Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / The Raise You Got vs the Prices You Missed
Transcript
- Lucas: So the May jobs report drops tomorrow, but we already got a sneak peek from the ADP data — private payrolls grew by 122,000, stronger than expected. And average hourly earnings ticked up to $37.50. Luna: That $37.50 number — up nine cents from last month — it sounds like a win. But every time we see that headline, I wonder what it actually buys. Lucas: Right, and that's the whole tension of this show. The wage number is real, but the price number is moving too. The April CPI — the broadest measure — hit 332.4. That's up from 330.29 in March. Luna: So wages up 0.24 percent month-over-month, prices up about 0.6 percent. The math doesn't feel great on its face. Lucas: It's not great. But if you look at core CPI — that's excluding food and energy — it's 335.4. Up from 334.17. So the core inflation rate is actually a little slower than headline. That tells you food and energy are still the pain points. Luna: And those are the things people buy every week. Gas, groceries. So even if core slows, the lived experience can feel worse. Lucas: Exactly. And then there's the Fed's preferred gauge — core PCE. That's at 129.6, up from 129.32. Much lower inflation rate than CPI. The Fed uses PCE because it accounts for substitution — if beef gets expensive, people buy chicken. CPI doesn't adjust for that as quickly. Luna: So the Fed might look at core PCE and say 'inflation is moderating, we're okay.' But the person at the grocery store sees the price of ground beef up 12 percent and doesn't care about substitution. Lucas: That's the disconnect. And it's baked into the data. The employment cost index for wages — that's a broader measure including benefits — it's at 177.5, up from 176.23. That's about 0.7 percent quarterly growth. So total compensation is rising, but not dramatically. Luna: I want to talk about something I noticed in the headlines. Long-term unemployment is surging. The CNBC piece said there are hidden costs. How does that fit with wage growth? Lucas: It's a really important layer. Because when you have long-term unemployed workers, they tend to re-enter at lower wages. That pulls down the average. So the $37.50 figure might be inflated by people at the top getting big raises, while the bottom is struggling. Luna: So the average masks a widening gap. The people who already have jobs might be doing okay, but the people trying to get back in are losing ground. Lucas: Exactly. And that's where the employment cost index is useful — it tracks what employers are paying for current workers. That's rising steadily. But it doesn't capture the people who aren't employed. Luna: So what's the real story for the typical worker? Not the average, not the median, but the person in the middle? Lucas: The median usual weekly earnings — that's the most recent figure we have, from early 2025 — was $1,204. That's up from $1,159 the year before. So about 3.9 percent growth. Inflation over that same period was around 3 percent. So real wage growth positive, but barely. Luna: Barely positive. That matches what a lot of listeners probably feel. Their paycheck went up, but everything costs more, so they're treading water. Lucas: And energy is a big part of that. The Iran conflict, the tariff news — those ripple into gasoline and heating. And those are hard to substitute away from. You can't decide not to drive to work. Luna: I want to zoom in on one thing. Core PCE is at 129.6. The Fed targets 2 percent annual PCE inflation. Where does that 129.6 number land us? Lucas: If you annualize the recent monthly changes, core PCE is running around 2.2 to 2.4 percent. So slightly above target, but not alarmingly. The problem is that services inflation — things like rent, insurance, medical care — those are stickier. They don't come down quickly. Luna: And those are the categories that eat up a huge share of a typical budget. So even if the headline number is close to target, the basket of goods that matters most to workers is inflating faster. Lucas: Right. The Fed looks at PCE and sees a soft landing. But the worker looks at rent and car insurance and sees a hard reality. Luna: So where does this leave us for the May jobs report tomorrow? What are you watching? Lucas: I'm watching average hourly earnings growth month-over-month. If it stays around 0.2 percent, that's consistent with the Fed's narrative. If it jumps to 0.4 or higher, the market might worry about wage-driven services inflation. Also watching the unemployment rate — if it ticks up because of more people entering the labor force, that's actually healthy. Luna: And long-term unemployment — the headline said it's surging. That could be a sign that the labor market isn't as tight as the headline numbers suggest. Lucas: Exactly. Because the unemployment rate can stay low if people drop out of the labor force. But long-term unemployed are still counted. So if that number is rising, it's a warning. Luna: This is the kind of nuance that makes these conversations so valuable. And honestly, it's why we keep doing this show every day. We get to pull back the curtain on what the numbers actually mean. Lucas: And that's only possible because of the listeners who support us directly. A handful of people chip in monthly through buy me a coffee dot com slash fexingo, and that literally funds us making this many episodes without ads. Luna: Yeah, it's a small group, but it makes a huge difference. If walking through the economy with us has made something click, that's where you can keep it going. Lucas: Alright, back to the data. One more thing I want to flag — the 10-year breakeven inflation rate is at 2.36 percent. That's basically flat. The bond market is saying inflation expectations are anchored. That's a good sign for the Fed. Luna: But anchored expectations don't put food on the table. So the real question is: when do workers actually feel the improvement? Lucas: It takes time. Real wage growth turned positive in 2026, as we covered in episode 34. But it's fragile. If energy spikes again, or if rent reaccelerates, that positive real growth could vanish. Luna: So we're in a window where things are better, but not by much. And the data tomorrow could either widen that window or close it. Lucas: Exactly. That's why we'll be watching. And we'll break it down as soon as the numbers drop.