Inflation is slowing, markets are cooking, and unemployment is low and staying there.
But for millions of Americans, it doesn’t feel that way. Even though inflation has cooled from earlier this year, it’s still climbing, and living costs have steadily been outrunning wage growth for several months.
That divergence helps explain why buying groceries, opening utility bills, and browsing home listings feels so dispiriting.
“Crummy,” is how Moody’s Mark Zandi put it.
“They feel crummy because they know they can’t keep up. They’re not able to buy the same amount of stuff as they were a year ago or two years ago because their purchasing power is eroding. They have very good reasons to feel crummy.”
Wages are rising, but not keeping up
Consumer prices rose 3.7% in July from a year earlier, according to the Personal Consumption Expenditure price index. And personal incomes, after taxes, rose more quickly than prices last month. Consumer spending, however, didn’t follow suit.
That triad is what’s shaping consumer confidence — and it’s not good.
Nearly three-quarters of consumers expect price increases to outrun their income gains over the coming year, according to new data from the Conference Board, which showed US consumer confidence fell in August to the lowest level since the start of the year.
“Consumer confidence is closely tied to whether households feel their paychecks are keeping pace with the cost of living,” Yelena Shulyatyeva, the Conference Board’s senior US economist, told Yahoo Finance.
“While people care about the direction of inflation, what matters more in their daily lives is purchasing power: Inflation may be slowing, but prices remain significantly higher than several years ago, and many workers — particularly those facing steep increases in housing, food, insurance, and borrowing costs — still feel their wages have not caught up.”
That disconnect helps explain why somewhat positive economic data has not translated into more optimism among consumers.
“Households judge the economy by what their paychecks can actually buy — and for many, affordability remains strained,” said Shulyatyeva.
It’s the ‘size of their paychecks’
In a new paper, ADP researchers examined the payroll records of 16 million private-sector workers in the United States between 2016 and 2025.
The conclusion: Inflation has slowed, but many people never fully recovered the purchasing power they lost when prices surged several years ago.
In fact, more than 4 in 10 workers who stayed with the same employer from 2021 through 2024 ended up with lower real wages. Even when including people who changed jobs and landed larger pay increases, 37% of workers were still worse off in real terms by the end of 2024.
