Inflation outpaces wage growth in all but one industry despite Biden's optimistic picture

The Biden administration wants to receive credit for the red-hot labor market if it’s going to face blame for sky-high inflation amid supply chain shortages and pent-up demand.

White House economic adviser Jared Bernstein emphasized strong wage growth during a Yahoo Finance Live appearance on Tuesday, contending those gains help offset recent price hikes. His appearance came as new data showed inflation rose 8.5% in March, a new 40-year high.

It’s “really a tail wind [that] we don't necessarily often appreciate in this context,” said Bernstein, a member of the White House Council of Economic Advisers. He says that job openings and wage growth “have to be considered in the mix because reducing the economy to one variable, the rate of inflation, you're missing a whole lot.”

But the data shows that the wage gains, while significant, have been no match for inflation over the last year. Wages have not kept up with inflation in all but one industry: leisure and hospitality.

Starting from a lower base, hourly wages for leisure and hospitality workers have jumped 11.8% from a year ago as restaurants and hotels have struggled to attract employees. In March 2021, the average hourly earning in the industry stood at $17.60 but jumped to $19.68 last month.

In other industries, wages have not kept up. Across the economy, Americans earned $30.06 per hour in March 2021 and make $31.73 today, an increase of just over 5%.

A serious challenge to the 'hot economy'

Even some of the administration’s allies have pointed out that the numbers don’t seem to add up.

Jason Furman, who was the chair of the Council of Economic Advisers under President Obama, wrote Tuesday that the latest data “presents a serious challenge to the ‘hot economy’ thesis that tighter labor markets lead to rising real wages."

“A hot economy is surely better than a cold one, but the costs of an overheating economy might be larger than policy makers have appreciated,” he wrote.

Inflation further quickened in March with the Consumer Price Index rising 8.5% compared to the same point last year, the fastest rise since December 1981. The core CPI, which excludes food and energy prices, rose 6.5% over last year. Core CPI still represented the fastest increase since August 1982.

'Household balance sheets are in good shape'

The economy has added almost 8 million jobs since Biden’s inauguration, and the unemployment rate currently sits at 3.6%, down from 6.4% when he took office. But inflation and the falling buying power threatens the administration’s economic case and the Democrats' prospects in the upcoming election.

Polling has shown that views have hardened on the issue of inflation, with Biden shouldering the brunt of the blame. The views of the labor market appear more scattered with Biden not the clear recipient of credit for the positive jobs numbers.

The public perceptions have even grown so disconnected that one poll recently found that a plurality of respondents (37%) falsely think jobs have been lost in the last year compared to the 28% of respondents who got the right answer. In the same poll, there was no such confusion on inflation: 94% of respondents were concerned that prices will climb more in the coming months. The poll was conducted by Navigator research of 1,770 Americans and had a margin of error of 2.6%.

Bernstein also argues that household balance sheets are helping soften the blow of inflation. "If you go in and look at the data, you will see household debt burdens are at historically low levels and that household net worth is at historically high levels,” he said Tuesday. “This is what we mean which we say household balance sheets are in good shape.”

He quickly added that the costs are real. He added, “I really don't want to come across at all as if I'm being even the slightest bit unsympathetic or dismissive to what households face.”

Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.

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