Workers of the US: Were You Better Off in February 2026 than Today?

Key Takeaways

• Real hourly earnings fell 3% YoY since early 2025
• AIER’s Everyday Price Index shows wages peaked Dec 2024
• Cleveland Fed nowcast suggests slower wage growth than Bloomberg consensus
• Declining real wages could pressure Fed to pause rate cuts
• Lower purchasing power may curb consumer spending growth

Pulse Analysis

The labor market’s health is often judged by nominal wage growth, but real earnings—wages adjusted for inflation—provide a truer gauge of household purchasing power. Economists now frequently express real wages in CPI‑deflated 2025 dollars, a forward‑looking metric that strips out price changes using the latest inflation expectations. Recent BLS data, combined with the Cleveland Federal Reserve’s nowcast and Bloomberg’s consensus forecasts, reveal that average hourly earnings have slipped modestly since the start of 2025. This downward drift suggests that workers are not keeping pace with the price environment, even before accounting for alternative inflation gauges.

The American Institute for Economic Research (AIER) offers a contrasting view through its Everyday Price Index (EPI), which derives a price series from first‑differenced headline CPI and the Cleveland Fed nowcast. When the EPI is applied to the same wage data, the picture darkens: real earnings appear to have peaked in December 2024 and have been on a steady decline thereafter. The divergence stems from the EPI’s broader basket of everyday goods and services, which often rises faster than the CPI core series used by the Fed and Bloomberg. Consequently, the choice of price index can shift the narrative from modest slowdown to pronounced erosion of real pay.

These measurement nuances matter for policymakers and investors alike. Persistent declines in real hourly earnings can dampen consumer confidence, curtail discretionary spending, and ultimately slow GDP growth. For the Federal Reserve, weaker purchasing power may reduce the urgency to tighten monetary policy, but it also raises concerns about the effectiveness of any future rate cuts in stimulating demand. Market participants should monitor both conventional CPI‑based metrics and alternative indices like the AIER EPI to gauge the true trajectory of workers’ earnings and its ripple effects across the broader economy.