Don't Feel That Pay Raise? Blame Inflation

By Eric Morath Features Dow Jones Newswires

Rising consumer prices are eating away at Americans' modest pay increases.

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Workers have been receiving a little better than 2% annual raises, on average, for the past three years. But when factoring in inflation, the pace of the pay increases has slowed to near zero.

Average weekly earnings for private-sector workers, adjusted for inflation, rose just 0.3% in April from a year earlier, the Labor Department said Friday. A year ago, the same measure showed a 1.2% inflation-adjusted rise. In April 2015, adjusted weekly earnings rose 2.4% on the year, because consumer inflation was virtually nonexistent.

But the rate of inflation ramped up in the second half of last year as gasoline prices rebounded from a steep downturn. The consumer-price index increased 2.2% last month from a year earlier. Federal Reserve policy makers and many other economists expect price increases to stabilize near the central bank's 2% annual inflation target.

If wages can't accelerate much above that level, it could leave workers feeling as if they are not much better off, despite seeing larger paychecks.

Stanley Langston, an electrician at a poultry-processing plant in Glencoe, Ala., said he received a 2% raise this year, but his paychecks barely budged because his health-insurance premiums also rose.

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"It's not really a raise," he said. "It's nowhere near enough to make up for the cost increases."

Mr. Langston, 53, said he recently decided to purchase a cheaper used car for his daughter to travel to college and canceled his cable-television service to stretch his budget.

Typically, low joblessness coincides with improving incomes. The unemployment rate, at 4.4%, is the lowest in a decade. But wages have yet to accelerate.

"The traditional relationship between reduced labor-market slack and wage growth appears to have weakened," said Joseph Song, an economist with Bank of America Merrill Lynch. Despite low unemployment, he projects only modest wage improvements this year.

"It's consistent with the view that economic growth is still around 2%" annually, he said. "There really isn't much upside to that."

The disconnect between wages and joblessness could point to a global labor market where factory workers in Ohio compete not just against each other, but also with workers in China and Mexico. Another factor is stagnant worker productivity that makes it more difficult for firms to justify wage increases.

In either case, many workers feel they are not getting ahead.

Sawa Kamara, a 23-year-old child-care worker, is on pace to earn about $2,000 more this year than she did last year. But half of that raise was erased by a $95 a month increase in rent for the Takoma Park, Md., apartment where she lives with her 2-year-old daughter.

"I think we're all playing catch-up," she said. "How can anyone get their ducks in line when you turn around, you have this bill and that bill just stacking up?"

Write to Eric Morath at eric.morath@wsj.com

(END) Dow Jones Newswires

May 12, 2017 13:07 ET (17:07 GMT)