U.S. consumers' real earnings have been falling

This week’s big economic news will be about inflation. The July consumer price index comes out on Wednesday, wholesale prices on Thursday, then how that feeds into consumer behavior with the July retail spending report on Friday.

All this follows the July jobs report out last week, wherein the headline 23,000 decline in jobs wasn’t the only lousy data point — wage growth also fell sharply, with average hourly earnings increasing at the slowest pace in five years: 3.2% year-over-year.

Inflation, meanwhile, is not slowing — or at least not much. High inflation, declining wage growth. Add them together, and consumers’ purchasing power is falling, month after month.

One year ago, prices were rising by 2.7% year-over-year. Workers’ average hourly pay was growing by 4%. Fast forward to now: Prices are now rising 3.5% year-over-year, but wage growth has slowed to just 3.2%.

“Real earnings” — pay after accounting for inflation — actually turned negative back in April.

“Consumers aren’t going around doing that calculation,” said Johnny Sawyer, senior research manager at public-opinion firm Ipsos. “But what they do know is that the cost of living is up, and they feel like the economy’s not doing well.”

And employers aren’t under much pressure to increase wages, because workers are staying put, even in the face of anemic raises, said Amy Glaser, senior vice president at staffing firm Adecco.

“Employees are really looking for security,” Glaser said. “And we’ve seen wages slow — you’re not seeing these huge sign-on bonuses.”

So, as purchasing power is eroded, what are consumers doing?

“A lot of people have been forced to dip into savings and take on debt,” said Ted Rossman, a principal consumer finance analyst at nonprofit credit counseling firm Money Management International. He said it’s not just low-income consumers, it’s also middle-income earners, who are finding that rising prices have eaten up their entire paycheck before the end of the month.

“This is often very practical debt,” Rossman said. “It’s not usually a vacation or a shopping spree. Usually this is medical debt, car repairs. It’s groceries. It’s everyday essentials.”

Consumers are trading down and spending more frugally, said Joanne Hsu, director of the monthly survey of consumers at the University of Michigan. But not everybody.

“At the very top of the income and wealth spectrum, they’re probably not adjusting their spending all that much,” Hsu said. “Consumers who have large stock portfolios may be feeling wealthier than they have felt in a long time.”

And Hsu said they generate the lion’s share of consumer spending, meaning their outlays may mask declining purchasing power for the rest of consumers in the economy.

Correction (Aug. 11, 2026): A previous version of this story misattributed a quote.