Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Paycheck Feels Lighter Than It Should
Transcript
- Lucas: The numbers coming out of August are technically green, but they feel remarkably hollow if you look at the underlying structure. Average hourly earnings ticked up to thirty-seven dollars and eighty cents, which sounds fine on a payroll stub. But when you pair that with a core CPI reading of three hundred thirty-seven point eight, the math gets uncomfortable fast. Luna: Right, because the base effect is still lingering from last year’s volatility. Are we seeing any relief in the service sector, or is that where the stickiness is really hiding? Lucas: That’s exactly where it’s hiding. The Employment Cost Index for wages came in at one hundred seventy-nine as of April, up from one hundred seventy-seven fifty. It’s creeping up, but it’s not exploding. The problem is that this slow bleed is happening against a backdrop of global debt topping three hundred sixty-five trillion dollars. That debt load keeps long-term yields elevated, which means borrowing costs stay high for everything from small business expansion to consumer credit cards. Luna: So the cost of capital is structurally higher, which eats into corporate margins and limits their ability to pass on raises without cutting back on headcount or benefits. Lucas: Exactly. And here is the thing most people miss: the ten-year breakeven inflation rate moved up to two point three four percent yesterday. That tells us the market expects prices to keep rising faster than wages can keep pace. We aren’t seeing hyperinflation, but we are seeing a persistent erosion of real income. You make more nominal dollars, but you buy less real stuff. Luna: It’s the classic treadmill effect. You have to run faster just to stay in the same spot relative to the basket of goods. Lucas: Precisely. And this brings me to something I want to mention quickly while we’re talking about value. If walking through these economic currents with us has made the invisible parts of your finances feel a bit more visible, that’s honestly the whole point of what we do here. We try to translate the noise into signal so you can make better decisions. If that resonance has stuck with you, and you want to help keep this ad-free deep dive into the mechanics of money alive, you can support the work directly at buy me a coffee dot com slash fexingo. It takes the pressure off the algorithm and puts the control in your hands. Luna: Yeah, and for those who do, it genuinely helps us dig deeper into datasets like this instead of chasing clicks. Thank you. Lucas: Back to the data. Let’s look at the PCE price index. The personal consumption expenditures gauge came in at one hundred thirty-one point seven for July, with the core version at one hundred thirty-point seven. The Fed watches PCE more closely than CPI because it accounts for changing consumer behavior. When people stop buying expensive steak and start buying chicken, CPI stays high but PCE moderates. Here, both are sticky. Luna: So consumers are trading down, but the prices for the basic necessities aren’t coming down. That’s a double whammy for discretionary spending. Lucas: It is. And notice the median usual weekly earnings figure sitting at one thousand twenty-four dollars as of early 2025. That number hasn’t moved much in real terms when you adjust for the current inflation trajectory. We are seeing a divergence between high-skill tech wages and everything else. The S&P 500 is hovering around seven thousand seven hundred forty-three, driven by mega-cap tech profitability. But the average worker in retail, hospitality, or logistics isn’t seeing that same equity upside. Luna: That polarization is what makes the aggregate data feel misleading. The average wage might be up, but the median experience is stagnant or declining. Lucas: Spot on. And this ties into the global debt issue I mentioned earlier. With Switzerland holding rates at zero and France facing budget turmoil, the geopolitical risk premium is embedded in bond yields. Investors aren’t just pricing in US inflation; they’re pricing in global instability. That pushes up the cost of money for everyone, including you if you have variable-rate debt. Luna: So even if the Fed cuts rates later this year, the floor might be higher than we think. The structural costs are baked in. Lucas: I agree. The ten-year Treasury yield is reacting to this globally. Surging yields pose a new problem for the Federal Reserve because they force the central bank’s hand. If yields rise on their own, the Fed doesn’t need to cut aggressively. In fact, they might hold steady to prevent reigniting inflation expectations. Luna: Which creates a paradox. The economy needs lower rates to stimulate hiring, but higher yields protect against currency devaluation and import costs. Lucas: Right. And let’s talk about imports for a second. China saw a surprise jump in US orders ahead of the Trump-Xi summit. That suggests supply chains are adjusting, but also that businesses are