Every argument about the economy is really an argument about which number counts.
Pick one and the year looks like a recovery. Pick another and the same 12 months look like a squeeze.
You know this already. Your paycheck went up, and so did the total at checkout.
Whether that adds up to progress depends on which of those two facts gets top billing.
For most of the past two years, the number that got top billing was the one that felt bad. Prices climbed faster than pay, and no amount of official reassurance changed the arithmetic at the pump.
That has started to shift, at least on paper. Pay at the bottom of the ladder has been rising faster than pay at the top, and the inflation gauge policymakers watch most closely has drifted toward the Federal Reserve‘s 2% target.
Washington noticed. This week the Treasury Department turned that shift into a political argument, complete with a history lesson about communism and one statistic doing a great deal of quiet work.
Treasury Secretary Scott Bessent laid out that case on Aug. 14, and it rested on three claims stacked one on top of the other.
Core inflation “was 2.5%, a very good number, moving toward the Fed’s 2% target,” Bessent said in a post on X. He added that pay for the bottom 25% of working Americans rose 5.5% over the past year, and framed the alternative to current policy as a road that ends in the Soviet Union, Cuba or Venezuela.
Why core and headline inflation tell you two different stories
Core inflation strips out food and energy. Economists like it because those two categories lurch around on things that say nothing about the trend, like a refinery outage or a bad harvest.
More Economic Data:
- Scott Bessent’s economy claim is raising eyebrows on Wall Street
- Robert Kiyosaki has a strong warning on 401(k)s for all Americans
- Women just claimed the majority of US jobs
The catch is that you buy food and energy every week.
I have been covering Bessent’s Main Street pitch since June, and this choice of measure is the through line.
That gap is unusually wide at the moment. Here is what the July report actually showed:
- Overall consumer prices rose 3.4% over the 12 months through July, down from 3.5% in June, according to the Bureau of Labor Statistics.
- Core prices, which exclude food and energy, rose 2.5%, down from 2.6%, CNBC reported.
- Gasoline cost 24.6% more than it did a year earlier, and the broader energy index was up 14.7%, per the BLS release.
- The national average for regular gas sat just above $4.07 a gallon on Aug. 14, the highest August average on record, according to AAA.
The distinction matters more the less you earn. Lower-income households put a bigger share of every paycheck into gas, groceries and utilities, which is why a measure built to exclude those items flatters the bottom of the wage ladder.
What Bessent said about wages and communism this week
Bessent has been building toward this all month. On CNBC’s “Squawk Box” on Aug. 4, he said he was tired of hearing about the K-shaped economy and declared it finished, replaced by a C-shaped economy where lower earners close ground.
The wage figure is real and it comes from the government. Weekly earnings at the 25th percentile of full-time workers rose 5.5% from a year earlier, against 1.5% at the 75th percentile, The Hill reported.
Related: Bessent sends businesses message on paid family leave
None of that is in dispute. The dispute is about what you compare it to, a question several economists raised after his Aug. 4 remarks.
The wage number is always nominal. The inflation number is always core. Those two measures are not built to sit next to each other, and stacking them makes the gain look roughly twice as large as it is.
Where that 5.5% raise actually lands in your budget
Run the numbers and the gap gets concrete fast.
One in four full-time workers earns $850 a week or less, according to BLS quartile data for the second quarter. Apply Bessent’s own 5.5% to that threshold and you get about $44 more a week, roughly $2,300 a year before prices.
Now subtract inflation. The BLS itself measured second-quarter earnings against a 3.9% rise in the consumer price index over the same stretch, which leaves a real gain near $13 a week, or about $670 a year.
Compare that same raise against core inflation at 2.5% instead, and it grows to roughly $24 a week, or about $1,257 a year.
My analysis puts the difference at close to $587 a year in purchasing power that exists only in the choice of yardstick. That is a used transmission, or five months of a car payment.
What the wage fight means for your money from here
Wolfers made a second point this week that cuts deeper than the arithmetic.
Workers now collect about 54 cents of every dollar the economy produces, the lowest share on record and well below the two-thirds that held for most of the last century, he wrote. By his math, that five-point slide costs the average worker around $10,000 a year in wages that went to owners instead.
That is the part a wage comparison cannot capture. If you own stock, the past year has been very good. If your household runs on a paycheck, you have been fighting for a slightly larger slice of a shrinking share.
Other economists are landing in the same place without going that far. “I think that declaring the death of a K-shaped economy is a little bit premature,” Lazard CEO Peter Orszag said on CNBC, per PBS News.
The bond market has been sending its own version of this signal all year, and Bessent has struggled to talk that one down.
Two things follow for your own money.
Watch headline inflation, not core, when you decide what you can afford. Core is a policy tool built for the Fed, and a poor guide to a budget that runs on gas and groceries.
Then watch the spread between the two. It has been running near a full percentage point, and every month it stays there is a month your raise is worth less than the press release says.
The bottom quartile really is gaining on the top. That part of the pitch survives contact with the data. Whether you feel it depends on how much of your paycheck goes into a gas tank, and right now, that share is the highest it has been in an August on record.
Related: Bessent doubles down on tax cuts’ payoff