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U.S. wage growth is getting wiped out by inflation

U.S. wage growth is getting wiped out by inflation
Adjusted for inflation, U.S. workers' average hourly wage was $10.78 in July 2017 and $10.76 in July 2018, according to the federal government. (Lauren Raab / Los Angeles Times)

U.S. workers' paychecks are worth less than they were a year ago, the Labor Department reported Friday, as modest wage gains have not kept pace with inflation.

Prices rose 2.9% from July 2017 to July 2018, the Labor Department said, while average hourly pay increased 2.7% in the same period.

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The lack of real wage gains comes despite a strong economy, with sustained growth and an unemployment rate of 3.9% — one of the lowest levels in decades.

The Labor Department tracks average hourly pay adjusted for inflation, which is known as the "real wage." According to the federal government, the real average hourly wage was $10.78 in July 2017 and $10.76 in July 2018. Real wages have been on a sharp decline since the start of the year.

"Despite the strong labor market, wage growth has lagged economists' expectations," Pew Research said in a report this week. "In fact, despite some ups and downs over the past several decades, today's real average wage has about the same purchasing power it did 40 years ago."

Since 2000, only the top quarter of wage earners have seen any true increase in their pay once you account for inflation, Pew reported. For the middle class, it's been years of stagnation, and the latest trends aren't encouraging.

Gas prices, housing and transportation costs have all jumped in the last year, taking a bigger bite out of people's paychecks. The price of gas has risen 50 cents a gallon in the last year, according to the AAA tracker of the average national price of gas. Used-car prices and rent are also up substantially from a year ago.

When inflation rises faster than wages, workers fall behind. They have to cut costs from their budgets, take on debt or put in more hours to try to live the same lifestyle they had enjoyed a year ago. The Labor Department reported that Americans are putting in more time on the job this summer versus last summer, which is helping to keep family earnings about the same for now.

"We are nearly a decade into the recovery and we're still arguing about whether or not we're seeing meaningful gains in wages. That should be a given at this point in the cycle," said Lindsey Piegza, chief economist at Stifel.

President Trump campaigned on getting Americans back to work and getting them a raise as he recognized the frustration of many working people, but it's proving a challenging task for Trump, much as it was for former presidents Obama and George W. Bush. Trump passed a large tax cut for businesses and consumers that is giving many families more money in their pockets this year and doesn't show up in the wage data, but families are having to use a good chunk of the tax cut to cover rising energy and housing costs. The president has tweeted several times to try to get Saudi Arabia to produce more oil and lower gas prices.

The last time wages were growing substantially above inflation was in 2016. Since then, inflation has picked up while wages have remained the same. Inflation hit a six-year high this summer, and most economists think it will stay near its current level or grow a bit faster, especially if Trump's tariffs on Chinese products and steel and aluminum drive up costs for consumers.

Most economists have been predicting that pay will take off, with a record-high number of job openings and many business leaders saying their biggest problem is finding enough workers. But so far there's little sign that businesses are increasing pay in an effort to attract employees.

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