U.S. Real Hourly Earnings Slip 0.1% in August as Inflation Outpaces Pay Gains

Inflation-adjusted hourly earnings for U.S. private-sector workers fell 0.1% in August as consumer prices increased faster than nominal pay. Average hourly earnings rose 0.3% during the month, but the Consumer Price Index for All Urban Consumers increased 0.4%, leaving workers with slightly less purchasing power for each hour worked.

Nominal average hourly earnings for all employees on private nonfarm payrolls increased by 10 cents to $37.75 in August, according to the Bureau of Labor Statistics. Hourly pay was 3.1% higher than a year earlier. The monthly inflation reading accelerated from July, when the CPI rose 0.1%, while the 12-month inflation rate remained at 3.4%.

The BLS real earnings release adjusts private-sector earnings for changes in consumer prices. For the all-employee series, BLS uses the CPI-U as the deflator, so the measure is designed to show how average hourly pay changes after accounting for inflation rather than how many dollars appear on a paycheck.

Inflation erases the month’s nominal hourly gain

August’s 0.1% decline in real hourly earnings followed another 0.1% monthly drop in July. The latest result therefore extends a short run in which price growth has been just strong enough to offset the increase in average hourly pay, even though nominal wages continued to rise.

The monthly figures also show why nominal and real earnings can tell different stories at the same time. A worker looking only at the average hourly wage series would see a 0.3% increase in August. Once the 0.4% increase in consumer prices is taken into account, however, the gain disappears in inflation-adjusted terms. The difference is small for one month, but repeated periods in which prices rise faster than pay can gradually reduce purchasing power.

Hours worked moved in the other direction. The average workweek for all private-sector employees edged up by 0.1 hour to 34.4 hours. Nominal average weekly earnings increased to $1,298.60 from $1,291.40 in July. Those figures matter because weekly purchasing power depends on both hourly pay and hours worked, not only the hourly wage rate.

Production and nonsupervisory employees, a group that covers most private-sector workers outside supervisory roles, saw nominal average hourly earnings rise 0.3% to $32.53 in August. Their average workweek held at 33.8 hours. BLS uses a different inflation measure, the Consumer Price Index for Urban Wage Earners and Clerical Workers, to calculate real earnings for that group, so its inflation-adjusted series should not be assumed to move identically to the all-employee measure.

Gasoline drives the August inflation pickup

The pressure on real hourly pay came as the headline CPI accelerated to a 0.4% monthly increase from 0.1% in July. Gasoline prices rose 3.9% and accounted for more than one-third of the overall monthly increase. The broader energy index increased 2.1% after falling 1.5% in July.

Price increases were not limited to energy. Shelter costs rose 0.3% in August, compared with a 0.1% increase in July. Food prices increased 0.1%; food at home was unchanged while food away from home rose 0.3%. The index excluding food and energy increased 0.3% for the month after rising 0.2% in July.

Over the 12 months through August, the headline CPI increased 3.4%, unchanged from the rate through July. Core inflation eased to 2.4% from 2.5% on a 12-month basis, even as its monthly increase picked up. Energy prices were 16.3% higher than a year earlier, with gasoline up 27.4%.

For earnings, the important point is the relationship between pay and prices rather than any single CPI category. August nominal hourly wages still increased. The loss in real hourly earnings occurred because the overall consumer-price measure used to deflate those wages rose faster during the month. That distinction keeps the real-earnings figure from being read as an outright cut in dollar pay.

Pay data land alongside firmer August hiring

The earnings figures come from the same establishment survey used in the monthly employment report. U.S. nonfarm payrolls increased by 162,000 in August, while the unemployment rate was unchanged at 4.1%. Food services and drinking places added 59,000 jobs and local government education added 42,000, while information employment fell by 23,000.

Those labor-market gains provide useful context for the wage data but do not change what the real-earnings series measures. Average hourly earnings are an economy-wide average for private nonfarm payroll jobs. Shifts in the mix of employment across higher- and lower-paying industries can affect the average, so the series should not be read as the precise experience of a typical individual worker or household.

The same caution applies to the purchasing-power interpretation. CPI-U tracks the average change in prices paid by urban consumers for a market basket of goods and services. Individual households face different spending patterns, wage changes and work schedules. A 0.1% decline in real average hourly earnings therefore describes the aggregate relationship between average private-sector hourly pay and consumer prices, not a uniform loss for every worker.

August nevertheless adds another month in which inflation moved faster than nominal hourly earnings. With headline prices rising 0.4% and average hourly pay up 0.3%, the latest data show that the labor market can add jobs and wages can increase in dollar terms while inflation-adjusted hourly purchasing power still slips.

The next Employment Situation report, covering September, is scheduled for October 2. BLS is due to release the September CPI and Real Earnings reports on October 14, providing the next test of whether nominal pay growth again catches up with consumer-price increases.