Jobs Are Up, Wages Less So – and Lower Purchasing Power Could Still Lead the US into a Recession

Yves here. As this article underscores, what matters to voters is their own real wages, and if those are not improving or at least not deteriorating, that means they think the economy is doing badly, no matter what data releases or Mr. Market say. The importance of income versus outgo is even more acute in the US, since, as Conor flagged yesterday in Links, close to 2/3 of Americans are living paycheck to paycheck.

By Christopher Decker, Professor of Economics, University of Nebraska Omaha. Originally published at The Conversation

Don’t be overly fooled by seemingly rosy jobs data heading into the Labor Day weekend.

Yes, the U.S. economy added 187,000 jobs in August 2023 – faster than the revised 157,000 increase for July and above most analysts’ expectations for the month. And yes, gains were seen across most industries, with health care and social assistance adding 97,300 positions, leisure and hospitality boosting numbers by 40,000, construction up by 22,000 jobs, and 16,000 additional general manufacturing jobs.

But there was also enough in the data released by Bureau of Labor Statistics on Sept. 1 to give comfort – of sorts – to the “Jeremiahs” among us economists. I’ll explain.

While jobs were up, so too was the unemployment rate, which ticked up a modest 0.3% from July to 3.8%. And average hourly earnings increased by just 0.2% in the month to US$33.82 – working out to a rather paltry 8 cent increase.

To me, rather than indicating that the job market is moving along at a healthy clip, as some suggest, it shows signs of something else: a continuing slowdown.

Look at the Long-Term Trend

The fact that, overall, jobs expanded a bit faster than expected doesn’t suggest that the economy is ramping up and inflation is going to spike again soon. Rather, it mostly speaks to the difficulty in predicting month-to-month movements. There’s good reason, perhaps, that economics is sometimes called “the dismal science” – we aren’t always that good at saying with certainty what will happen over the short term.

Monthly data has its place in making assessments and guiding policy, for sure. But focusing on just one month can be misleading as the data can be quite volatile.

The underlying trends are what matter more. And that is where I see signs of a slowdown.

In 2022, labor demand – as measured by job openings plus nonfarm employment – exceeded labor supply, as measured by the labor force. In other words, there were more job openings than people willing to fill the positions.

As a result, we saw labor earnings increase by 5.1% relative to 2021. Great news for employees, but less so for the Federal Reserve: Higher wages combined with supply chain disruptions and the effect of war in Ukraine meant that the inflation rate, as measured by consumer price index growth, rose 7.7% in 2022.

To tame inflation, the Fed embarked on a program of aggressive interest-rate hikes. This resulted in a general economic slowdown by the beginning of 2023. The housing market cooled. Construction and related markets slowed.

But now labor supply is outpacing labor demand – there are more people looking for jobs than there are openings.

Based on the first seven months of data in 2023, wage growth has slowed to 3.4% compared to 2022, as has general inflation, slowing to 3.5%.

So where is the economy heading? The preponderance of the data is pointing to a general economic slowdown. As a result, some suggest the U.S. economy may be heading for a “soft landing,” where inflation rates reach 2% to 2.5% as the U.S. avoids recession.

But when it comes to the chances of recession, the economy is not quite out of the woods yet. True, inflation is trending down. But earnings have generally grown slower than inflation, resulting in a loss of purchasing power for consumers.

Less cash to spend on goods doesn’t appear to have hit the economy yet. Consumer spending in the first seven months of 2023 was up 1.9% on the previous year, by my calculations. However, there is evidence that a lot of this was due to consumers purchasing on credit. Credit card debt reached a staggering $1.3 trillion in the second quarter of 2023.

This is not sustainable. At some point soon, consumer spending will have to slow. And given that consumer spending represents about two-thirds of total GDP, a recession could still occur.

My best guess at the moment is that a recession is most likely to occur in early 2024, after the usual spending spree that is the holidays. But fortunately, thanks to the Fed’s recent efforts to decelerate the economy gradually, a major contraction is unlikely.

