Latest / The Macro Memo with Fexingo: Daily Conversations on Inflation, GDP, and Federal Reserve Policy / The Silent Crisis Of Wage Stagnation Amid Job Growth
Transcript
- Lucas: Look at the headline numbers for September, and on the surface, you’d think the American worker is finally getting a break. Real GDP just accelerated to an annualized 3.4 percent, which is a strong signal that the economy isn’t stalling out. At the same time, nonfarm payrolls added nearly 30 thousand jobs in that month alone, pushing the total workforce past 159 million. It feels like the labor story is one of resilience. Luna: But look closer at the paychecks, Lucas. Average hourly earnings for private workers are sitting at 37 dollars and 80 cents, up only fractionally from 37 dollars and 76 cents in August. That is not a breakout growth pattern; it’s a flatline. Lucas: Exactly. And when you stack that against the Core CPI holding at 338.9, you start seeing a real tension. The prices consumers are paying for services and goods without food and energy are still rising, but wages aren’t keeping pace with that inflation rate. So even though people have jobs, their purchasing power is effectively shrinking quarter over quarter. Luna: It’s the classic squeeze. You’re working harder, but the dollar buys less every month. I’m curious if you think this is a temporary lag or a structural shift in how wages are negotiated right now. Lucas: I think it’s structural, primarily because of where the Fed is standing. The effective Fed Funds rate is currently 3.88 percent, and interest on reserve balances is 3.90 percent. That’s a restrictive stance designed to cool demand, but it’s also freezing out the kind of aggressive hiring sprees that usually drive wage bumps. Companies aren’t desperate for talent, so they don’t have to offer raises. Luna: So the leverage has shifted entirely back to employers. If job seekers know there are plenty of other openings, they might accept stagnant pay just to stay employed rather than risk unemployment. Lucas: Right. And consider the JOLTS data. Job openings jumped to 7.523 million in September, up from 7.19 million. That sounds like a healthy labor market, but high openings combined with low wage growth means those roles are likely being filled by people who were already looking, not by people being poached with better offers. The churn is high, but the compensation isn't moving. Luna: That’s a really important distinction. High turnover doesn’t equal high ambition for raises. It just means people are stuck in a cycle of leaving and rejoining the queue without getting a premium. Lucas: Precisely. And this matters because consumer spending is about eighty percent of our GDP. If households feel poorer in real terms, they pull back on discretionary spending. We saw nominal GDP hit 33 trillion dollars, but that’s largely driven by price increases, not volume growth. The real value created is good, but the distribution of that value isn't reaching the worker's pocket. Luna: So we’re seeing economic activity, but not economic prosperity for the average earner. Does this dynamic force the Fed’s hand sooner than expected? Lucas: Not necessarily. The Fed cares about core PCE, which is at 130.9, and that’s cooling, albeit slowly. As long as inflation is trending down toward their two percent target, they might tolerate weak wage growth. In fact, some economists argue that slower wage growth is exactly what they need to kill inflation without causing a recession. They’re betting that the pain will be short-lived. Luna: It’s a risky bet. If wages stay flat for too long, you get deflationary pressure on consumption, which could snap the GDP growth we just talked about. Are we close to that snapping point? Lucas: We’re not there yet. The unemployment rate is still relatively low at 4.2 percent, and initial jobless claims are down to 194 thousand. People aren’t flooding the exits. But the margin for error is thin. If a negative shock hits while wages are stagnant, we could see a rapid deterioration in confidence. Luna: It feels like we’re waiting for the other shoe to drop. Something has to give, either wages jump or employment drops. Lucas: Or both happen simultaneously in a way that surprises everyone. Let’s talk about the tech sector specifically. With the Nasdaq down 1.7 percent over the last five days, there’s a lot of hesitation in hiring for new roles. Tech has been a major driver of wage inflation in previous cycles, but that engine seems to be sputtering. Luna: Yeah, and tech wages set the benchmark for the rest of the knowledge economy. If they stop growing, the ripple effect goes everywhere else. Lucas: Correct. And unlike tech, healthcare and hospitality are facing different pressures. Healthcare is aging demographics-driven, meaning structural shortages that should push wages up. But even there, the hourly earnings data shows minimal movement. It suggests that even in sectors with genuine scarcity, the bargaining power of labor hasn’t translated into higher pay. Luna: That’s incredibly frustrating for anyone trying to plan a budget. You can’t control your rent or grocery bills, but you expect your income to adjust. When it doesn’t, trust in institutions erodes. Lucas: Trust is a fragile currency. And we’re seeing it in the bond market too. The ten-year Treasury yield is at 4.89 percent, down slightly from recent highs, but still elevated. Investors are pricing in a future where growth is moderate but inflation remains sticky because wages aren’t rising fast enough to suppress demand through affordability constraints. Luna: So the market is telling us that the Fed’s policy is working, but maybe not in the way people hope. Prices are stabilizing, but at the cost of real income growth. Lucas: Exactly. It’s a trade-off. We chose stability over rapid wealth accumulation for workers. Now we have to live with the consequences of that choice. It makes for a quiet, unexciting economic period, but potentially a volatile social one. Luna: Quiet volatility. I like that phrase. It captures the mood perfectly. Lucas: Before we go further, I want to mention something practical for our listeners. If walking through the economy with us has made something click, or if you just appreciate the deep dive into these numbers, a handful of people chip in monthly through buy me a coffee dot com slash fexingo — that's F. E. X. I. N. G. O. It helps keep this show ad-free and allows us to spend more time digging into the data like we are today. Luna: It’s genuinely appreciated. It lets us focus on the substance rather than chasing clicks. Lucas: Back to the data. One thing that often gets overlooked is the regional disparity. While national averages show stagnation, cities like Austin and Miami are seeing different dynamics due to migration patterns. Do you think local labor markets are diverging more sharply than the national numbers suggest? Luna: Absolutely. The national unemployment rate of 4.2 percent masks huge variations. Places with housing affordability issues are seeing wage pressure simply because workers need more money to survive. It’s a geographic arbitrage that’s becoming harder to ignore. Lucas: Right. And corporate headquarters are starting to factor that in. We’re seeing companies adjust their salary bands based on cost of living indices rather than just role seniority. It’s a pragmatic response to the wage stagnation we’re seeing. Luna: It’s a step in the right direction, but it doesn’t solve the broader macro issue. If everyone is adjusting downwards or sideways, the overall economy stays stuck in this low-growth wage loop. Lucas: Which brings us back to the Fed. With the funds rate at 3.88 percent, they have room to cut if things deteriorate. But cutting rates when wages are stagnant might just fuel asset prices instead of helping workers. It’s a dilemma. Luna: A classic monetary policy trap. Stimulate the stock market, but leave the paycheck unchanged. It’s a hard sell for the average voter. Lucas: Very true. And as we head into Q4, all eyes will be on the next payroll report. If jobless claims start ticking up alongside flat wages, we’ll know the soft landing is turning into a stumble. Luna: Until then, we watch the hourly earnings data like hawks. Any move above 38 dollars would change the narrative completely. Lucas: For now, 37 dollars and 80 cents is the number to remember. It’s a snapshot of an economy in transition, balancing growth with restraint. Luna: And a reminder that behind every percentage point is a family trying to make ends meet. Thanks for listening.