front-loading inventory to hedge against potential tariffs or disruptions. When companies stockpile, it drives up demand now, keeping prices firm. Luna: So the anticipation of trade policy changes is actually creating inflationary pressure today. It’s self-fulfilling. Lucas: It is. And this is why your grocery receipt feels heavier. It’s not just food prices; it’s the cost of moving those goods across borders in an environment where every nation is protecting its own fiscal space. Global debt is at three hundred sixty-five trillion dollars. That level of leverage means no major economy can afford a hard default, so they all choose soft defaults—meaning inflation that erodes the real value of the debt over time. Luna: Which is essentially a tax on cash holders. If you’re saving in low-yield accounts, you’re losing ground every single month. Lucas: Exactly. And this brings us back to the wage-price gap. We often talk about wages chasing prices, but right now, prices are being supported by debt dynamics and supply chain hedging, while wages are constrained by the very same high-cost environment that limits corporate hiring budgets. Luna: It’s a closed loop. High costs limit wage growth, which limits consumer demand, which limits revenue growth, which limits further wage growth. How does a worker break out of that cycle? Lucas: By focusing on sectors with pricing power and productivity gains. Look at the technology sector. Despite the macro headwinds, companies like NVIDIA and Microsoft are seeing massive revenue growth because AI adoption is driving efficiency. Workers in those roles are seeing genuine wage premiums because they are solving the productivity puzzle. The rest of the economy is still trying to figure out how to apply those efficiencies. Luna: So the bifurcation is going to get worse before it gets better? Unless the productivity gains diffuse into the broader service economy. Lucas: Diffusion is slow. It takes years for new technology to lower costs in healthcare, education, or local government services. Those are the biggest components of your personal cost of living. Until then, you’re stuck with the legacy cost structure. Luna: Legacy costs. That’s a brutal way to put it, but accurate. It means your purchasing power is tied to how quickly you can adapt to a new economic regime, not just working harder. Lucas: Adaptation is key. And adaptation requires liquidity. Which is why understanding the difference between nominal and real returns matters so much. A five percent raise sounds great until core inflation runs at three percent and your mortgage payment is locked in at a higher fixed rate. Your disposable income shrinks. Luna: Especially if you’re renting. Landlords are also feeling the cost of capital squeeze, so they pass those expenses onto tenants. There’s no escape hatch there. Lucas: No escape hatch. We see the RUT dropping one point three percent over the last five days. Small caps are struggling with this exact dynamic. They can’t raise prices easily, and their borrowing costs are too high. They’re the canary in the coal mine for the broader labor market. Luna: If small businesses start laying off workers or freezing hiring, that feedback loop tightens even more. Unemployment ticks up, wage pressure eases, but only because jobs are disappearing, not because productivity is soaring. Lucas: That’s the risk. We don’t want a recession-driven wage cooling. We want a productivity-driven wage increase. Right now, we’re flirting with the former because the latter is stuck in the pipeline. The global debt overhang makes it harder for governments to inject stimulus without causing currency crises, so the burden falls entirely on individual households to manage the squeeze. Luna: Which brings us back to the listener. What’s the practical takeaway when the system feels rigged against upward mobility? Do you wait for the cycle to turn? Lucas: You don’t wait. You position. That means minimizing high-interest variable debt, maximizing skills that are adjacent to the productivity drivers like AI and automation, and keeping an eye on asset allocation that hedges against inflation rather than betting on deflation. The era of easy money is over. The era of strategic capital management is here. Luna: Strategic capital management. It sounds cold, but it’s the only honest advice we can give. The game has changed rules, and playing by the old ones guarantees you lose. Lucas: It does. And as we look at the September data, watch the employment cost index closely. If it continues to creep up alongside core CPI, we’re heading for a prolonged period of stagnation. But if productivity finally kicks in, we might see a rare moment where wages and prices stabilize together. Luna: A rare moment indeed. For now, it’s about vigilance. Understanding where the pressure is coming from so you’re not caught off guard by the next shock. Lucas: Vigilance. I like that word. It implies action rather than reaction. Stay sharp out there, and keep tracking the real numbers, not just the headlines.