Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Feels Invisible in 2026
Transcript
- Lucas: Look at the number thirty-seven dollars and sixty cents. That is the current average hourly earnings for private workers in the United States as of early July. On a screen, it looks like a solid step up from last year. But if you take that thirty-seven dollar sixty cent check to a hardware store or try to hire someone to fix your roof, it doesn't feel like much of an upgrade at all. Luna: Right, because the denominator keeps changing faster than the numerator. We are seeing this weird divergence where manufactured goods are getting cheaper, but the services that actually consume most of our time and money are still running hot. Lucas: Exactly. And here is the thing that trips people up when they look at their pay stubs. They see a nominal raise, maybe three percent, and they think, okay, I am ahead of inflation. But we have to look at what is actually driving that inflation right now. Core CPI sat at 336.8 in July, which means even after stripping out food and energy, prices are still climbing. The question is, whose wages are actually keeping pace with that 336.8 index? Luna: It feels like the winners are in sectors with extreme labor shortages, like healthcare or skilled trades, while the rest of us are watching our real wages erode just by existing in the same zip code. Lucas: Let's drill into that split because it is structural, not accidental. If you look at the Employment Cost Index for wages, it hit 179.0 in April. That is up from 177.50 just three months prior. Employers are paying more to keep staff, but they aren't necessarily passing those costs down to consumers in the form of higher prices everywhere. They are absorbing them through thinner margins, or worse, they are cutting hours. Luna: So you have a situation where companies are raising prices to cover labor costs, but average workers aren't getting those same raises unless they are in high-demand roles. It creates this lag effect where income falls behind costs before it catches up, if it ever does. Lucas: That lag is exactly what is killing household budgets in late summer of 2026. Consider the median usual weekly earnings, which sit at 1,204 dollars. That sounds decent until you realize that housing, insurance, and local services are ticking up every single month. When you combine that with the fact that ADP reported only 38,000 private payrolls added in August, the job market isn't heating up enough to force broad-based wage increases across the board. Luna: And with the big August jobs report coming out Friday, everyone is bracing for a soft landing that might actually feel like a stall. If employers aren't hiring, they certainly aren't offering signing bonuses or aggressive merit hikes to the general workforce. Lucas: Before we go deeper into the policy implications, I want to mention something about how this show exists. If walking through the economics of your daily life has made something click, a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo. There are no ads, no corporate sponsors, just listener support that funds these deep dives. It really helps us keep the focus on the data rather than the clicks. Luna: Yeah, and it means we can spend time on episodes like this without worrying about a brand manager asking us to soften the blow on inflation numbers. So thank you to anyone who supports that model. Lucas: Back to the data. Let's talk about the specific categories dragging down purchasing power. You mentioned housing earlier, but look at the PCE price index, which came in at 131.7 in July. The core PCE is 130.7. These are the metrics the Federal Reserve watches most closely. Notice that the ten-year breakeven inflation rate dropped slightly to 2.34 percent yesterday. Markets are calm, but that calm is misleading because it ignores the stickiness of service prices. Luna: The Fed sees two-point-three-four percent and thinks everything is fine, but my friend who runs a small landscaping business tells me his fuel and insurance costs alone jumped four percent this year, so he had to raise prices regardless of what the Fed says. Lucas: That is a perfect example of micro-level pressure that macro indicators miss. When you have a localized supply shock or a regulatory cost increase in a specific industry, it doesn't show up in the aggregate CPI immediately. It shows up in your receipt. And since the S&P 500 is up half a percent over the last five days to 7,748, investors are feeling good about corporate profits, even if those profits are being protected by price hikes that squeeze consumer wallets. Luna: It’s almost like the economy is bifurcating. You have asset holders seeing gains in the NASDAQ, which is up point-seven percent to 26,584, and regular earners watching their real income shrink because their wages are tied to productivity, which hasn't moved much. Lucas: Productivity is the key word there. If wages rise faster than productivity, you get inflation. If they rise slower, you get stagnation. Right now, we are stuck in the middle. Average hourly earnings are up, but not enough to offset the cumulative effect of three years of elevated prices. The base effect is working against us. Even if inflation cools to two percent next year, you are still starting from a higher price level, meaning your money still buys less than it did in twenty-twenty-two. Luna: So it’s not just about the speed of the car; it’s about the fact that we’ve driven further uphill than anyone realized. Now we’re trying to coast, but the gradient is still steep. Lucas: Exactly. And let's look at who is actually winning in this environment. If you work in technology or finance, your compensation packages often include stock options or bonuses tied to those indices we just mentioned. So when the Dow hits 53,686, your net worth goes up. But for the vast majority of workers whose compensation is purely cash-based, that rally is invisible. It doesn't put food on the table or pay the mortgage. Luna: It creates this psychological disconnect where the news says the economy is booming, but your bank account says otherwise. You start doubting your own perception of reality because the headlines