America’s affordability issue is taking center stage

If you ask most Americans what they think about the economy, the consensus would be that it stinks.

Basically every recent poll and consumer sentiment survey points to that theme, with Americans feeling like their hard-earned dollars just aren’t stretching as far as they used to.

There’s just one problem, per recent economic data: those feelings may not actually be true.

A majority of Americans are receiving raises that outpace the overall US inflation rate—a trend that’s stayed true for every month since June 2023—meaning their wealth continues to grow even as prices climb higher.

So, what’s behind the disconnect?

Analysts and economists say there are several key factors at play:

• Paycheck gains are shrinking as inflation heats back up. Raises for the average working American have shrunk across the board in recent months, from 4.6% in April to 3.8% in September—while inflation rose from 2.3% to 3.0% over the same period.
• Prices for essential expenses are growing faster than overall inflation. Food, electricity, child care, home prices, and rent have all outpaced Americans’ wage gains so far this decade.
• Wealthier Americans are skewing the data towards prosperity. Paychecks for higher-income Americans ($130K+/yr) grew by ~4% year-over-year in October, well above 3% inflation. Meanwhile, paychecks for middle-income residents ($70K-$130K) gained 2%, and wages for lower-income Americans (under $70K) were up just 1%.

Corporate earnings tell a similar story

Frugality among consumers, especially the middle-class, has been a recurring theme in corporate earnings reports over the past few months.

• Fast-food restaurant Wingstop last month said middle-income diners have now joined lower-income ones in dialing back purchases.
• Target reported slumping sales and said customers are spending cautiously on discretionary items, like home decor and apparel.
• On the flip side, Walmart posted strong sales as consumers from all income groups flocked to the retailer’s value.

On Capitol Hill: In a wide-ranging speech to supporters this week—part of a White House push to update its messaging on the economy—President Trump touted the performance of the economy under his administration, and said his predecessor Biden was to blame for rising prices.

📊 Flash poll: Which of the following best describes the current financial situation in your area?

• The cost of living here is the worst I can ever remember it being
• The cost of living here is bad, but I can remember worse times
• The cost of living here isn’t bad