August jobs report is mixed, but a pleasant surprise on wages

That August jobs report released Friday by the Labor Department was kind of a mixed bag. Monthly job creation was decent, but not super, and weaker than in the winter and spring. Plus, job creation in June and July was revised down a lot — 86,000 — meaning the labor market was slowing down more than we thought in early summer. 

Unemployment ticked down though. That’s definitely a positive.

And one key data point — “key” because it’s about the money in American consumers’ pockets — surprised quite a bit to the upside in August: wages.

Americans’ average hourly earnings rose 0.4% month to month, which was a bigger gain than in July and higher than economists were expecting. What’s more, American workers were punching in to work a bit more last month, with the average workweek up a tenth of an hour, which is an extra six minutes. Yeah, we do math.

Honestly, what’s not to like in the “earning power” section of this jobs report?

American workers got a $1.30 pay bump on average compared to what they were making a year ago, to $35.21 per hour. 

“I think it’s great. Year over year, we’ve seen about a 3.8% increase in overall wages,” said Jane Oates, a policy analyst at WorkingNation.

Keep in mind, inflation’s running under 3% per year now. So real earnings, the purchasing power of workers’ take-home pay after rising prices, continue to improve.

But remember, rising wages weren’t always considered such a good thing in this economy. 

Two years ago, when wages were climbing at 6% per year, Federal Reserve policymakers worried it was helping to drive price inflation higher. 

And now? 

“This should be satisfying to the Fed, looking at their 2% inflation rate [target],” said Dean Baker at the Center for Economic and Policy Research.

The key is the strong productivity of American workers, Baker said, lately growing at more than 2%.

“If we’re producing 2% more an hour, we’re paying, let’s say, 4% higher wages, then the cost per unit is only rising by 2%, which, assuming that gets passed on in prices, that’s 2% inflation,” Baker said.

But these higher wages don’t necessarily feel all that great, said Sofia Baig at polling firm Morning Consult.

“Consumers are reporting softening feelings about the economy when it comes to their current purchasing power and their current personal finances,” Baig said.

Especially consumers who’ve been pushed to the limit by higher prices.

“Middle- and low-income consumers have had a drawdown in their savings, whereas high-income consumers, their stock of savings has been increasing,” Baig said.

Higher wages, more savings, plus investment gains — that’s what really makes consumer sentiment and spending sing.