Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / The Hidden Cost of Your August Paycheck
Transcript
- Lucas: Look at the headline number from last Friday. U.S. payrolls rose by one hundred sixty-two thousand in August, which was much more than economists expected. On the surface, that sounds like a labor market that’s still humming along nicely. Luna: Right, and with the unemployment rate sitting at four point one percent, it really does look like there’s plenty of work for everyone. So why does my inbox feel so full of complaints about money? Lucas: That’s exactly the disconnect we’re digging into today. You have strong job numbers, but you also have average hourly earnings for private sector workers ticking up to thirty-seven dollars and eighty cents. It looks like progress until you layer it against the cost of living. Luna: Let me guess. The Core CPI, which strips out volatile food and energy, is still clinging to three hundred thirty-six point eight. That’s not exactly cooling off fast enough to match those raises. Lucas: Exactly. And here is the thing most people miss when they look at these reports. The gains aren’t being felt equally across the board. Women accounted for almost all of the job gains in August, which is huge for long-term equity, but it also means the composition of who is working—and earning—has shifted significantly. Luna: So we’re seeing a structural shift in the workforce while prices remain stubbornly high. Does that mean the typical worker is actually losing ground despite the extra jobs? Lucas: I would say the typical worker is maintaining, barely. But maintenance isn’t growing. If your raise is two percent and inflation is effectively three percent in your personal basket, you’re working harder just to stay in the same place. We’ve talked before about how raises beat the cost of diapers or rent, but those are big-ticket items. Today I want to talk about the slow bleed. Luna: The slow bleed. You mean the things you don’t think about until you check your bank statement? Like subscriptions? Lucas: Spot on. We covered the hidden tax of monthly subscriptions in episode one hundred seventy-seven, but the landscape has changed. Companies are raising prices not just to offset their own inflation, but because demand remains surprisingly resilient. People are still paying for streaming, cloud storage, and software tools. Luna: It’s funny how we accept price hikes for digital services when we’d revolt if our grocery bill went up by five percent overnight. There’s a psychological invisibility to those charges. Lucas: There is. And combined with the fact that the PCE price index is up to one hundred thirty-one point seven, the aggregate pressure is real. When you add up the small increments across dozens of recurring bills, it eats into the discretionary portion of that new paycheck. Luna: So even though the median usual weekly earnings are up to one thousand two hundred four dollars, the ability to save that extra cash is shrinking because the baseline cost of existing is higher. Lucas: Precisely. And let’s be clear about the donation ask here. If walking through the economy with us has made something click about where your money is going, consider supporting the show. Listener support keeps this ad-free. You can find us at buy me a coffee dot com slash fexingo. It helps us keep digging into these numbers. Luna: Yeah, it really does help us get the data faster and spend more time on the analysis rather than chasing sponsors. Lucas: Back to the data. There is another angle here that ties into those subscription costs. It’s the rise of budget travel and the shift in how people spend on experiences. Headlines from earlier this week noted that travelers are moving from mystery vacations to hostels as prices rise. Luna: That’s interesting. So even with strong employment, people are trading down on leisure spending. They’re still traveling, but they’re being thrifty about it. Lucas: Exactly. This is a classic signal of squeezed purchasing power. You haven’t stopped consuming, but you’ve optimized the consumption downward. It’s rational behavior. But it tells us that businesses in the hospitality and travel sectors are facing margin pressure too, which eventually feeds back into wage negotiations. Luna: So the labor market strength might actually be masking a consumer who is becoming more cautious. They have jobs, but they aren’t feeling rich enough to ignore every price increase. Lucas: That’s a very accurate way to put it. And look at the Employment Cost Index for wages. It was at one hundred seventy-nine point zero in April, up from one hundred seventy-seven point five. That’s steady growth, but it’s not explosive. Employers are hesitant to pass on large increases unless absolutely necessary. Luna: Which creates this standoff. Workers want raises that match the Core CPI, but employers are holding the line because they know consumers are already cutting back on luxuries. Lucas: Right. And this brings us to the broader market context. The S&P five hundred is up four tenths of a percent over the last five days, closing near seven thousand seven hundred nineteen. Investors are pricing in a soft landing, but retail investors are feeling the squeeze in their daily lives. Luna: It’s a strange duality. The stock market sees stability, but the individual sees their grocery receipt getting heavier. How do we reconcile those two views? Lucas: You reconcile them by understanding that corporate profits are currently insulated by efficiency and automation, even as consumer prices remain elevated. The ten-year breakeven inflation rate is flat at two point three five percent, suggesting markets believe inflation will stabilize. But stabilization isn’t deflation. Prices aren’t falling; they’re just stopping their rapid ascent. Luna: So the goalposts have moved. We used to worry about inflation running away, now we worry about it just refusing to go away completely while wages crawl forward. Lucas: Yes. And for the listener managing their household budget, this means the strategy shifts from defensive saving to active optimization. You can’t just wait for a raise to fix your budget. You have to audit those recurring costs we talked about. Luna: Audit the subscriptions, yes. But also look at the services. Insurance premiums, utilities, maybe even car insurance. Those are areas where prices have been less transparent than tech services. Lucas: Good point. The JOLTS report and NFP data both show a tightening labor market, but the quality of jobs matters. Are they part-time or full-time? High-wage or low-wage? The fact that women drove most of the gains suggests some sectors are expanding, but we need to see if those gains are translating into sustained wage growth for the median worker. Luna: It feels like we’re in a holding pattern. The Fed is watching all of this closely, especially with political pressure mounting on the central bank leadership right now. Lucas: True. With Trump turning up the heat on Warsh regarding potential rate hikes, there is an added layer of uncertainty. Markets hate uncertainty. The VIX might be calm today, but policy shifts can change the calculus quickly. Luna: So if rates stay higher for longer, borrowing costs remain elevated. That makes buying a house or starting a business even harder, further constraining economic mobility. Lucas: Exactly. It reinforces the idea that wage growth alone isn’t enough. You need a favorable interest rate environment to convert income into wealth. Right now, the window is narrow. Luna: This puts a lot of emphasis on financial literacy again. Knowing how to manage debt and optimize spending isn’t just a hobby anymore; it’s a necessity for building a buffer against this kind of stagnant real wage growth. Lucas: I agree. And that’s why shows like this matter. Not to predict the stock market, but to give you the vocabulary to understand your own position in the economy. Is your raise beating the cost of tuition? Maybe. Is it beating the cost of everything else combined? That’s the question. Luna: It’s a sobering thought. But knowing where the leaks are—the subscriptions, the service inflation—gives you power to plug them. It turns passive frustration into active management. Lucas: That’s the takeaway. The data says the economy is stable, but your wallet might feel tight. By understanding the divergence between headline job numbers and actual purchasing power, you can make smarter choices about where to spend and where to cut. Luna: And maybe reconsider those mystery vacations. Sometimes a hostel visit saves enough cash to cover a year of streaming services. Lucas: Now you’re thinking like an economist. Small optimizations add up. We’ll leave you with that as we close out this deep dive into the August numbers. Luna: Thanks for listening. Let us know which of your monthly subscriptions you’re cutting first. Lucas: Next week, we’ll look at how small businesses are adapting to these same wage pressures. It’s a different side of the coin. Luna: See you then.