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 Vacation
Transcript
- Lucas: So, Luna, I've got a vacation theory I've been testing all summer, and the data just landed. For the first time since before the pandemic, the average raise is actually outpacing what it costs to sit on a beach. Luna: Okay, that's a bold claim. I just paid $400 a night for a motel outside Portland, so my skepticism is high. Lucas: Fair, and that's exactly the thing — the sticker shock is real. But let's look at the aggregates. The latest CPI reading, for June, came in at 332.6, which is actually down from the month before. Meanwhile average hourly earnings for private workers ticked up to $37.60. Luna: So prices are cooling and wages are still grinding higher. That's the sweet spot, isn't it? Lucas: It is, and it's showing up in a really specific place: the vacation basket. Airfare, hotels, restaurants — those categories have been stubbornly high. But over the last twelve months, they've basically flatlined while wages kept climbing. Luna: So my $400 motel was the exception, not the rule? Lucas: Probably, but also — the timing matters. The five-day run in the S&P, the Dow, the NASDAQ, all up strong — that tells you the market is betting the Fed can ease off. And if inflation keeps drifting down, real wage growth holds. Luna: And the employment cost index — wages — that came in at 179 for April, up from 177.5. That's a solid bump. Lucas: Exactly. So your raise, on paper, is buying more vacation than it did a year ago. And that's a noticeable shift from most of the past four years. Luna: But I want to push back on the 'finally' framing. Is this a durable trend or just a lucky window before hotel prices catch up? Lucas: That's the right question, and honestly, the jury's out. The ten-year breakeven inflation rate is at 2.22 percent — that's basically the market saying long-run inflation stays anchored. But short-term, the latest ADP report showed private companies added just 44,000 jobs in July. That's below expectations. Luna: So the labor market is cooling, which usually means wage pressure fades. That could undo the whole thing. Lucas: Right. But here's the nuance — wage growth is decelerating slowly, and prices are decelerating faster. The wedge between the two is what matters for purchasing power. And right now, that wedge is in workers' favor for the first time in ages. Luna: I'm still trying to wrap my head around the 'vacation basket' idea. How do they even measure that? Lucas: So the Bureau of Labor Statistics doesn't have a single 'vacation index,' but you can cobble one together from the CPI components — lodging away from home, airfare, food away from home, even admissions to events. We've done that in the past, and those categories had been running hot, but now they're cooling off. Luna: And you're saying that basket has actually grown slower than wages over the past year? Lucas: That's the data. The year-over-year change in that basket is below the growth in average hourly earnings. And when you adjust for inflation, the typical worker's weekly paycheck is stretching further when it comes to leisure spending. Luna: So if I'm a teacher or a nurse, my raise is finally covering the cost of a week at the shore. That feels like a real win. Lucas: It does, and it's worth pausing on that, because we've spent a bunch of episodes documenting the opposite. Remember when we looked at rent, or health insurance, or college tuition — those were brutal. But vacation is a discretionary thing, and when discretionary costs ease, it changes how people feel about the economy. Luna: And that's the thing we keep coming back to on this show — the feeling of getting ahead. And honestly, if you've been listening to us break down the numbers week after week, and something finally clicks — you know, like 'oh, my raise really is beating something' — maybe that's a small reason to keep supporting what we do. Lucas: Yeah, that's a genuinely nice thought. This show is ad-free and listener-supported, so if you've gotten some clarity from our conversations, you can help keep it going at buy me a coffee dot com slash fexingo. It's a low-key way to say thanks and keep the analysis coming. Luna: Exactly. No pressure, just good karma. Lucas: Now, back to the vacation math. The interesting part is where the gains are concentrated. Airfare has actually been falling in real terms for a few months — domestic fares are down year-over-year in the CPI. Hotels are the stickier one, but even that's slowing. Luna: So the biggest win is for people who can be flexible with dates and destinations. If you can avoid the peak weeks, you're capturing even more of that gap. Lucas: Right. And the data backs that up — the seasonal adjustments in the CPI show that 'lodging away from home' tends to dip in the shoulder season. So a savvy traveler can stretch their real wage growth even further. Luna: But I'm still a little worried about the ADP number. If hiring is slowing, isn't that a sign that wage growth will stall? Lucas: It's a signal, but not the whole story. The ADP report is notoriously volatile and often revised. And remember, the employment cost index — which is the Fed's preferred measure — is still climbing at a solid clip. The gap between the two suggests the labor market is cooling from a very hot level, not collapsing. Luna: So the 'vacation premium' is shrinking, but it might not disappear entirely. Lucas: Exactly. The structural factors that made travel expensive — supply chain kinks, labor shortages in hospitality — those have mostly unwound. What's left is just normal inflation, and that's what wages are finally beating. Luna: So for the average listener, what's the takeaway? Is this the summer to book that trip? Lucas: I'd say yes, if you can. The window might not last forever. If the Fed starts cutting rates aggressively, that could reignite demand and push prices back up. And if the labor market weakens, wage growth could slip below the inflation line again. So the conditions are unusually favorable right now. Luna: But you're not saying everyone should blow their savings on a luxury resort, right? Lucas: No, of course not. But for a typical family, the math is finally working in their favor. And that's worth celebrating, even if it's just for one season. Luna: So, one concrete number you're tracking? The ten-year breakeven at 2.22 percent — that tells me the market's not expecting a resurgence of inflation. Lucas: That's the one. If that number starts climbing back toward 2.5 percent, then the vacation window starts closing. But as of today, it's steady, and that's a good sign for your summer getaway. Luna: Alright, I'm going to check flight prices tonight. Maybe my motel luck will turn. Lucas: Fingers crossed. And if you do book something, you can tell yourself the data says you earned it.