Print Friendly, PDF & Email


  1. Mike

    So are these full time work? I have notice in uk and Usa they advertise alot high hour wage but when you look at the hour you get a week its still under minimum wage.Also we have to remember Biden did kick people off unemployed benefit and there is people who have just stop looking for job. I did talk to my family member who live in one off the south state and he said there is alot off jobs but people dont apply because they are lazy, my bet he is just brainwash he is Biden voter. There is nearly no benefit in Usa so why would people dont take these jobs could it be its they are just couple hour a week?

    1. ambrit

      There is also the issue of how these ‘hours’ are divided up during the ‘work week.’
      When you factor in the costs of actually getting to the job, many times, a three or four hour shift generates insufficient income to cover the travel expenses. Also consider that most of America does not have adequate public transport.
      I have had jobs where four hour shifts for a day’s ‘work’ have almost bankrupted us.
      A personal anecdote along this line. I had a plumbing job at a jobsite within an hour’s commute time, (each way,) for almost a year. Such is the nature of commercial “job shopping.” When that job wound down, we were “offered” similar jobs at a jobsite roughly two hours commute, each way, away. This did not pencil out for me, and I told them so. We parted, I assumed, amicably.
      I applied for Unemployment, having no firm job prospects lined up. The former Employer challenged my claim. According to them, I had declined a ‘legitimate’ job offer. I went in to the Unemployment Office to sign up and start the Unemployment dole process and was turned away. The system was designed so that any challenge by the Employer, any at all, was automatically viewed as legitimate. [Thus is the myth of the shiftless, lazy workers promoted in America.] The worker, me, was responsible for proving him or her self ‘worthy’ of assistance.
      I began an appeal of the initial ruling. The law was quite specific. Any job offer over a certain distance from ones domicile was considered ‘voluntary.’ I could refuse the ‘far away’ job and still get the dole. That was the initial visit to the Unemployment Office. The second trip involved me presenting evidence to back up my claim. The third trip involved me speaking with an administrative judge about the case, {This person was a retired judge.} I “won” that round. However, the Employer was allowed an appeal of the ruling. So, I showed up at the Unemployment Office for the fourth time to deal directly with the Employer. I sat in a small office chatting with the judge for a half of an hour. The Employer never showed up. The Judge remarked that this was very common. Employers would use the system to “wait the employee out.” Often, the employee did not have sufficient resources to “waste” that amount of time in pursuing the claim and would either give up or need to use all the time for another, later job.
      The Moral of the above is that the System is rigged in favour of the Capital owning class. So, full time, part time, it’s all the same in the eyes of Capital.
      Sorry for the rant.

      1. anahuna

        Having worked as an interpreter for Unemployment hearings for several years, I can testify that your “rant” is an accurate description of the way the system operates. Those judges who would like to see different outcomes are more and more tightly bound by protocol and technical issues (and themselves judged remotely according to check lists) and so have little room to intervene.

        I’ve observed a similar trend in parole hearings, criminal courts, housing courts…. William Stuntz wrote a excellent book a decade or so ago: The Collapse of American Justice, full of truths whose consequences are all around us and are fearsome to contemplate.

        1. ambrit

          What most fail to see is that this “program” has been slowly implemented over the last twenty years or so. I remember when Reagan emptied the mental hospitals. I knew then that Evil was afoot in Government. It has all been downhill since. Are Star Chamber proceedings next?
          Stay safe. Practice situational awareness.

          1. Paul Art

            I am reading Reaganland to catch up American history and it seems the Dems did basically nothing after the ravages of Reagan to restore anything he decimated. Ted Kennedy did his best to counter Carters pathetic and totally clueless neoliberalism but they just could not fight that seeming tidal wave of Right Wing propaganda unleashed by Schlafly, the “Moral Majority” and the anti abortion savages. I quit my job to pursue a PhD full-time in 2014 and I was denied any unemployment and my.employer totally refused to help me get on the Medicaid rolls. Ironically I was saved by Obamacare.

      2. scott s.

        In my state the employer’s UI tax rate is determined in part by claims experience, so of course there is incentive against claims. The UI system is imposed on the Capital owning class viewed as having the privilege of hiring workers.

  2. Northeaster

    BLS natioanl view is a bad view because different areas of the country have different costs. MA is a high cost of living state, and even with a legislated $15/hr wage, even if you’re earning $25/hr here, you’re still falling behind. So even if we have so-called “full employment”, it doesn’t matter if 90% are working poor.

