The labor market isn't as hot as it looks

Great news - my wages are nearly keeping up with inflation!

To hear the nattering nabobs of Wall Street, you'd think the latest jobs figures, out Friday, show that labor has never had it so good.

Sadly, for working Americans, this isn't actually the case.

Notice that this one-month apparent boom in jobs is mostly driven by low-wage hospitality jobs over the summer, plus hiring of teachers by local governments ahead of the new school year.

In total, those accounted for 103,000 of the 162,000 nonfarm payroll jobs supposedly added in August, or nearly two-thirds of the total. The high-wage information technology sector, which is supposed to be white-hot because of the insane bubble spending on artificial intelligence, actually lost jobs.

During this supposed jobs bonanza, average hourly wages are actually losing ground to inflation. In real terms, workers are worse off.

Average hourly earnings rose 0.3% between July and August, the Labor Department says. But during the same period, consumer prices rose by 0.4%, according to the Cleveland Federal Reserve Bank.

Average hourly earnings over the past 12 months, meanwhile, rose 3.1%, says the Labor Department. Consumer prices went up over the same period, says the Cleveland Fed, by 3.4%.

Oops.

And this is an economy that's being goosed with a flood of borrowing. These jobs figures followed a federal debt frenzy in July, when the federal deficit nearly quadrupled from the previous month, to $432 billion.

In other words, during the month of July the federal government issued IOUs equal to about $3,200 per U.S. household and then spent the money, and although restaurants took on a bunch of new waiters, waitresses, bussers, dishwashers and cooks, real wages across the economy fell.

Booyah!

And that's not the half of it. Just in time for Labor Day, the Labor Department also reported that American workers are now getting the smallest share of our national economic output on record.

The "labor share" of gross domestic product fell in the second quarter to just 52.8%, the department reported Thursday. "The labor share, which is the percentage of output that accrues to workers in the form of compensation, was 52.8 percent in the second quarter of 2026, the lowest level in the series, which begins in the first quarter of 1947," it said.

That doesn't even count what has been happening in the past two months, since the end of the second quarter.

To be sure, these trends aren't new. They helped President Donald Trump get elected, in 2016 and again in 2024.

But the figure has fallen by another two full percentage points since the fourth quarter of 2024 - in other words, since Joe Biden was president. Awkward!

Happy Labor Day.

When the dust settles, sooner or later, this should be bullish for bonds.

Right now, Wall Street expects the Federal Reserve to hike interest rates three times over the next year, starting this month. In the wake of the latest headline jobs figures, a small minority are starting to ask if the Fed won't hike rates four times, taking them as high as 4.5%-4.75% a year from now.

When the Fed raises short-term rates, it sends out a signal to the bond markets that it is being vigilant about inflation. That tends to calm bond-market worries about long-term inflation, which in turn often leads to lower long-term interest rates. Bonds operate like seesaws: When the interest rate, or yield, falls, the price rises. So aggressive Fed interest-rate hikes, especially in a real economy that is nowhere near as strong as Wall Street is pretending, may well prove bullish for bonds.

And that doesn't even factor in the chances that, one way or another, the Fed will be forced to deal with soaring deficits by relaunching "quantitative easing" and buying Treasury bonds with newly printed money.

Given the recent bond-market funk, it's worth noting that inflation-protected Treasury bonds, known as TIPS, are guaranteed to beat inflation over the medium to long term by 2% to 3% a year.

That's unlike the average job, which apparently isn't beating inflation at all - even during a supposed boom.

-Brett Arends