Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / How Productivity Paychecks Are Actually Working
Transcript
- Lucas: If walking through the economy with us has made something click, we want to mention that before we get into today’s specific number. A couple of dollars a month is genuinely what keeps these going. If you’ve gotten something out of them, check out buy me a coffee dot com slash fexingo. It helps keep the lights on without ads interrupting our flow. Luna: Yeah, it really does add up when you look at the long haul. And honestly, that feels like the perfect setup for today because we need to talk about where that money actually goes once it hits your account. Lucas: Right. So here is the thing that has been nagging me all week. We look at the latest jobs report from August and see average hourly earnings sitting at thirty seven dollars and eighty cents. That looks good on paper. But then we flip to the Core PCE price index, which is up to one hundred thirty point five. You are making more, but the stuff that actually matters—housing, healthcare, insurance—is moving faster than your paycheck. Luna: Exactly. It is that feeling of running on a treadmill that is speeding up while you are just trying to keep pace. Have you looked at the Employment Cost Index? It says wages are up, but so are the costs for employers. Lucas: I did. The Employment Cost Index for wages is at one hundred seventy nine. That is up from one hundred seventy seven fifty. What strikes me is that this isn't a broad-based surge across every industry. It is heavily concentrated in sectors where labor is scarce. But here is the kicker: productivity hasn't kept up with those wage hikes. Companies are paying more, but they aren't getting more output per hour. Luna: So they are just passing that cost directly to consumers. Which means my grocery bill and my car insurance go up, not because food is more expensive to grow, but because the business overhead is higher. Lucas: Precisely. And this is where the wage-price squeeze gets personal. In September two thousand twenty six, we saw the CPI tick up to three hundred thirty four point one. But the Core CPI, which strips out the volatile food and energy items, is at three hundred thirty seven point eight. That core number is sticky. It reflects services. And services are where labor costs live. Luna: It feels like we are stuck in a loop where workers demand raises to cover inflation, businesses raise prices to cover the raises, and nobody actually wins. Is there any sector breaking that cycle? Lucas: There are pockets, but they are small. Look at manufacturing. Productivity there is still relatively strong because automation is doing heavy lifting. But in hospitality, healthcare, and local services? You are seeing wage growth that is barely offsetting the ten-year breakeven inflation rate, which is sitting flat at two point three six percent. That means the market thinks inflation will stay low, but your wallet disagrees. Luna: That discrepancy is wild. Two point three six sounds manageable until you try to rent an apartment in a major city. Where is the disconnect happening most sharply? Lucas: It is in the median usual weekly earnings versus the actual cost of living adjustments. Median weekly earnings are at one thousand two hundred four dollars. But if you break that down by geography, the gap widens. In high-cost areas, the thirty-seven-dollar-eighty-cent hourly rate is being eroded by housing costs that have no correlation to national inflation metrics. Luna: So you are earning more nationally, but losing ground locally. That explains why people feel poorer even when the headline numbers look okay. They are comparing their local reality to national averages. Lucas: Exactly. And let’s talk about the S&P 500 for a second. It is down one percent over the last five days, closing at seven thousand six hundred sixty-six. Investors are nervous because they see this exact dynamic. If wages rise without productivity gains, corporate margins get squeezed. And when margins get squeezed, stock prices don’t care how much you make; they care about profit per share. Luna: So the stock market drop is a signal that investors think this wage spiral is unsustainable. They are betting that either wages will cool down or prices will stop rising. Which one do you think happens first? Lucas: I think prices stabilize first, but wages lag behind. We are seeing signs of this in the global debt data. Global debt has topped three hundred sixty-five trillion dollars. When debt is that high, interest rates matter immensely. The Fed can’t cut rates aggressively to help borrowers if inflation is sticky in the services sector. So we are likely to see a period where wage growth flattens out completely. Luna: That sounds grim for anyone hoping for a big bonus check this year. But what about the consumer side? If wages flatten, do prices drop? Lucas: Unlikely. Prices are very slow to come down. Think of it like a glacier. Once it starts moving forward, it doesn’t reverse direction quickly. Even if the FOMC signals a pause, the Core PCE price index is already at one hundred thirty point five. That is structural inflation. It’s baked into the contracts for services, leases, and supply chains. Luna: So we are left with the same problem: how do individuals protect their purchasing power when the macro environment is working against them? Do we just accept the squeeze? Lucas: No, you adapt. And that brings us to the specific angle I wanted to drill into today. It’s not just about watching the CPI. It’s about looking at your own expense ratio. If your wage growth is four percent, but your essential costs are rising at five percent, you have a negative delta. You need to find where that delta is coming from. Luna: You mean auditing your own budget like a company audits its expenses? Because usually, we treat our personal finances as static rather than dynamic. Lucas: Exactly. Look at subscription stacking again, which we touched on earlier, but apply it to services. If you are paying for premium healthcare plans, private school tuition, or specialized childcare, those are the areas where the Employment Cost Index is hitting hardest. Those are the areas where you have the least leverage. Luna: Right, because those are rigid costs. You can cancel streaming services, but you can’t cancel your kid’s education or your health coverage. So where is the flexibility? Lucas: In discretionary spending. And here is the concrete takeaway: compare your wage growth to the Core PCE change in your specific category. If you spend a lot on travel, look at travel inflation. If you spend a lot on food at home, look at that specifically. Don’t use the headline CPI. Use the sub-components that match your life. Luna: That is a practical shift. Most people just look at the news anchor saying 'inflation is down' and assume their groceries are cheaper. But the sub-indexes tell the real story. Lucas: They do. And remember, the Dow Jones Industrial Average is at fifty thousand nine hundred twenty-seven. The broader market is reflecting this uncertainty. But for you, the individual investor or worker, the move is to hedge against service inflation. That might mean locking in fixed-rate loans now, before rates adjust again, or investing in assets that benefit from lower interest rates later. Luna: Locking in rates makes sense if you think the current environment is the floor. But given the global debt situation, aren’t we due for some volatility? Lucas: Absolutely. The Swiss National Bank is keeping rates at zero percent, which is a huge outlier. Most of the world is dealing with higher costs. That divergence creates arbitrage opportunities, but also risks. If other central banks are forced to hike rates to fight sticky service inflation, the dollar could strengthen, hurting exports but helping importers. Luna: So a stronger dollar might actually help your grocery bill if a lot of that food is imported. But it hurts if you work in an export-heavy industry. It’s a mixed bag. Lucas: It is. And that is why specificity matters. You can’t generalize your financial strategy based on a headline number. You have to look at the thirty-seven-dollar-eighty-cent hourly rate and ask: 'Does this cover my specific basket of goods?' If the answer is no, you have to adjust your savings rate or your career trajectory accordingly. Luna: That is a hard question to answer. Most people are too tired at the end of the day to do that kind of math. But it seems like the only way to stay ahead of the wage-price gap. Lucas: It is. And as we head into Q4, watch the November employment report closely. If average hourly earnings start to decouple from productivity growth entirely, we could see a sharper correction in the labor market. Until then, the advice is simple: know your sub-index, lock in your rates, and don’t trust the headline. Luna: Know your sub-index, lock in your rates, and don’t trust the headline. That is a solid mantra for navigating the rest of the year. Thanks for keeping it real with the numbers today.