The purchasing power of American households has increased

Americans’ purchasing power rose during the year amid falling inflation and a strong job market, which could be welcome news for households struggling to afford everyday purchases.

The average private sector worker has seen his real hourly earnings According to the U.S. Bureau of Labor Statistics, it will grow by 0.8% from May 2023 to May 2024.

“Real” earnings measure the net increase in workers’ wages after inflation. In other words, the average private sector worker received a net increase from May 2023 to May 2024, taking into account rising prices for consumer goods and services. Their salary today allows them to buy more than a year ago.

The upward trend in annual real incomes has continued since May 2023, according to the BLS. Data shows that this is especially true for ordinary workers in non-managerial positions.

This marks a reversal from April 2021 to April 2023, when inflation rose sharply and eclipsed the growth of the average worker’s salary.

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“This latest year of real wage increases is a big, important step forward for working families,” said Chris Tilley, a professor and labor economist at the University of California, Los Angeles.

“This means they can buy more with the same number of hours of work,” he added. “Or they can reduce the total number of hours worked in a family—for example, by reducing two jobs to one, or reducing one breadwinner to part-time work in two-earner families—while purchasing an equivalent amount. “

Real incomes tend to grow at a positive rate in “normal” times, said Maximiliano Dworkin, economic policy adviser at the Federal Reserve Bank of St. Louis.

But pandemic-era U.S. economic dynamics have upset that balance, economists say.

First, inflation has risen sharply, reaching a four-decade high in mid-2022.

Meanwhile, the labor market was white-hot as the U.S. economy reopened after a pandemic-induced lull. Vacancies reached record levels, unemployment was near historic lows, and workers were leaving at a record pace amid the ease of finding better-paying positions elsewhere.

For example, job openings reached more than 12 million in March 2022, up from about 7 million before the pandemic. This month the average worker saw his wage growth will increase to approximately 6% per year. Before the pandemic, average growth was less than 4%, according to the BLS, which has been tracking such data since 2007.

The average worker received higher raises than in decades, but the increases were not enough to eclipse inflation, which peaked at more than 9% in June 2022. This led to a two-year fall in real wages.

However, inflation has since fallen and the labor market remains strong, although it has generally declined since 2022, around its pre-pandemic baseline.

“What we have seen over the last year is a return to more normal economic conditions after the ravages of the Covid pandemic subsided,” Dworkin said.

“This is good news for consumers” because it typically means greater wealth for them over time, he added.

Average “nominal” wage (i.e. before inflation) for all workers got up up almost 23% to $34.91 per hour from January 2020. increased even faster for front-line employees: up more than 25% to $30 an hour.

consumer price indexa key indicator of inflation, during this time increased by less than 21%.

Although consumer sentiment was improvement, workers are still unhappy with the US economy. The gap between the overall strength of the economy and its weakness as perceived by households became known as the “atmosphere yield.”