Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / The August Payroll Surprise and What It Means for Wages
Transcript
- Lucas: If walking through the economy with us has made something click, you know exactly where to go. A couple of dollars a month is genuinely what keeps these going, so check out buy me a coffee dot com slash fexingo if you've gotten something out of them. Luna: It really does add up over time, and it helps us keep digging into the numbers without chasing ads. Thanks for keeping the lights on. Lucas: So, let's get right into the data that dropped this morning. Friday’s payroll report was not what most economists were whispering about in the halls of the Federal Reserve last week. We got one hundred sixty two thousand new jobs in August, which is substantially above expectations and effectively ends the narrative of a jobless summer. But here is the thing that actually matters for our listeners: the unemployment rate held steady at four point one percent, even as the labor force participation ticked up slightly because more people are looking again. Luna: Four point one percent is still historically low, but I’m more curious about who actually got hired. Was it broad-based or concentrated in a few sectors? Lucas: It was heavily concentrated. As CNBC reported, women accounted for almost all of the job gains in August. If you drill down into the sub-sectors, private security services added tens of thousands of roles, pushing that specific industry past the fifty billion dollar mark in total revenue. It’s a weird signal, isn’t it? Security firms are hiring aggressively while other service sectors seem to be pulling back on headcount. Luna: That feels like a symptom of broader economic anxiety rather than just organic growth. Are businesses spending on protection because crime is up, or because they’re trying to lock in fixed costs against inflation? Lucas: Exactly. It’s likely a mix of both, but let’s pivot to the money side of this equation, because that’s what impacts your wallet. Average hourly earnings for private workers came in at thirty seven dollars eight cents, up from thirty seven dollars sixty five in July. On the surface, that looks like progress. But when you look at the Employment Cost Index, which measures total compensation including benefits, it rose to one seventy nine point zero from one seventy seven point five zero in the second quarter. That’s a year-over-year increase that is finally catching up to, but not yet beating, the CPI. Luna: Right, so nominal wages are ticking up, but real wages—the purchasing power—are still being squeezed by the CPI sitting at three hundred thirty two point eight. Does this jobs report give workers leverage to demand bigger raises next quarter? Lucas: I think it gives employers pause, but not necessarily the kind of panic that leads to across the board bumps. The FOMC is meeting next week, and Governor Waller already indicated he will support holding rates steady. Why? Because this labor market is strong enough to sustain consumption, but not so hot that it’s reigniting inflationary pressures. The Core PCE price index is at one hundred thirty point seven, which is closer to the Fed’s two percent target than it was twelve months ago. So we’re in this weird limbo where wages are rising, prices are stabilizing, but the gap hasn’t fully closed. Luna: It feels like the 'soft landing' is actually a 'slow crawl.' For someone making fifty thousand a year, does a half-percent raise feel like a win if rent and groceries haven’t moved much? Lucas: It depends entirely on your sector. If you’re in private security or healthcare, yes, you might be seeing adjustments. But if you’re in retail or traditional hospitality, the story is different. The Employment Cost Index shows that wages are rising faster in industries with labor shortages. The problem is that the benefits side of that index—health insurance, retirement contributions—is also creeping up. So even if your base pay stays flat, your take-home pay might not change much if your employer shifts costs to mandatory benefits. Luna: That’s a crucial distinction. People focus on the paycheck stub, but the total compensation package is where the squeeze is happening. Is there any data suggesting that small businesses are feeling this pain more than large corporations? Lucas: Yes, and it shows up in the S&P 500 versus the Russell 2000. The Dow is at fifty three thousand four hundred fourteen, and the S&P is at seven thousand seven hundred eighteen, both up slightly over the last five days. But the small-cap Russell 2000 is up six tenths of a percent, which suggests investors are betting that smaller firms will benefit from stable rates. However, internally, those small businesses don’t have the scale to absorb wage increases the way Apple or Amazon can. They’re hiring fewer people and paying them more, which keeps their overhead high but their flexibility low. Luna: So it’s a bifurcation. Big tech and big services can offer higher wages and retain talent, while smaller players are just trying to survive the margin compression. Does this mean we should expect a wave of acquisitions or consolidation in the coming quarters? Lucas: I wouldn’t bet on a massive M&A wave just yet. Interest rates are sticky. Even if the Fed holds steady in September, the cost of capital remains elevated compared to the zero-rate era. But what we are seeing is a shift in hiring behavior. Companies are moving from 'hire everyone' to 'hire strategically.' They want workers who can do multiple jobs, which explains why the average hourly earnings are up—you’re paying a premium for versatility now, not just for showing up. Luna: Versatility premium. I like that. It sounds like the bar for entry-level roles has gone up significantly. Are we seeing more experience required for jobs that used to be training wheels? Lucas: Absolutely. Look at the JOLTS data from earlier this year; the number of job openings has come down, but the quality of applicants has improved because fewer people