be more patient because the labor market is self-correcting downward on the pay side. Lucas: I think they see it as a gradual cooling. The ten-year Treasury yield is around 4.86 percent, which reflects that expectation of slower growth and moderate inflation. Luna: It’s a strange sweet spot where everything looks okay except your bank account. Lucas: That is the reality for many households. Real GDP grew at 3.4 percent annualized, but that output isn't translating into proportional income gains for the average worker. Luna: It highlights how important it is to look at real disposable income, not just employment numbers. Lucas: Agreed. And with the S&P 500 down 2.2 percent recently, investors are also sensing that consumption might slow down if wallets remain tight. Luna: So the stock market dip could be a reaction to the realization that consumers aren't going to spend their way out of this. Lucas: Very likely. Corporate earnings will depend on volume, not margin expansion, which is harder to achieve when prices are sticky. Luna: It seems like the next few months will tell us if this wage stagnation becomes a permanent feature or just a temporary blip. Lucas: I suspect it lingers longer than we want. Structural changes in how work is organized mean we might get used to this new normal of stable jobs but flat paychecks. Luna: That is a sobering thought. What happens to career mobility if jumping ship doesn't guarantee a raise anymore? Lucas: Workers might start negotiating differently—looking for flexibility, equity, or other non-cash perks instead of base salary bumps. Luna: Or they simply stay in their current roles and hope for an internal adjustment that may never come. Lucas: Both options are valid strategies in a stagnant environment. It forces a rethink of what loyalty to an employer is worth. Luna: We often hear that the labor market is the key to solving inflation, but today it feels like the labor market is the problem itself. Lucas: It is a complex feedback loop. Weak wage growth cools inflation but also suppresses consumer confidence, which eventually hurts business revenue. Luna: Where do we go from here if neither wages nor prices are moving much? Lucas: We watch the December FOMC meeting closely. If the data holds steady, we might see them hold rates at 3.88 percent for longer than expected. Luna: A prolonged period of status quo sounds like the most realistic outcome for late 2026. Lucas: Until someone breaks the seal with either a massive hiring spree or a sudden wage spike, we are in this holding pattern. Luna: So for listeners, the advice is to plan for stability rather than expecting rapid growth. Lucas: Exactly. Manage your budget based on the 4 percent wage growth, not the 165,000 jobs headline. Luna: Practical advice grounded in the actual numbers rather than the hype. Lucas: That is the best way to navigate these markets. Keep your expectations realistic and your portfolio diversified. Luna: Do you think this trend will force a policy shift from the Fed sooner than later? Lucas: Maybe, but only if unemployment starts ticking up significantly. For now, 4.1 percent gives them room to wait and see. Luna: Waiting and seeing seems to be the theme of the entire quarter. Lucas: It certainly is. Let's see if November brings any surprises in the PCE data before we dive deeper next time. Luna: I will be watching that core PCE number like a hawk. Thanks for breaking this down, Lucas. Lucas: Anytime, Luna. Stay sharp out there.