What wage growth slowing means for the overall economy

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(NewsNation) — As prices rise and interest rates jump, American wage growth is starting to stall.

Although they had been going up, particularly late in 2021, that growth has slowed in recent months, according to the Center for Economic and Policy Research.

The White House said the jump in average hourly earnings has declined over the past nine months. Wages increased around 6% in the last quarter of 2021. That dropped to 4.8% in the first quarter of this year, and 4.1% over the past three months.

This could actually have a positive effect on the overall economy, however.

When workers are making less money, the idea is that because companies are paying less for labor, they will charge less for their products and pass those savings on to the consumer.

But what actually happens is, when both prices and wages are going up, as they are now, that puts pressure on the Federal Reserve to ramp up interest rates — which could lead to a recession, according to the Center for Economic and Policy Research.

Slower wage growth should ease some of the upward pressure on prices, although The Peterson Institute for International Economics noted that it will do nothing to end the supply-side drivers of inflation, such as the COVID-19 pandemic and war in Ukraine.

According to the U.S. Bureau of Labor Statistics, Americans, on average, received a 4.5% raise in 2020-2021. But the National Retail Federation reported half of the nation’s 50 largest retailers posted double-digit increases in sales growth in that same time.

This all comes at a time when inflation levels climbed 11.3% in June. Inflation has been at record levels for months now, putting more pressure on American households. Surging prices for gas, food and rent catapulted consumer inflation to a new four-decade peak in June, The Associated Press reported.

The Associated Press contributed to this report.

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