are quitting their jobs impulsively. The quit rate is lower. This gives employers more bargaining power in negotiations, even if they can’t find enough bodies to fill seats. It’s a paradox: tight labor market, but weak worker confidence. Luna: Weak confidence means people aren’t negotiating harder. If I’m scared of losing my job, I’m not asking for that five percent raise even if the company is profitable. How does that feed back into inflation? Lucas: It acts as a brake. Wage growth is the biggest component of core inflation. If workers aren’t demanding aggressive hikes, then businesses don’t have to raise prices as much to protect their margins. That’s why the Core PCE is cooling. It’s not because supply chains are perfect; it’s because labor costs, which drive services inflation, are moderating. The thirty seven dollars eight cent average is nice, but it’s not the explosive growth we saw in late twenty twenty three. Luna: So the Fed can breathe easier knowing that wage spirals aren’t starting. But what about the consumer? If wages are stagnant in real terms, aren’t we just delaying the inevitable recession until savings run out? Lucas: Savings buffers are thinner, yes. But consumption hasn’t collapsed yet. The personal consumption expenditures price index is at one hundred thirty one point seven, up from one hundred thirty one point four five. Prices are still rising, just slower. Consumers are trading down—they’re buying store brands, they’re using coupons, they’re stretching their dollars further. This is resilience, but it’s brittle resilience. One bad shock could tip the balance. Luna: And that shock could be anything from a geopolitical event to a sudden spike in energy prices. Given that the VIX is hovering near multi-month lows, are markets pricing in too much complacency? Lucas: Maybe. But the bond market is telling a different story. The ten-year Treasury yield has been bouncing around, reflecting uncertainty about future growth. Investors aren’t pricing in a boom; they’re pricing in a prolonged period of moderate growth with persistent inflation. That’s why I’m watching the September FOMC meeting closely. If they hold rates, it signals confidence in this fragile equilibrium. If they cut, it signals fear that the labor market is cracking sooner than expected. Luna: Given that unemployment is at four point one and payrolls beat estimates, I doubt they cut. But they might signal a cut later in the year. How does that affect mortgage holders right now? Lucas: Mortgage rates are tied to the ten-year yield, which is sensitive to labor data. Strong jobs reports usually push yields up, which pushes mortgage rates up. So this August report is actually bad news for homebuyers in the short term. It reinforces the idea that the Fed won’t ease policy quickly. If you’re planning to buy a house, you’re stuck with whatever rate you locked in before this data drop. Luna: So the 'good news' for the stock market is 'bad news' for housing. Classic dichotomy. Who wins in this scenario? Lucas: Cash winners. Or people with existing fixed-rate mortgages. Everyone else is playing defense. The Employment Cost Index rise to one seventy nine point zero confirms that businesses are paying more for labor, which means corporate profits are under pressure. We’re seeing margin compression in the S&P 500 earnings guides. Companies are passing some costs to consumers, but not all. That leaves less profit per share, which caps upside potential for equities. Luna: It feels like we’re in a holding pattern. No crash, no boom. Just this slow grind of adjusting to a new normal of higher costs and modest wage gains. Is there any bright spot for the average worker? Lucas: The bright spot is stability. In twenty twenty two and twenty twenty three, the volatility was the killer. Now, you can predict your expenses with more accuracy. You know your job is safe—at least for now—and your wages are slowly catching up. It’s not exciting, but it’s sustainable. The key is to negotiate your total compensation, not just your base salary. Benefits matter more now because they’re getting more expensive. Luna: Total compensation negotiation. That’s actionable advice. Instead of fighting for an extra dollar an hour, fight for better health plan coverage or retirement matching. It’s a smarter use of energy. Lucas: Exactly. And keep an eye on your sector. If you’re in private security or healthcare, you’re in demand. If you’re in retail, you need to be flexible. The labor market isn’t dead; it’s just evolving. The one hundred sixty two thousand jobs added in August proves that businesses are still investing, just selectively. Luna: Selective investment means selective opportunities. For listeners wondering if they should stay put or jump ship, does the data suggest loyalty is rewarded anymore? Lucas: Loyalty is rarely rewarded financially. Job hoppers still see larger percentage increases than internal promotions. But the gap is narrowing. With the quit rate down, companies are offering retention bonuses to keep critical staff. If you’re valuable, you might get a bump without leaving. But don’t count on it. The safest bet is to constantly update your resume and know your market value based on that thirty seven dollars eight cent average. Luna: Know your worth, then invoice accordingly. Even if you don’t leave, having that outside perspective helps you negotiate. What’s the one number you’ll be watching next month to see if this trend holds? Lucas: September’s CPI and the October jobs report. If average hourly earnings stay above three eight dollars and the unemployment rate doesn’t tick up, we’re in for a solid Q4. If either breaks, we might see a sharper correction in stocks or a surprise rate cut. But for now, the data says: breathe, but don’t relax. Luna: Breathe, but don’t relax. A good mantra for the rest of the year. Thanks for breaking down the noise, Lucas. Lucas: Anytime. Let’s see if the September meeting changes the script, or if we’re stuck in this comfortable but tight groove a while longer.