(NewsNation) — Americans are starting to feel better about the economy, and higher wages could be one of the reasons why.
Last month, inflation-adjusted average hourly wages rose 1.4% from a year earlier, according to data from the Bureau of Labor Statistics (BLS) released Tuesday. January’s uptick marked the ninth consecutive month of year-over-year real hourly wage growth after two years when workers saw their gains erased by inflation.
For most of the Biden presidency — every month from April 2021 to April 2023 — price increases have outpaced wage growth, eating away at consumers’ purchasing power. But since May, easing inflation and a better-than-expected job market have reversed that trend.
“Today’s report shows that wage growth has been the strongest of any economic recovery in 50 years,” Biden said in a statement Tuesday.
Lower-income workers have seen particularly notable wage gains compared to before the pandemic, according to a recent Treasury analysis.
“One week of pay for the median worker now buys more than a week of pay did in 2019, despite higher prices,” the report noted.
The president has been eager to highlight the turnaround to combat his dismal approval rating, and there’s some evidence consumer sentiment is beginning to rebound.
At its worst under Biden, real hourly wages were down more than 3% year-over-year. That same rate has now risen by 1% or more for three consecutive months.
When measured as real weekly earnings rather than hourly, the gains have been more modest — up 0.8% year-over-year in November and 0.7% in December. That’s partially a result of employees working fewer hours in recent years.
It remains to be seen whether rising wages will offset Americans’ discontent with rising grocery bills, higher home prices and record-high credit card debt.
Another way to measure wage growth
The BLS hourly wage data has limitations. One of the problems is that it doesn’t account for changes in the composition of the workforce.
For example, inflation-adjusted average hourly earnings shot up 7.7% at the start of the pandemic, but that’s not because employees suddenly got raises; it’s because millions of relatively low-paid workers lost their jobs while many high-paid workers kept theirs.
In other words, high-paid workers skewed the data upwards. Subsequently, when lower-paid workers returned to the workforce, the opposite happened — real hourly earnings fell.
A separate tracker from the Federal Reserve Bank of Atlanta measures the nominal wage growth of individuals over time, which provides a better sense of how a single person’s earnings have changed.
When compared against the Consumer Price Index, it tells a similar story. For most of the Biden presidency, inflation has outpaced wage growth, but that started to change last February. In January, individual wage growth was up 2.4% compared to the year prior once inflation was taken into account.
Those who switch jobs have consistently seen higher raises — 2.9% in real terms last month compared to a year earlier.
However, year-over-year wage growth has started to soften, falling steadily since March amid moderating inflation.
Personal savings rate remains weak
Other personal finance indicators underscore Americans’ apprehensions about their situation. After spiking from COVID stimulus payments, disposable income, which measures after-tax income, has hardly improved.
After adjusting for inflation, per capita disposable income in December was roughly the same as in August 2021, more than two years ago.
The personal saving rate has also fallen over the past two years as consumers grappled with rising prices. In December, the personal saving rate — which is the percentage of disposable income people set aside — dropped to 3.7%, its lowest level since December 2022. In the year before the pandemic, that rate was above 7%.
According to a recent NewsNation/Decision Desk HQ poll, roughly 47% of people said they are worse off financially compared to a year ago — a slight improvement from November when 50% of respondents said they were worse off.