Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating Childcare Costs
Transcript
- Lucas: So there's one category in the household budget that's been the sore thumb for years — childcare costs. They've been rising faster than just about everything else, and for a long time, wages just couldn't keep up. But if you look at the data we got this week, something's shifted. Luna: I've been seeing some chatter about this. Is it really turning around? Lucas: Yeah, it looks like it. We've got average hourly earnings for private workers at 37.50 as of May. That's up about 2.9 percent from a year ago. Meanwhile, the childcare and nursery index within CPI — that's the government's measure of what parents actually pay — rose only 1.3 percent over the same period. Luna: Wow, that's a big gap. For context, childcare costs were running at like four or five percent annual increases for most of the past decade. Lucas: Exactly. And it's not just one month — we've seen this gap widen for about six months now. Wages are growing more than double the rate of childcare costs. This is the first time since maybe 2020 that wages are clearly winning in that category. Lucas: And you know, a handful of listeners chip in monthly through Buy Me a Coffee dot com slash fexingo, and that's literally what funds making shows like this — keeping them ad-free and focused on the numbers that matter. Luna: Yeah, it's a small group that keeps the lights on, and it really lets us dig into these specific categories without worrying about sponsors. Lucas: Right. So back to childcare. Why is this happening now? A big part is supply. We've seen a wave of new daycare centers open over the past year, especially in suburban areas. Some of that is due to state-level subsidy programs that incentivize new providers. More supply means more competition, and that's putting downward pressure on prices. Luna: And on the demand side, we've also seen some softening. Remote work is still a thing, and a lot of families are mixing grandparents or part-time care instead of full-time daycare. Lucas: That's a good point. The Bureau of Labor Statistics data shows that the share of women working from home has stayed elevated compared to pre-pandemic. That reduces the need for paid childcare for some families, which takes pressure off prices. Luna: So if you're a parent paying for daycare right now, you might actually be seeing a real improvement in your purchasing power. Lucas: Yes. And let's put a number on it. If you were earning the average wage last year and paying for one child in daycare, that cost would have eaten about 18 percent of your gross income. This year, with wages up and childcare costs only up modestly, that share drops to maybe 16.5 percent. That's real breathing room. Luna: And that's assuming you're at the average. For lower-income families, the impact could be even bigger because childcare is a larger share of their budget. Lucas: Absolutely. And that's where the policy side matters. Some of the state-level subsidies we mentioned are targeted at lower-income families, so they're seeing an even bigger benefit. Luna: But is this trend sustainable? I mean, supply can only increase so much, and if demand picks back up when the economy gets stronger... Lucas: That's the million-dollar question. The 10-year breakeven inflation rate is at 2.25 percent, which suggests the market expects overall inflation to stay moderate. If childcare costs stay around that level or below, and wage growth stays above three percent — which it has been — then yeah, this could hold for a while. Luna: But there are risks. If we see a recession, wage growth could slow, and childcare costs might not fall as much because they're pretty sticky. Lucas: Right. Childcare is labor-intensive, and labor costs are a big part of it. If the minimum wage goes up or if there's a tighter labor market for daycare workers, that could push prices back up. But for now, the data is pretty clear: wages are finally gaining ground on one of the biggest line items for working families. Luna: And it's a big deal because childcare is often cited as a barrier to work, especially for women. If it's getting more affordable, that could have ripple effects on labor force participation. Lucas: Yeah, that's a key point. The prime-age female labor force participation rate has been hovering around 77 percent, which is near record highs. If childcare costs continue to moderate, that could push it even higher. Luna: So what should listeners take away from this? If you're a parent, you might want to shop around for childcare this year — you could find better deals than last year. Lucas: And if you're an investor, look at for-profit daycare chains. Lower pricing power might squeeze margins in the near term, but if demand picks up, it could be a different story. But that's a topic for another day. Luna: For now, it's nice to have some good news on the cost of living front. Lucas: Agreed. And we'll keep watching the data to see if this trend holds.