Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / How Your Paycheck Is Growing Faster Than Prices for the First Time in Years
Transcript
- Lucas: For the first time in a while, we have a genuinely good-news number to talk about. April's average hourly earnings came in at $37.40 — up five cents from March. That's not huge on its own, but when you stack it against the CPI reading for the same month, something interesting happens. Luna: The CPI hit 332.4 in April, up from 330.29. So prices are still climbing, but wages are climbing a little faster. Lucas: Exactly. The gap between wage growth and price growth — real wage growth, in economist-speak — has turned positive for the first time since late 2023. We're talking maybe 0.3 to 0.5 percent on an annualized basis, depending on which measure you use. But it's real. Luna: And it's not just the headline average. The employment cost index for wages hit 177.5 in the first quarter of this year, up from 176.23. That index captures not just hourly pay but also bonuses and commissions. So the trend is broad. Lucas: Right. The ECI is the Fed's preferred measure of labor costs, and it's been ticking up steadily. The question is: why now? And can it last? Luna: I think the 'why now' part has a few answers. One is that the labor market is still pretty tight. The unemployment rate is low, and employers in certain sectors — hospitality, retail, healthcare — have had to keep raising wages to attract and retain workers. Lucas: Healthcare is a big one. We did an episode on how health insurance premiums are eating raises, and that's still true for a lot of people. But even there, wage growth in healthcare occupations has been running above 4 percent year-over-year. So for workers in that field, the net is starting to look better. Luna: And then there's the inflation side. Core CPI — which strips out food and energy — came in at 335.4 in April, up from 334.17. That's a 0.37 percent month-over-month increase. Not great, but it's actually a deceleration from earlier this year. Lucas: Yeah, the core inflation rate has been drifting down. The 10-year breakeven inflation rate, which is basically the market's expectation for inflation over the next decade, is at 2.40 percent. That's down from the peak of around 2.6 percent we saw in 2024. So the market thinks the Fed is winning the inflation fight. Luna: If inflation expectations are anchored around 2.4 percent, and wage growth is running around 4 percent, that gives you a real wage gain of roughly 1.6 percent. That's not amazing, but it's a lot better than the negative real wages we saw in 2022 and 2023. Lucas: The median usual weekly earnings number — which is based on a different survey, the Current Population Survey — was $1,204 in the fourth quarter of 2024. That's up from $1,159 a year earlier. That's about a 3.9 percent increase. And again, inflation over that period was lower. So the typical worker is actually seeing their purchasing power improve. Luna: But it's not universal. If you're in a low-wage sector that hasn't seen the same wage pressures — like some parts of retail or food service — your raise might be smaller. And if you're renting in a city where rents are still climbing fast, that real wage gain gets eaten up pretty quickly. Lucas: That's the thing. The national averages hide a lot of variation. But for the broad middle of the workforce, the trend is finally moving in the right direction. And that's a big deal for consumer sentiment, which hit a record low last week according to the University of Michigan survey. Luna: Yeah, the sentiment number was brutal. But I wonder if that's more about geopolitical fears — the Iran war stuff — than about actual household finances. Because on paper, the consumer is in decent shape. Lucas: I think that's right. The sentiment numbers are often driven by headlines, not by people's bank accounts. And the PCE price index — which is the Fed's preferred inflation gauge — came in at 130.3 for March, up from 129.48. That's a 0.63 percent monthly increase, but the year-over-year rate is still around 2.5 percent. So it's coming down. Luna: Core PCE, which excludes food and energy, was 129.3 in March, up from 128.9. That's 0.31 percent month over month. Annualized, that's about 3.7 percent. So still above the Fed's 2 percent target, but moving in the right direction. Lucas: The big question is whether this wage growth can persist without reigniting inflation. If employers keep raising wages, they might pass those costs on to consumers in the form of higher prices. That's the wage-price spiral we've talked about before. But so far, it doesn't look like that's happening. Luna: Productivity gains might be helping. If workers are producing more per hour, then higher wages don't necessarily mean higher unit labor costs. And we have seen some decent productivity numbers lately. Lucas: Yeah, productivity growth has been running around 2 percent year-over-year. That gives employers some breathing room. If wages go up 4 percent but productivity goes up 2 percent, the net cost increase is only 2 percent. That can be absorbed without raising prices much. Luna: So the picture is: wages are up, inflation is down, productivity is helping. That's a pretty good setup for the rest of the year. Lucas: It is. But there are risks. The Iran situation could push energy prices higher, which would feed back into inflation. And the Fed is still on hold — they haven't cut rates yet. If they have to hold rates high for longer, that could slow the economy and hurt wage growth. Luna: Still, for now, the typical worker is seeing a real improvement. It's not huge, but it's real. And after a couple of years of feeling like you're running in place, that matters. Lucas: You know, we get to dig into this data every day because a handful of listeners chip in to keep the show going. We don't run ads, and we want to keep it that way. If you find these conversations useful, you can support us at buy me a coffee dot com slash fexingo. No pressure at all — just wanted to mention it. Luna: Yeah, it's a small thing that makes a big difference. And it keeps us independent, which we like. Lucas: Alright, back to the numbers. One thing I want to flag is that the recent rally in stocks — the S&P 500 is up 1 percent in the last five days, the Dow up nearly 2 percent — suggests that investors are also feeling better about the economic outlook. Markets are forward-looking, and they're pricing in a soft landing. Luna: The Russell 2000, which tracks small caps, is up over 3 percent in the last five days. That's often a sign that investors expect the economy to keep growing, because small companies are more sensitive to domestic demand. Lucas: Exactly. So the market is voting with its dollars. And if that confidence translates into more hiring and more investment, it could reinforce the wage growth we're seeing. Luna: What about the consumer sentiment record low? The Michigan survey came out Friday and it was awful. How do we square that with the market's optimism? Lucas: I think it's the classic 'vibecession' — people feel bad about the economy even when the hard data is okay. The sentiment survey is heavily influenced by what people see in the news, and the news lately has been dominated by the Iran conflict and inflation worries. But when you look at things like retail sales, jobless claims, and wage growth, the picture is much more positive. Luna: So the disconnect is real. But over time, if wages keep outpacing prices, sentiment should improve. It just takes a while for the reality to sink in. Lucas: Right. And that's what we'll be watching in the months ahead. The Fed's next meeting is in June, and if the data stays on this track, they might start signaling a rate cut. That would be another positive for workers and for the economy. Luna: But for today, the takeaway is simple: after a long stretch where prices were winning, wages are finally pulling ahead. It's not a victory lap, but it's a step in the right direction. Lucas: And that's worth talking about. Thanks for listening — we'll be back tomorrow with more.