But it’s worth noting that in November, inflation-adjusted US weekly earnings rose 1.1%. That might not sound like much. But it’s much better than nothing—or slightly less than nothing—which is the raise Americans were getting six months ago. In fact, it’s one of the best readings we’ve had in the last few years. Real hourly earnings also had a pretty good month, rising 0.8% over the prior year.
The increase in inflation-adjusted wages isn’t because of any surge in pay increases. Rather, it’s due to a decline in the US price level. Prices, as measured by the US Consumer Price Index, were up a scant 1.3% year-over-year in November. On a month-over-month basis they actually dropped 0.3% in November, the sharpest decline since the end of 2008, when the financial crisis and recession set in. Why the decline? Energy. The collapse of crude prices is cutting consumer energy prices sharply, including gasoline, which declined 6.6% in November.
Crude oil prices—down 48% over the last six months—are crumbling for a lot of reasons, including weaker economic growth in China and a surge of new production in the US. But they’re also falling because Saudi Arabia refuses to cut back on production. In other words, a hefty chunk of the decline in living costs, and thus the improvement in real wages, is due to Saudi policy makers. Now this isn’t an altruistic policy. The Saudis have a history of cutting prices sharply in order to put competitors—including nascent US producers—under intense price pressure. But for the bulk of Americans whose connection to the oil industry is through the prices they pay at the pump, the Saudis are delivering a very nice Christmas present.