Higher prices aren’t the only thing hitting Americans hard this year. Wages are also growing slowly, making it even harder to balance monthly budgets.
The jobs market isn’t bad, given unemployment is 4.1%, according to the Bureau of Labor Statistics. However, many economists are labeling it a ‘no hire, no fire’ market, with companies unmotivated to cut or ramp up workforces.
“This is a low-fire environment. Employers are holding on to the workers they have heading into the holidays, and the hiring they are announcing is largely short-term, seasonal work,” said Andy Challenger, workplace expert and chief revenue officer for Challenger, Gray & Christmas.
As a result, there are fewer opportunities, particularly for job hoppers, who have gotten used to big raises for shifting employers, and new graduates, who are struggling to find work because people aren’t quitting.
The dynamic is having a distinct impact on workers’ wallets, with pay raises more measured than in past years.
Workers are being squeezed as pay raises fail to keep up with inflation.
Inflation flips wages upside down
Prices have been under pressure since tariffs were announced in 2025. While some tariffs have been rolled back, most companies that raised prices due to tariffs haven’t passed along the savings to shoppers. And where tariffs still exist, pressure has increased on companies to continue to raise prices. For instance, Whirlpool recently said appliance prices will increase by 7% beginning December.
Worse, the war in the Middle East with Iran has severely limited oil tanker activity, causing crude oil prices to soar and triggering a domino effect on prices for goods that rely on energy to be produced or on fuel to be transported to customers.
As a result, Consumer Price Index inflation rose 3.7% in September from one year ago, significantly above the Federal Reserve’s 2% target.
Consider how prices have increased for many common items:
- Rice, Pasta, & Cornmeal: +4.3%
- Bread: +3.3%
- Cookies: 3.6%
- Ground beef: 5.4%
- Fish and seafood: 6%
- Fresh fruits: 4.9%
- Tomatoes: 6.8%
- Coffee: 7.1%
- Full service restaurants: 3.8%
- Fuel oil: 74.2%
- Gasoline: 34.2%
- Electricity: 4.4%
- Apparel: 3.4%
- Toys: 6.6%
- Source: U.S. Bureau of Labor Statistics
With seemingly everything costing more money, it’s increasingly challenging for households to make ends meet, especially given wages aren’t keeping up with inflation.
In September, real wages, or wages adjusted for inflation, fell 0.7% year over year, according to the BLS. Or, said more bluntly, wages grew 3% while inflation grew 3.7%.
For perspective, that’s the slowest wage growth since 2021.
In 1980, about 80% of corporate income went to workers. Now, it’s less than 68%, according to Economic Policy Institute.
Real wages add unwelcome economic wrinkle
The U.S. economy has been strong in 2026, but a lot of that strength is tied to rapid spending on artificial intelligence. To run popular large language models like ChatGPT and Gemini, it requires massive computing power. As a result, companies are pouring hundreds of billions of dollars into data centers to meet the demand.
Strip away the positive impact from all that spending, and you’re left with an economy that, while growing, is far less robust. In Q3, GDP came in at 3.4%, but according to Bank of America, stripping away AI would reduce growth to about 2%.
In short, AI makes the headline look better than the reality many companies face, which, in turn, has made them reluctant to hire more workers or raise pay in case the economy stumbles.
If wages continue to fail to keep up with prices, it could mean there’s little to prop up the economy if AI spending stalls or retreats. BLS data show that the average worker pocketed $386.76 per week after inflation in September, down from $388.75 in August.
The situation isn’t lost on everyday consumers, as shown by sentiment surveys.
While the Michigan Sentiment Survey Index improved in November from October, it was unchanged from one year ago. Among respondents, “57% spontaneously mentioned that their living standards have been eroded by high prices, the highest seen since May and up from 46% in February, just prior to the Iran conflict,” noted Surveys of Consumers Director Joanne Hsu.
The Conference Board Consumer Confidence Survey paints a similar picture. In October, “Consumer confidence remained on the long-term downward trend that’s persisted over the past few years. Consumers planned less spending on services and durable goods over the next six months. This likely reflected higher price levels and persistent inflation, which eroded consumers’ purchasing power,” said Fergus McCormick, Senior Economist, Global Indicators, The Conference Board.
