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: Luna, I want to talk about something that might actually make you feel better about your paycheck. Average hourly earnings for private workers hit $37.60 in June, according to the Bureau of Labor Statistics. That's up about 4.1 percent from a year ago. Luna: Okay, and we know inflation has been cooling. So we're finally seeing real wage gains. But what's the one thing we can point to that actually costs less relative to our income? Lucas: New cars. For the first time in nearly four years, the typical new vehicle costs less than it did a year ago, in real terms. And when you factor in wage growth, the average worker needs about 2.5 fewer weeks of gross pay to buy a new car than they did in 2022. Luna: That's a big shift. I remember when car prices were just insane — dealers adding markups, people paying ten grand over sticker. So what changed? Lucas: A few things. First, supply chains finally healed. The chip shortage that choked production is mostly behind us. Automakers built more cars. Second, interest rates did their job — higher rates cooled demand. And third, dealers started offering discounts again. The average transaction price for a new car has plateaued around $48,000, down from a peak near $50,000 in late 2022. Luna: So wages went up, car prices flatlined or dipped slightly. That's a double win. But is this across the board, or just some segments? Lucas: Good question. It's most pronounced in mass-market brands. Toyota, Honda, Ford — the Camry and the F-150 are actually a few hundred dollars cheaper than they were two years ago. Luxury and EVs are a different story. Tesla has cut prices repeatedly, but other luxury brands are still elevated. The overall trend, though, is clear: the affordability math is improving. Luna: Let me jump in with a data point. The CPI for new vehicles actually fell 0.3 percent year-over-year in May. That's the first negative print since 2021. So it's not just a feeling — the index confirms it. Lucas: Exactly. And here's where it gets interesting: the core PCE price index, which the Fed watches most closely, has been rising at about 2.6 percent annually. Wage growth at 4.1 percent is outpacing that. So for items like new cars, which are seeing outright deflation, the purchasing power gain is significant. Luna: But isn't there a catch? The average new car loan is still near $40,000, and interest rates are high. So even if the price is better, the monthly payment might not be. Lucas: That's the nuance. The average auto loan rate for new cars is around 7.2 percent right now. So while the sticker price is more manageable, financing costs are higher. But if you can put more money down — which is easier if your wage has grown — you can offset some of that. The key metric is how many weeks of work it takes to buy the car. And by that measure, we're better off than we were in 2022. Luna: So what does this mean for the broader economy? If people feel more confident about big purchases, does that help consumer spending hold up? Lucas: Absolutely. Autos are a big-ticket item that often signals consumer confidence. If people feel they can afford a new car, they're more likely to spend on other things too. And that's important right now because the labor market is cooling — June payrolls came in at just 57,000, and the unemployment rate ticked up to 4.2 percent. Consumers need some good news to keep the economy moving. Luna: Right, and if wage growth keeps outpacing inflation, that could help cushion the slowdown. But do you think this trend in car prices is sustainable? Lucas: Probably not forever. Automakers are already pulling back on production to keep prices stable. And if tariffs or trade policies change — especially with China on EVs — we could see prices go up again. But for now, it's a genuine win for workers. And that's worth acknowledging. Luna: If this kind of analysis is useful to you, it's worth knowing that the way we keep these shows ad-free is through listener support. You can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small way to make sure conversations like these keep happening without commercial breaks. We appreciate it. Luna: Alright, back to the data. Lucas, you mentioned the risks. What's the one thing you'd watch for in the next six months to see if this trend holds? Lucas: I'd watch inventory levels. If days' supply of new cars stays above 60 days, dealers will keep discounting. That's good for buyers. But if production gets cut — say, because of a strike or parts shortage — prices could firm up. Also, keep an eye on wage growth. If it slows below 3.5 percent, the affordability gain disappears. Luna: So bottom line: if you've been waiting to buy a new car, this might be a decent window. Your raise is finally making a dent. Lucas: Exactly. It's not a huge win, but it's a real one. And in this economy, we'll take it.