Inflation Has Outpaced Wage Growth. Now It’s Cutting Into Spending.
Early in the Covid-19 pandemic, U.S. wage growth accelerated, as weekly earnings jumped more than 7% in April and May of 2020 compared with the same months a year earlier.
The gain got a boost from low inflation and fewer expenses, bolstering the finances of Americans who kept their jobs.
Over the past year, wage increases have continued to exceed prepandemic levels, with year-over-year growth topping 4% each month.
But those steady gains have been wiped out by high prices. When taking inflation into account, there hasn’t been a single month with year-over-year earnings growth since March 2021.
Change in June from a year earlier
In retail and food-service spending
Furniture and home furnishing
In retail and food-service spending
Furniture and home furnishing
In retail and food-service spending
Furniture and home furnishing
In retail and food-service spending
Furniture and home furnishing
In retail and food-service spending
Furniture and home furnishing
Spending also rose over the past year, and like with wages, it was outpaced by inflation. Americans are spending more because of high prices, but adjusted for inflation, they are actually consuming less.
Gas prices—one of the biggest and most visible areas of inflation—rose 60%, while sales at gas stations are up 50%, a gap that suggests Americans are reining in travel. The Federal Highway Administration showed a 1% increase in miles traveled in May from a year earlier, a number that has plateaued in recent months below 2019 levels.
The notable exception to spending is in restaurants, where sales in June were up almost 14%. Prices rose less than 8%.
Change in price from a year earlier
Change in price from a year earlier
Change in price from a year earlier
Change in price from a year earlier
Change in price from a year earlier
After spending at bars and restaurants was cut roughly in half early in the pandemic, demand has surged back to the prerecession trend.
Meanwhile, high inflation means that grocery-store spending, which dipped after early Covid-19 closures passed, has been rising faster than before the pandemic.
All this means that despite higher pay and increased spending, the amount Americans are actually consuming has leveled off. Monthly retail sales are up 30% from prepandemic levels. When using inflation-adjusted dollars, that increase has hovered around 15% since early 2021.
—Andrew Barnett contributed to this article.
Write to Danny Dougherty at Danny.Dougherty@wsj.com
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