    No? Massachusetts just passed 1 in 7 on SNAP (over 1 million residents), and it isn’t just abject poor people getting either. The poverty rate here has also take a turn upwards, and the Democrats here are on record on Beacon Hill claiming people aren’t leaving MA.

    Ancedotal, but both kids work in nearby resturaunt during break, they offer dishwashers $18/hr. Can’t fill the jobs, so they resorted to h2B visa workers /shrug

  3. Paul Art

    Bad news for the Biden re-election campaign. Come September 2024 it will be a Trump show on all screens and it seems very possible he might win. Biden of course has doubled down on the suburban and Senior Citizen vote (Medicare negotiating drug prices) and now that Ron Klain has departed, the West Wing will soon see a parade of Corporate heavies. Don’t expect to hear anything more about student loan forgiveness.


    It is a good question as to where the money is coming from to fuel spending if wages aren’t keeping up.

    Credit cards aren’t the answer for me as Decker suggests. Yes balances are up – but the vast majority of people aren’t rolling balances over. Further, if one plots cc debt/disposable income or another controlling measure it’s not out of wack.

    My own theory is housing. If my house is +50% in price in the last 5 years – that goes into inflation measures but does not go into my reality since I’m locked in at 3% and pre-Covid prices as many others are. So I can live (and spend) as if my house never increased in price at all.

    So not underwater and desperately using credit cards but not touched by a huge part of inflation and still spending accordingly.

    And there is your upward pressure on services that is really not cooling down.

    1. SocalJimObjects,

      “The income from all sources that consumers earned, but without transfer payments from the government (Social Security benefits, unemployment insurance, VA benefits, etc.), has been outrunning inflation since July 2022 – and did so again in July 2023.

      So “real” income (income adjusted for inflation) from wages and salaries, interest, dividends, rental property, and personal business, but without transfer payments, rose by 0.2% in July from June and by 1.4% year-over-year, according to the Bureau of Economic Analysis today. Meaning, consumers out-earned inflation by a significant margin.”

      In the comments, Wolf also said the following: “The top 50% of households are loaded with wealth. Even the next 20% are doing pretty good. It’s the bottom 30% that is always squeezed.”


        I trust Wolf but Decker is saying the opposite here:

        “But earnings have generally grown slower than inflation, resulting in a loss of purchasing power for consumers.”

        Maybe they’re both picking start and end dates that suit their priors…?

          1. SocalJimObjects

            That’s what I thought, hence the parts I quoted. We all know the rich spend a LOT, but GDP Now is showing an annual growth of 5.6%, which is truly gangbuster territory, and that has to involve broad based participation by all sorts of consumers.

      2. Mikel

        Wolf in the comments section of that article:
        Wolf Richter
        Sep 1, 2023 at 1:03 am

        Wealth (assets minus debts) per household:

        In bold is the top 50% of US households:

        “Top “0.1%”: $133.8 million
        “Remaining 1%”: $19.8 million
        The 2% to 10%: $4.4 million
        “Next 40%”: $768,000

        Even the “Bottom 50%”: $69,100

        Aggregates and averages hide alot. Take that 90% at the bottom. “Next 40%”: $768,000

        Even the “Bottom 50%”: $69,100.

        What happens when the distribution of THAT is really investigated and parsed?

        Uses aggregates of national homeownership.

        But above all I notice he’s posting charts that start around the year 2016. This makes the case about the effects of the low interest rate era (“drunken sailors”). He can be spot on about the distortions that caused.

        Personally, looking at the direction of the country, I like charts that zoom out and include more decades.

        NC had posted this before and I remembered it the other day in a post:

  5. TimD

    One, rarely mentioned, feature of Bidenomics is deficit spending. Which for the current fiscal year ending on Sept 30, is already at $1.9 trillion – so it is surely going to break the $2 trillion mark. We are talking about a deficit running 8% of GDP in a post-pandemic economy, that if we listen to the propaganda is the marvel of the world.

    So we have Biden goosing the economy and the Feds trying to throttle it back – left hand meet right hand. Confused? Join the club.

