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Andrew Samwick Worries About Inflation and Real Earnings

He writes:

Vox Baby: Real Earnings, Not So Much: The BLS released the May CPI report and the associated Real Earnings report. The news is not pretty.

The former reports that the CPI (CPI-U) rose by 5.2 percent at a seasonally adjusted annual rate in the first 5 months of the year of the year. It is not all energy costs--the CPI excluding food (another volatile sector) and energy rose at a 3.1 percent rate during that period. Even the lower number, if it reflected the whole index, should be enough to incline the Fed toward continued rate increases (spoken by a novice Fed watcher). Over the twelve months ended in May, the two indexes are up 4.2 and 2.4 percent, respectively.

But I've never been one to spend a lot of time thinking about inflation per se. What matters to me is whether the price level has risen relative to other macro variables, like compensation. The second report tells us that:

Real average weekly earnings fell by 0.7 percent from April to May after seasonal adjustment, according to preliminary data released today by the Bureau of Labor Statistics of the U.S. Department of Labor. A 0.3 percent decline in average weekly hours and a 0.5 percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) were partially offset by a 0.1 percent rise in average hourly earnings.

And the failure for real earnings to advance is evident in every major sector, as shown in this table (focus on the bottom panel, so that the impact of declining hours is reflected). There isn't a single broad industry group where the real average weekly earnings have risen more than 0.8 percent over the past year, and all but two are actually negative.

This isn't the entire workforce--only the 80 percent or so who are production or non-supervisory workers on private, nonfarm payrolls. It isn't total income--just the (pre-tax) earnings component of it. It isn't the whole economy--just the returns to this segment of the labor market. But it isn't good.