Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating the Cost of a New Car
Transcript
- Lucas: So the average hourly wage in the US just hit $37.60 as of June. That's up about two and a half percent from a year ago. Meanwhile, the average transaction price for a new car—after years of relentless increases—has actually dipped below $48,000 for the first time since 2024. Luna: That's a big deal. For a while there, it felt like every time you looked at a window sticker, the price had jumped another thousand dollars. Lucas: Right. And the gap between wage growth and car price growth has been brutal. From 2021 through 2023, new car prices rose about 30 percent while wages grew maybe 12 percent. So the average worker was falling further behind with every model year. Luna: But now the trend has flipped. Wages are still going up, and car prices are actually coming down. How much does that change the math for someone shopping for a new car? Lucas: Let's put some numbers on it. If you take the median weekly earnings—that's about $1,204 as of early 2025, and it's probably a bit higher now—and compare to the average new car payment, things are looking better. Kelley Blue Book says the average monthly payment for a new car peaked near $740 in late 2023. Now it's down to about $710. And with wages up, the share of income going to a car payment is shrinking. Luna: So we're finally seeing real relief. But why are car prices dropping? Is it just because interest rates are still high and people are pulling back? Lucas: That's part of it. Higher rates have definitely cooled demand. But there's also been a big recovery in supply. Chip shortages are mostly resolved, and dealer lots are full again. Back in 2021, you'd be lucky to find a car on the lot. Now some models are sitting for 60 days or more, and that pushes dealers to offer discounts. Luna: I saw a headline that import prices from China hit their highest since 2008. That seems like it could push car prices back up, given how many parts come from there. Lucas: It could. But the cars themselves—especially the ones sold in the US—are mostly built here or in Mexico, with a lot of domestic content. Tariffs on Chinese parts have been climbing, but automakers have been absorbing some of that to keep prices competitive. For now, the trend is still downward. And there's another factor: the Fed's rate hikes have slowed the housing market, which also takes pressure off auto loans because banks have more capacity to lend. Luna: So if you're in the market for a new car right now, patience might actually pay off. But what about the longer term? Does this feel sustainable? Lucas: That's the million-dollar question. A lot depends on how long the economy can keep adding jobs. If wage growth stays around two to three percent and inflation stays low, then yes, the relative improvement could hold. But if we get a recession, car sales would tank and prices would crash—that's not really a win for workers either. And if tariffs expand—like the new generic drug tariff plan—it could spill over into auto parts and push costs up again. Luna: That's a really helpful way to think about it. And honestly, if walking through the economy with us has made something click, others might find it useful too. We keep this show ad-free, and listener support is what makes that possible. If you'd like to chip in, you can find us at buy me a coffee dot com slash fexingo. No pressure, but it helps us keep bringing you these kinds of breakdowns. Lucas: Yeah, absolutely. And we appreciate every bit of support. So back to the car market: another interesting data point is that the average age of vehicles on the road is now over 13 years. That's a record. So a lot of people have been delaying purchases. If prices stay down and rates eventually ease, we could see a wave of replacement demand come through. Luna: Which would be good for the economy overall. More car sales means more factory hours, more dealer jobs, more auto loans—it ripples through. Lucas: Right. And the Fed's Beige Book—which came out last week—mentioned that dealers in several districts reported 'cautious optimism' about the rest of the year. They said inventories are comfortable and they're seeing more foot traffic now that prices have come off their peaks. Luna: So the narrative really has shifted. A couple of years ago, the story was 'you can't find a car and if you do, it's overpriced.' Now it's 'cars are available and your paycheck can actually buy one.' Lucas: Exactly. And for the average worker, that's a tangible improvement in purchasing power. One more number: the Bureau of Labor Statistics said that real average hourly earnings—that's wages adjusted for inflation—rose one percent from a year ago. That's not huge, but it's positive. And when a big expense like a car gets cheaper in real terms, it adds up. Luna: I think the key takeaway is that the combination of rising wages and falling car prices is making the biggest purchase most people make after a home more affordable. And that's a shift worth paying attention to. Lucas: Yeah. Now, of course, whether that holds depends on economic policy, global supply chains, and the path of interest rates. But for right now, the data says: your raise is finally beating the cost of a new car. Luna: And that's a headline we haven't been able to write for a while. Let's see if it sticks.