Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Outpacing Prices for the First Time in Years
Transcript
- Lucas: So we have been tracking this frustrating dynamic for months — maybe longer — where your raise looks good on paper but then inflation just eats it. And the numbers have been stubborn. But I think we finally have a real turning point to talk about. The April data on average hourly earnings came out at thirty-seven dollars and forty cents an hour, and the ten-year breakeven inflation rate — that's the market's expectation for inflation over the next decade — dropped to two point three six percent. That is the first time in this whole cycle that wage growth is clearly outpacing expected inflation. Luna: That is a big deal. Because for the last two years, every time we looked at those two lines, wages were chasing prices and never quite catching up. So what changed? Lucas: Part of it is that inflation has been cooling, even if it doesn't feel that way at the grocery store. Core PCE, which is the Fed's preferred gauge, is still above target but it's moving in the right direction. The bigger story though is that the labor market is still tight enough to push wages up. The ADP report this week showed private payrolls grew by a hundred and twenty-two thousand in May, which was stronger than expected. Companies are still competing for workers in certain sectors. Luna: And that competition shows up in the wage data. But it does make me wonder — is this real purchasing power gains, or is it just that the inflation numbers are flattering because of falling energy prices? Lucas: That is the right question. And the honest answer is a bit of both. Energy inflation has been a tailwind — the headline CPI is running lower than core because energy prices have come down. But even stripping out food and energy, wage growth is still ahead. The employment cost index for wages hit one hundred seventy-seven point five in the first quarter, up from one seventy-six point two three. Wages are growing at about a four and a half percent annualized rate, and core PCE inflation is running around two point eight percent. So there is a real gap, and it's the first time since early 2021 that workers have been gaining ground. Luna: So the average worker is finally getting ahead. But I feel like we need to say — 'average' is doing a lot of work there. Because the gains are not even across industries, right? Lucas: Not even close. If you are in leisure and hospitality, or retail, you are still seeing wage growth that barely keeps up. Those sectors are adding jobs but at lower pay scales. Meanwhile, professional and business services, construction, manufacturing — those are seeing more robust gains. And there is also a geographic divide. Wages in the South and Mountain West are growing faster than in the Northeast and West Coast, partly because of migration patterns and partly because those areas started from a lower base. Luna: So the headline is good for the economy as a whole, but for a lot of households, the lived experience might still be 'my rent went up, my insurance went up, my raise didn't cover it.' Lucas: Exactly. And that is why we do this show — to look past the averages. One thing that stands out to me is that long-term unemployment is actually surging. There was a CNBC piece this week about the hidden costs of that. So even as wages rise for people who have jobs, the share of people who have been unemployed for more than six months is growing. That is a structural problem that wage growth alone won't fix. Luna: It's like the economy is healing in patches. Some parts are strong, some are still scarred. And speaking of what the data shows versus what people feel — I think one reason the disconnect persists is that even if your wage is keeping up on average, the things you buy most frequently are still expensive. Gas, eggs, rent, insurance. Those are the items that shape your perception. Lucas: Right. And that is where the breakeven inflation rate matters. It's not just about today's prices. It's about where markets expect prices to go. And that two point three six percent number is actually down from where it was earlier this year. Markets are betting that inflation will continue to moderate. If that holds, then the wage gains we are seeing now should translate into real improvement over time. But it's a bet, not a guarantee. Luna: Before we go deeper into this, I want to mention something. We are able to have this conversation without any ads or sponsors because of listeners who support the show directly. If you get value from walking through the economy with us and want to help keep it ad-free, you can find us at buy me a coffee dot com slash fexingo. It is a small way to ensure we keep focusing on the data instead of selling things. Lucas: Yeah, and we really appreciate those who do. It makes a difference. So back to the wage story — one of the data points that caught my eye in the latest releases is that median usual weekly earnings are up to one thousand two hundred and four dollars, from one thousand one hundred and fifty-nine a year ago. That is a four percent increase, which again, beats inflation. But here's the nuance: that is for full-time workers. Part-time and gig workers aren't captured in that number, and their wage growth is typically slower. Luna: And those part-time and gig workers are also more likely to be in the sectors that are still struggling. So the gains are concentrated among people with stable full-time employment, which is a growing share of the workforce but still not everyone. Lucas: Right. And then there is the upcoming May jobs report on Friday. The consensus is for another solid month — maybe around two hundred thousand jobs added. But the wildcard is whether wage growth will continue to accelerate or start to plateau. If we see wages plateau while inflation stays sticky, that gap we just talked about could close quickly. Luna: What would cause wages to plateau? If the labor market starts to soften, companies don't have to compete as hard. And there are some signs of that — the quits rate has been drifting down, which means workers are less confident about leaving for a better offer. Lucas: Exactly. The quits rate is a leading indicator for wage growth. When fewer people quit, it suggests that the bargaining power is shifting back to employers. So this window where wages are outpacing inflation might be narrow. If the economy slows later this year, real wage gains could evaporate. That is why it's so important to look at the trend, not just the snapshot. Luna: So what is the one thing you want listeners to take away from this episode? Is it that things are finally getting better, or that it's fragile? Lucas: I think it's both. We should acknowledge that after two years of losing ground, the typical worker is finally seeing real gains. That is worth celebrating in a sober, data-driven way. But it's fragile. It depends on inflation continuing to cool and the labor market staying resilient. If we get an oil price spike or a geopolitical shock — and we have plenty of those right now — that real wage gap could vanish. So enjoy the good news, but don't get complacent. Luna: And on that note, we will be watching the jobs report closely on Friday. If you want to continue this conversation, you know where to find us. Thanks for listening.