U.S. Labor Market Broadens, but Real Wages Turn Negative as Inflation Outpaces Pay

Northwestern Mutual Wealth Management Chief Investment Officer Brent Schutte said the U.S. labor market has moved away from the weak, narrowly based growth seen in 2025 and has returned to broader expansion. According to Jin10, Schutte said all job growth in 2025 came from non-cyclical healthcare and social assistance within the U.S. economy. He said the diffusion index, which was below 50 in nine of the 12 months of 2025, has risen above 50 over the past five months and reached 54.4 in May. Schutte said the stronger labor market and stable employment are positive for consumers. However, he said concerns about future spending remain because real wages have turned negative, with average hourly earnings up 3.4% year over year while inflation stands at 3.8%. He added that the Federal Reserve may prefer to wait and see, but its focus is likely to shift toward the inflation side of monetary policy.