- The US has experienced the highest real wage growth of any G7 nation over the last four years.
- Real wages have grown on an annual basis over the last two months for the first time in 26 months.
The US is doing better than the rest of the rich world — again.
The US has outperformed the other G7 countries in gross domestic product growth and harmonized inflation, compensating for differences in the methods each country uses to calculate inflation. Now, 2022 data from the Organisation for Economic Co-operation and Development reveals America's percent change in inflation-adjusted wages since 2019 exceeds other G7 countries, an informal group of wealthy industrialized democracies.
Real wages in the US were 5.8% higher in 2022 compared with 2019, followed by Canada at 4.7%. The other G7 countries were all in the negatives for this time period.
Italy and Germany had the lowest percent changes over the last four years, both down around 3%. Other European countries including Spain and Greece have also seen real wages fall, according to the OECD.
Europeans on the whole have become poorer over the last few years, with consumption spending down and still-recovering supply chains.
In the US, real wages are improving, after falling from 2021 to early 2023. Darren Grant, an associate professor of economics at Sam Houston State University, told Insider earlier this month that decline in real wages has contributed to the disconnect between how the economy is performing and what Americans feel about the economy, which has been dubbed the "vibecession."
In June, real average hourly earnings rose 0.2% month over month and increased 1.2% from the year prior. This was the first time real weekly earnings substantially grew on an annual basis in 26 months.
Real wages caught up with inflation in May for the first time in two years, up 4.3% from May 2022. That month, prices rose by just 4.0%.
The consumer price index also ticked up 0.2% from May, rising by 3.0% from a year prior, a far cry from the near-double digit inflation seen last year.
This all comes as good news for Americans, who have more purchasing power and whose wallets may not be as strained. The Federal Reserve is likely to raise interest rates once more in an attempt to keep inflation levels low, though strong CPI and labor market data may lead the Fed to put off its second rate hike later this year.
Gains in wages could increase spending, which could keep inflation above the Fed's 2% target. Americans have been spending more on retail, with retail sales up modestly in June and May sales revised higher. Consumers have been spending less on groceries and gasoline and more on electronics and appliances. Job growth has slowed recently, as the country added just 209,000 nonfarm payroll jobs in June, in contrast to 306,000 in May.
With real wages up over the last two months, though, Americans are starting to feel better about the economy, as the likelihood of a recession dwindles for the rest of 2023.