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Inflation, Wage Stagnation, and the Real State of US Employment

Inflation, Wage Stagnation, and the Real State of US Employment

Jun 14, 2024

Inflation, Wage Stagnation, and the Real State of US Employment

Recent discussions about the US economy have highlighted conflicting interpretations of labor market data. Questions have arisen regarding the accuracy of the establishment survey, a metric traditionally used to gauge labor market strength.

Labor Market Data Concerns

The establishment survey, which reports on job growth, has been called into question, with Federal Reserve Chairman Jerome Powell acknowledging potential overstatements in these figures. This admission challenges the previously held view that the US labor market is robust.

Public Sentiment vs. Economic Indicators

Despite positive economic indicators, such as GDP growth and low official unemployment rates, public sentiment about the economy remains downbeat. Surveys indicate that a significant portion of Americans mistakenly believe the economy is in a recession and that unemployment is at a 50-year high.

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Inflation and Purchasing Power

The disconnect between reported economic conditions and public sentiment may be partly attributed to inflation and the erosion of purchasing power. Many Americans feel that the rapid increase in prices has not been offset by wage growth or employment opportunities.

Federal Reserve's Response

In response to the economic data, the Federal Open Market Committee (FOMC) adjusted its projections, indicating fewer anticipated rate cuts. This decision reflects a reaction to inflationary pressures rather than a strong conviction in labor market health.

Bond Market Reaction

The bond market's reaction to the FOMC’s stance and economic data has been subdued, with Treasury yields continuing to decrease. This trend suggests a skepticism among investors regarding the strength of the economy.

Employment Data Sources

Alternative data sources, such as the Quarterly Census of Employment and Wages (QCEW) and the Business Employment Dynamics (BED) summary, offer a more tempered view of job growth than the establishment survey. Recent BED data indicated a net employment decline, contradicting the more optimistic establishment survey results.


Jobless Claims

Recent increases in jobless claims further challenge the narrative of a thriving labor market. Both initial and continued claims have shown an upward trajectory, indicating potential weaknesses in employment.


The discrepancy between official labor market reports and public perception raises important questions about the true state of the US economy. While policymakers may point to certain statistics as evidence of economic health, broader indicators and sentiments suggest a more nuanced reality, with signs pointing toward a weakening labor market and growing economic concerns.


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