Our nation’s cost of living crisis is deepening. We know right now that inflation is outpacing wage growth, leaving a serious affordability problem for too many. Over the last few years inflation has exploded, with paychecks finding it increasingly difficult to stay ahead. Recent data shows that the American workforce is facing a challenging economic landscape, with job growth stalling and inflation rates climbing.
The U.S. economy has lost jobs in three of the past six months, which has left many in the world of expert punditry scratching their heads. Furthermore, 2025 is on track to record the worst job growth since the pandemic led to unprecedented job losses in 2020. According to economic indicators, it might get worse before it gets better.
In March 2022, yearly growth in American workers’ hourly wages reached 5.9%. This figure has been going down ever since. As of November, American workers were taking home an average of $36.86 per hour, which is up an anemic 3.5% year-over-year. By comparison, middle-income households only gained 2.3% in paychecks, with low-income households gaining even less at 1.4%.
The latest jobs report indicated that the affordability issue escalated last month, further complicating the financial situation for many families. This comes as the latest inflation report reveals that annual inflation has shot back up to 3.1%. This uptick has made the distance between paycheck growth and inflation much shorter. This trend is further evidence that America’s cost of living is growing increasingly unaffordable. Stagnant wages combined with soaring inflation are fueling this crisis.
Jerome Powell, Chair of the Federal Reserve, recognized the work that remains, stressing the importance of continued labor market tightness to achieve wage growth.
“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
Those interactions between wages and inflation are made more complex by shifts in consumer behavior. In October, the share of workers quitting on their own accord reached a five-year low. This drop is a sign of a cooling labor market. Industries are under pressure from diminishing marginal returns. To mitigate the impacts of increasing costs, they will have no choice but to pass on increased price increases to consumers next year.
Further, companies have absorbed about 80% of tariffs they’ve paid since the Trump administration, adding to the pressure on their bottom lines. With profit margins eroding, businesses will have increasing difficulty keeping prices flat and not passing on at least some costs to consumers.
The broader conundrum of managing inflationary pressures against the desire to promote robust labor market conditions is a nuanced equation that will put policymakers to the test. Powell emphasized this point in recent remarks.
“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
As these economic forces converge, millions of Americans are left with a challenging trip. They are coming to the stunning conclusion that their fiscal realities may never improve. Stagnant wages and an increase in everyday costs are further draining purchasing power. In turn, families across the country—including those living in rural areas—are experiencing greater difficulty obtaining goods and services that they need.