Despite higher paychecks, Americans still have less money to spend, Labor Department report says

(Gray News) - Although Americans are seeing bigger paychecks on paper, they still have less money to spend.

According to the U.S. Department of Labor’s Employment Cost Index, the total compensation for civilian workers, including wages and benefits, rose 3.4% over the last 12 months, ending in September. Wages and salaries were up 3.1%, while benefit costs climbed 3.9%.

After adjusting for inflation, however, wages are effectively shrinking, according to the report.

For private-sector workers, inflation-adjusted wages and salaries fell 0.6% over the past year, according to the Labor Department. For state and local government workers, real wages slipped 0.5%. That means price increases are outpacing pay gains, lowering workers’ purchasing power even as employers appear to be spending more on compensation.

The report shows that pay raises are not keeping up with the cost of living, which is a major frustration for many American households. The report also highlights a challenge for the Federal Reserve, which is trying to tame inflation without triggering a sharp slowdown in hiring or wage growth.

Last month, the government reported that consumer inflation accelerated in September as goods and services became more expensive, according to the Associated Press.

The Employment Cost Index is one of the Federal Reserve’s closely watched barometers of underlying wage and benefit pressures in the economy.

The Federal Reserve raised its benchmark interest rate for the first time since 2023 six weeks ago. It was an effort to tame high inflation. It said another rate hike could happen later this year.