    1. ambrit

      Don’t forget the slow but steady draw down of the Strategic Petroleum Reserve. This was originally set up as a National Security measure. As in, to feed the production of vital supplies in times of crisis. Does a semi-recession qualify? It is a full recession for we “deplorables.” Have you looked closely at your grocery bills lately?
      The injection of “cheap” oil into the economy has kept some industrial level prices down. Wall Street loves that. But that oil is not being put back into the Reserves. Sooner or later, a break point will be reached and oil based prices will spike viciously. That will feed into the general economy and then real pain will result for all.
      Energy is the basis for modern society. The rest follows ‘organically.’

    2. Random

      Not Biden at all.
      Deficit govt spending has been a key factor in the US economy for decades now.
      It just doesn’t work otherwise.

      1. TimD

        Exactly. The last Republican president to have a balanced budget was Eisenhower and the last Democrat was Clinton. It is very hard for a country that has deindustrialized, lowered taxes and provided healthy real increases to military spending to have balanced budgets. It is definitely a bipartisan effort. The two new twists, to me anyway are that the dollar value of the deficit has been higher than the dollar value of real GDP growth for about 15 consecutive years and that the average deficit has increased. Obama’s annual deficits averaged $1.2 trillion, Trump’s were $2 trillion and so far Biden’s are estimated to be $2.3 trillion over his first two years.

        1. ambrit

          And Trump had the Pandemic to deal with. That had to have a big effect on any deficit.
          Somehow, this Pandemic has instituted a paradigm shift in the socio-economic order.

          1. TimD

            I heard somewhere that Trump had planned on $5 trillion in deficits but that went up because of the China Flu. At the same time, people see the Republicans as more fiscally responsible – that is manufacturing consent at its finest – but it doesn’t top Reagan.

            Reagan was famous for small governments but he was the biggest spending president (government spending as a percent of GDP) since the end of WWII. The national debt actually tripled under Reagan. His spending was finally topped by Obama, who had to deal with the Great Recession.

            My guess is that the national debt will hit $33 trillion early in 2024, that works out to $100,000 per American or $400,000 for a family of four. But because the country is exceptional, nobody will notice for very long. That’s sad because it is a symptom of a weakening economy.

            1. tegnost

              considering the national debt is 32 trillion 830 million right now I don’t think you’ll have to wait til ’24…and it was 26 trillion 770 ish million on this day of 2020….thats…wait for it…6 trillion since bye don

              1. TimD

                Tienes razón. At the same time, I don’t think it will lead to any change in behavior. When I look at growth vs debt/deficit the only time a country has a chance at a balanced budget is when real GDP growth is over 4% – like it averaged from the end of WWII until the end of the 60s. For the past 20 years it has averaged 2% and the deficits have averaged $1.25 trillion – between 4 and 5% of GDP. What would America have to change in order to double its rate of GDP growth? Not an easy task.

          2. Kurtismayfield

            He was running 1 trillion per year deficits prior to the Pandemic, because despite all the rhetoric about balancing budgets no one does it. Tax cuts were paid for by deficit spending.

            1. TimD

              Yes, and like Reagan, he overstated economic growth and claimed victory for his policies.

              I don’t think the US could generate enough economic growth to have a balanced budget. With so much deindustrialization and automation, the days of YOY 4% growth are history.

  6. tegnost

    I still have the same amount of cash, but prices are through the roof, so it’s value has diminished significantly. I was in downtown seattle yesterday thinking something has to crack and it’s not going to be the scoundrels up in the penthouses, so my own zeitgeist report is recession, brutal and swift, as just like the war ISTM the happy talk such as it is, is a lie.

  7. Susan the other

    Universal health care should be a top priority to stabilize the economy and maintain well being. Not to mention it would also improve trade and competition. And another case could be made that UHC is environmentally responsible because it reduces the burden of irresponsible “productivity”, etc. We really are a bunch of squabbling idiots.

    1. ambrit

      I would qualify the statement ” We really are a bunch of squabbling idiots.”
      “We” have no input into the decision making process at the National level. Even the vestiges of Republicanism are fading fast. I’m already beginning to feel a bit like a neo-serf.
      What is really funny, in a ‘funny’ sick way, is that the Elites do not learn the lessons of history. They are too short sighted to realize that they are yet again playing a lose-lose game.
      Time to foment some Peasant Revolts.

