Dean Baker
Truthout, September 17, 2018

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We all know Donald Trump’s tendency to make up numbers to tell everyone what a great job he is doing as president. People are rightly appalled, both that Trump is not doing a great job, but also that he is lying to imply otherwise.

While Trump is clearly over the top in just inventing data to back his argument, Democrats are also often not very straightforward in assessing the data. We got a dose of that last week when there were complaints that the rate of income growth had slowed down in 2017 compared with 2016 and 2015.

Workers should be unhappy about the pace of income growth. They have much ground to make up following the losses of the Great Recession and the weak growth even prior to the downturn, but the main reason that income growth was slower in 2017 than in 2016 and 2015 is that oil, and energy prices more generally, rose in 2017 after falling the prior two years.

As a result of the reversal in oil prices, inflation was 2.1 percent in 2017, compared to 1.3 percent in 2016, and just 0.1 percent in 2015. This means that even though there was a very modest acceleration in nominal wage growth, and comparable gains in employment in all three years, the growth in income adjusted for inflation was far lower in 2017 than in the prior two years.

Workers have to pay for gas and heating oil, so the rise in energy prices does affect their living standards. In that sense, the weaker income growth in 2017 is very real, but this hardly represents some new failure of the political system. The speeding of income growth in 2015 and 2016, and its slowing in 2017, are just the story of fluctuating world oil prices, which any honest analyst should acknowledge.

This point is important for those of us who think that progressives are best served by being honest about numbers. Erratic numbers have a tendency to reverse themselves. While energy prices did jump in August, the big rises are most likely behind us.

As a result, inflation was 2.7 percent for the year ended in August, down from 2.9 percent in the year that ended in July. With last summer’s big gas price hikes falling out of the 12-month window, year-over-year inflation is likely to be down to 2.5 percent or even 2.4 percent with the September data.

With nominal wages rising at a 2.9 percent rate in the most recent data, that doesn’t translate into great wage growth, but 0.4 to 0.5 percent is better than zero. Those that made a big point of hyping the lack of real wage growth based on the July data may look a bit foolish in another month or two.

Those trying to push the zero real wage growth as an election issue may have the further problem that for the 64 percent of households who own their own home, it is even less true. Rent, and owners’ equivalent rent for the people who own their home, is by far the largest single contributor to inflation.

It is unlikely that people who own their home see the implicit rent they pay to themselves as a cost. For homeowners, a better measure of inflation is a price index that excludes rent.

If we exclude rent, inflation was 2.3 percent over the last year. This measure is likely to dip below 2.0 percent next month. That means that people who own their homes are seeing a respectable rate of real wage growth of close to 1.0 percent annually.

Of course, the good news for homeowners makes the story even worse for those who rent. Many renters are paying 40 percent or even 50 percent of their income in rent. For renters, the 3.6 percent rise in rents over the last year is a very big chunk of the inflation they see. Workers who rent may well be seeing an inflation rate that is more rapid than the growth in their wages.

The fact that wages are growing modestly does not mean that people should be satisfied with the current state of the economy. Workers took a huge hit in the Great Recession, as there was a massive transfer from wages to profits. Workers should be able to get back the ground they lost, and this will require wage growth that is considerably more rapid than 1.0 percent a year.

But we should be clear, wages are now moving in the right direction, even if not nearly fast enough. We may fool ourselves by trying to argue otherwise, but probably not too many other people.