Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Might Be Saving You From Drowning in Debt
Transcript
- Lucas: So the May jobs report is out Friday, and the whisper number is around 190,000 jobs added. But the number I keep coming back to isn't the headline payrolls figure — it's something the New York Fed published last month in their household debt report. Luna: Let me guess — the debt service ratio? Lucas: Exactly. The share of disposable income going to debt payments hit 10.2 percent in the first quarter of 2026. That's up from 9.5 percent just two years ago. And it's the highest since 2019, before the pandemic changed everything. Luna: So we're finally getting real wage growth — average hourly earnings are up to $37.50, and after inflation they're positive for the first time in years — but that extra money is getting eaten by debt payments. Lucas: Right. And by the way, a quick honest thing — a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many of these episodes possible. Luna: Yeah, if walking through the economy with us has made something click, that's the way to keep it ad-free and going. Lucas: So back to the debt service ratio — it's not just credit cards. Auto loans are a big driver. The average monthly payment on a new car is now over $750, and the share of new car loans with terms longer than six years hit a record last quarter. Luna: And credit card balances are up too. The New York Fed said total household debt crossed $18 trillion for the first time. That's a lot of monthly minimums. Lucas: Here's how I think about it. If your raise this year was, say, 3 percent, and inflation's running at about 2.4 percent on core PCE, you've got about 0.6 percent of real gain. But if your debt service ratio jumped from 9.5 to 10.2, that's 0.7 percentage points of your income going to debt that could have gone to savings or spending. Luna: So the raise is basically cancelled out by higher debt payments. That's why it still feels like a lateral move. Lucas: Exactly. And the problem is concentrated. Younger borrowers under 40 are seeing the biggest jump in delinquencies. The New York Fed said serious delinquencies — that's 90 days or more past due — for credit cards and auto loans are now higher for millennials and Gen Z than they were before the pandemic. Luna: Older households actually lowered their debt during the pandemic. They paid off mortgages, refinanced at low rates. Young people took on more student debt, more car loans, and they're stuck with higher rates now. Lucas: There's also a weird timing thing. The wage data is a lagging indicator — it takes months for raises to show up in the official numbers. But debt payments are immediate. So if you got a raise in January, but your credit card rate reset in December, you feel the squeeze first. Luna: And the May CPI report comes out next week. If it shows core inflation staying around 3.2 percent year-over-year, that will keep pressure on the Fed to hold rates higher for longer. Lucas: Which means credit card rates stay above 20 percent, auto loan rates above 7 percent. The average credit card APR is 22.8 percent right now, according to Bankrate. That's punishing for anyone carrying a balance. Luna: So what's the takeaway for someone listening who got a raise but still feels broke? Should they prioritize paying down debt over saving? Lucas: I think the math says yes for high-interest debt. If you're paying 22 percent on a credit card, no savings account or investment is going to beat that guaranteed return. But there's a behavioral piece too — having some cash savings prevents you from taking on more debt when an emergency hits. Luna: It's a tough balance. The raise is real, but the debt is eating it before you feel it. Lucas: And the question going forward is whether the job market stays strong enough to keep wage growth ahead of debt costs. The May jobs report on Friday will give us a clue. Luna: If we see 190,000 jobs and steady wage growth, that's good. But if the debt service ratio keeps climbing, the raise will keep feeling invisible. Lucas: That's the story for this episode. Next time, we'll look at one specific industry where wage growth is actually outpacing both inflation and debt costs — and what that could tell us about the broader economy.