Falling real wages, soaring energy costs, and stubborn inflation are combining in a pattern that increasingly resembles the economic misery of the 1970s.
Friday’s Labor Department figures show American paychecks shrinking after inflation, while job creation last month fell to less than a third of what economists had expected.
Average hourly earnings rose just 0.13 percent, amounting to roughly an extra 5 cents an hour before taxes, offering workers almost no relief.
Consumer prices, by the Federal Reserve Bank of Cleveland’s latest estimate, rose 0.53 percent in September, roughly four times as fast as earnings growth.
Over the past year, average earnings climbed 3 percent while prices rose 3.6 percent, leaving workers falling further behind in real purchasing power.
Inflation has erased essentially all of workers’ gains for two years, leaving hourly pay about where it stood in the fall of 2024, according to the analysis.
The Cleveland Fed estimates prices rose at an annualized rate of 6.5 percent last month, a figure that would alarm any economist studying the current trajectory.
Financial writer Brett Arends argues that the main driver is an energy crisis Washington appears unable to stop, with rocketing diesel prices meaning the cost of nearly everything will keep rising.
“The Iranian takeover of the Strait of Hormuz is not really any more humiliating than the two OPEC oil embargoes of the 1970s,” Arends writes, drawing a sharp historical parallel.
Arends notes that even a former U.S. comptroller of the currency has questioned whether official inflation figures match what people actually pay at the store.
The gaps may look small month to month, but they compound significantly over time, as real average wages fell 7 percent across the entire decade of the 1970s.
Few investors today remember how badly mainstream assets performed during that decade, and New York University data offer a sobering reminder for those tempted to ignore the comparison.
From January 1, 1970, to January 1, 1980, the S&P 500 returned just 4 percent above inflation in total, not per year, and that was before taxes and fees.
Treasury bills lost 11 percent in real terms during that period, investment-grade corporate bonds fell 17 percent, and 10-year Treasurys lost a devastating 35 percent.
Energy stocks, by Dartmouth data, roughly doubled after inflation during the 1970s, while gold rose more than 500 percent in real terms, partly because its price had been suppressed for decades.
Inflation-protected TIPS bonds did not exist during the 1970s, but Arends notes shorter ones now offer real yields around 2.5 percentage points above inflation, with longer ones reaching up to about 3.3 percent.