  8. ChrisFromGA

    I was looking under the hood of the latest BLS Labor report and found some interesting details in table B-1:

    I like to look at the YoY numbers because it should take out seasonality and other distortions.

    The top 3 categories of work that had increases YoY were:

    1. Private education and health services – 102k increase
    2. Leisure and hospitality – 40k increase
    3. Construction – 22k increase

    The top 3 losers were:

    1. Transportation – 34k decrease
    2. Information – 15k decrease
    3. Financial activities – 4k increase (essentially, flat)

    I would like to hear others take on this. I will note that big contributor to the rise in private education and health services was health care and social assistance.

    To me what stands out is that other than construction ones, is that these types of jobs are not productivity-enhancing but productivity-draining. Not to say that they aren’t needed – as parents age and the boomers fade we are going to need more and more health services. The big decrease in transportation jobs caught me by surprise, and points at an economy not so great as the headlines claim it is.

  9. GlassHammer

    The U.S. Government has spent decades convincing Americans that the U.S. government has no say in job creation or wages, that stuff is up to Mr. Market and no one else.

    Well… that way of thinking has become so internalized that Americans will not give any elected official credit for unemployment, job growth, or GDP. They deeply believe the job market and the U.S. government are totally disconnected.

    Instead Americans will give both credit and blame to the U.S. government for….. consumption and the ability to use debt for consumption. Because Americans experience the economy as INDEBTED CONSUMERS.

    Americans want credit cards with low rates and cheap goods in the economy. This is why the POTUS will rise and fall in popularity based on cheap imports and what the FED does.

    1. tegnost

      Americans want a decent life, and credit cards are only good if you can pay the balance every month…if you’re carrying a balance you’re better off with cash. My dollar is 100 cents, a credit dollar is 78 cents for a chronic debtor. Kaching.

      1. GlassHammer

        At this point most Americans think a large credit card balance is just part of life. (You don’t get national credit card debt levels hitting record highs without that being the case.)

        That means there is almost no one you could give the “only good if you pay the balance off every month” advise to.

        Those debt resistant Americans are such a minority that they are irrelevant when it comes to answering the question of “What do Americans want their political leaders to do about the economy?”

        1. tegnost

          I only said credit cards are good if you pay the balance, I didn’t say there weren’t lots of people making a bad choice to get by.

          1. GlassHammer

            You were totally correct in your advise I just said (out of frustration mostly) that it’s way too late for many Americans to use that advise now.

    2. Weil

      Correct. And they have no class consciousness no critical thinking skills. When they do, they usually identify with the rich.

      All roads lead to Rome in America.

      Look for the global south to change the reality for internally there can be no meaningful change in a consumer society with no class consciousness.

      1. GlassHammer

        For awhile I thought Debtor vs. Creditor might be a line that Americans could identify but…. everyone they know is a Debtor, the Debtor label is actually too universal to motivate anyone to act.

        FYI, this is also why a huge part of the population doesn’t care about things like student debt relief, to them it’s just someone’s debt and we all have debt so why help a particular group with debt relief at all.

  10. Chris A

    The job data is very distorted. There are birth death model adjustments that Create distortions.

    Just like the inflation numbers do not reflect the real cost of living in the united states, one of the biggest distortions being the hedonic adjustment that are made by the b l s.

    GDP seems to be another data point that is constantly being twisted And justin almost in a gold sea he sort of way.

  11. Joe Well

    It amazes me that there is so little discussion about potential social unrest and breakdown of law and order as a result of this.

    For instance, Spain had a much more sudden crash in incomes with the GFC, and one of the results was that gangs took over vacant units at some housing developments and effectively rented them out at cut rates.

    1. ambrit

      In America the “gangs” often wear uniforms and carry guns and badges. Just like the Robber Baron Era with it’s private armies.

    2. Weil

      Just another looming crisis to privatize and make money off of.

      Capitalism commodifies and monetizes everything for easy consumption.

  12. ian

    I absolutely hate these aggregate statistics. Being a brain surgeon is a job, so is flipping burgers at McDonald’s.

Comments are closed.