America’s cost-of-living crisis continues to worsen as inflation remains stubbornly high while wage growth continues to lag. The situation stems from a simple equation: inflation surged several years ago, and paychecks have not had sufficient time to adjust. Scaling impacts This gap between rising costs of living and stagnant wages is pushing millions of Americans into a greater financial bind and a fragile economic future.
That U.S. economy has registered job losses three of those past six months. This trend is alarming because it introduces uncertainty into the nation’s tight labor market. Forecasts for 2025 indicate that job growth may hit its lowest point since the pandemic decimated employment numbers in 2020. Forward annual pay growth for American workers peaked at 5.9% in March 2022 and has since fallen every month by nearly full percentage points.
In October, America’s quit rate — the share of all workers who voluntarily left their jobs — fell to a five-year low. This indicates that workers are increasingly favoring job security over actively looking for better jobs. This uptick could signal increasing fear about employment prospects in a volatile economic environment.
In November, that figure stood at $36.86 for the average American worker. This notable figure marks a strong jump of 3.5% from last year. Yet, beneath this average figure, there are significant gaps between lower and middle-income households. Middle-income households had no better luck, claiming paycheck increases of just 2.3%, with lower-income households receiving just 1.4% more on their paychecks. These small steps forward are more than overshadowed by continuing inflation that has not been tamed since its first increase.
Annual inflation some months recently has been a touch above 3%, the same place it was when then-President Donald Trump came into office in January of 2017. According to recent news stories—like this one or this one—the next consumer CPI report will show a year-over-year inflation rate rise to 3.1%. This persistent inflation, along with softening wage growth, points towards a blossoming affordability crisis that will continue to squeeze the pocketbooks of American households.
Jerome Powell, chair of the Federal Reserve, agreed that big jumps in wages are what Americans need. He hopes that will make Americans more confident about their financial future.
“We are going to need to have some years where real compensation is higher … for people to start feeling good about the affordability issue,” – Jerome Powell
Powell addressed the delicate balance the Federal Reserve must maintain in managing inflation while supporting job growth and wages.
“We are trying to keep inflation under control, but also support the labor market and strong wages, so that people are earning enough money and feeling economically healthy again.” – Jerome Powell
The squeeze on businesses is real—especially since companies have already internalized about 80% of Trump’s new tariffs to date. Absorbing these costs has been a huge hit to profit margins for so many businesses. So these firms are loath to raise wages too much.
As wage growth stalls even further, it only worsens the affordability crisis that so many Americans are experiencing. The math of lower raises and now bouncing back inflation along with it makes for a tough double whammy for households unable to catch up with increasing expenditures.