don't match your lived experience. Lucas: That doubt is dangerous because it leads to poor financial decisions. People panic-sell assets or delay necessary purchases like home repairs because they feel poorer than they are. But here is the concrete takeaway: you need to separate nominal wage growth from real wage growth. If your raise is three percent, but your specific cost of living category—like childcare or insurance—is up six percent, you are effectively taking a cut. You have to audit your personal budget using the specific inflation rates of your major expense buckets, not the generic CPI number. Luna: That’s a practical shift in mindset. Instead of looking at the national average, you look at your own slice of the pie. And if your slice is shrinking, you adjust your spending or negotiate harder, rather than just assuming the whole pie is growing. Lucas: Precisely. And speaking of negotiating, this is a tough time to ask for a raise if you are in a role that isn't experiencing acute labor shortages. With the unemployment situation remaining soft and the ADP data showing weak payroll growth, employers have the upper hand. They know you aren't going anywhere, and they know your replacement won't command a higher salary either. Luna: So the strategy shifts from negotiation to retention. You stay put, you build skills that are immune to automation or offshoring, and you wait for the cycle to turn. But waiting feels terrible when your purchasing power is declining every month. Lucas: It does. And that brings us back to the Federal Reserve. Governor Waller indicated yesterday that he supports holding rates steady in September. This makes sense given the lackluster job market. But holding rates steady means borrowing costs remain high. Credit card debt, auto loans, and variable-rate mortgages continue to eat into disposable income. So even if wages stabilize, the cost of servicing debt will keep suppressing your ability to save. Luna: It’s a trap. High rates protect the currency but punish the borrower. And since most households are leveraged, that punishment comes directly from their monthly cash flow, leaving less room to absorb any future price shocks. Lucas: Let's zoom out to the global context for a second. South Korea's semiconductor exports tripled year-over-year recently. That is huge growth. But does that help your local grocery bill? No. Global supply chains are complex, and gains in one sector don't automatically translate to lower prices in another. In fact, if tech demand surges, it can drive up energy and logistics costs, which then trickle down to other industries. Luna: So the benefits of global efficiency are concentrated, while the costs are distributed. That asymmetry is why you feel the pinch even when the broader economy seems to be generating value. Lucas: Another angle to consider is the impact of climate events. The UN just warned about a supersized El Niño set to hit global markets. Weather disruptions affect agriculture and energy production, which are the root causes of food and utility inflation. If crop yields drop due to extreme weather, food prices spike. And unlike electronics, you can't substitute away from food. You have to eat. So this adds a layer of unpredictability to your cost of living that has nothing to do with your employment status. Luna: That’s the wild card. You can manage your job risk, but you can’t manage a hurricane destroying a citrus crop. It reminds us that economic models are always underestimating physical reality. Lucas: They definitely are. And yet, we keep building financial plans around smooth, linear projections. When you face a year where wages are flat, prices are sticky, and weather events are volatile, the only defense is liquidity. Keep cash reserves high. Avoid taking on new fixed-rate debt if possible. And diversify your income streams so you aren't reliant on a single employer's wage decision. Luna: Liquidity is king when the ground is shaking. It gives you options. You can wait out a bad quarter, or pivot to a better opportunity, instead of being forced to accept the first offer that comes along. Lucas: Right. And finally, let's look at the RUT, the Russell 2000, which is down slightly to 2,968. Small caps are struggling. These are the companies that employ the most Americans outside of the big tech hubs. If small businesses are facing high borrowing costs and stagnant consumer demand, they will freeze hiring. That limits upward mobility for the average worker. So the health of the small cap index is a direct predictor of your future wage growth potential. Luna: It’s a leading indicator for ordinary people. If the little guys are hurting, the big guy isn't going to be hiring you anytime soon. We should probably watch that index more closely than the S&P 500. Lucas: Agreed. The S&P 500 is a window dressing for the wealthy. The Russell 2000 is the pulse of the main street economy. And right now, that pulse is weak. So when you hear about record highs in the major indices, remember that they are driven by a handful of mega-cap tech stocks, not by broad-based prosperity. Luna: It’s a different universe depending on which index you look at. One world of wealth accumulation, and another of careful budgeting. Which one are you operating in today? Lucas: Most of us are in the latter, trying to make the math work with the numbers we have. And the math is tighter than it has been in a decade. But understanding the mechanics—the gap between nominal wages and real costs, the stickiness of services, the weight of debt—gives you clarity. Clarity allows you to make smarter choices, even if the headwinds don't change overnight. Luna: Clarity is power. So instead of just feeling frustrated by the inflation reports, you use them to stress-test your own financial plan and adjust accordingly. Lucas: Exactly. Next week, we’ll look at how different retirement accounts are performing in this low-growth, high-inflation environment. But for now, take a hard look at your personal CPI. What is your actual cost of living rising by, and is your income keeping up? Luna: If the answer is no, it might be time to renegotiate, reposition, or rethink. Thanks for listening, and I’ll see you next time.