US consumer sentiment worse than pandemic years as wage growth lags inflation
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Inflation has exceeded US wage growth for four consecutive months, and nearly three-quarters of consumers in August expect price growth to outpace income growth over the next year, according to the University of Michigan. Joanne Hsu, the survey director, said frustration over eroding purchasing power continues to mount, while labor force participation sits near multi-decade lows outside the pandemic. Researchers at Chicago Booth and ADP Research found real wages fell for nearly 40% of workers from December 2020 through 2024, helping explain why dissatisfaction outlasted the inflation shock.
Key Facts
- Inflation exceeded wage growth for four consecutive months through the University of Michigan's August survey.
- Almost three-quarters of consumers in August expected price growth to outpace their income growth over the next year.
- Real wages fell between December 2020 and 2024 for nearly 40% of US workers, compared with roughly 24% before the pandemic.
- Labor force participation is at its lowest level in decades outside the pandemic.
- Joanne Hsu said a sustained drop in gasoline prices over several months would significantly boost consumer views of the economy.
The Wage-Inflation Gap
US inflation has exceeded wage growth for four consecutive months, according to University of Michigan survey data. Joanne Hsu, the university's surveys of consumers director, said consumers' frustration over the erosion of purchasing power continues to mount. A University of Chicago Booth School of Business and ADP Research working paper using payroll data through 2025 found that the pandemic-era inflation shock produced a persistent downward shift in real wages. The researchers, Erik Hurst, Christina Patterson, Nela Richardson, and Liv Wang, found real wages fell from December 2020 through 2024 for nearly 40% of workers. That share compares with roughly 24% of workers who saw real wage declines in the pre-pandemic period.
Consumer Sentiment
Consumer sentiment, as measured by the University of Michigan's monthly survey, remains worse than during the COVID period. Almost three-quarters of consumers in August said they expected price growth to outpace their income growth over the next year. Many consumers are worried that higher energy prices will affect other parts of the economy, according to Hsu. Hsu said a sustained drop in gasoline prices over several months, in contrast to temporary dips, would significantly boost consumer views of the economy.
Labor Market Pressures
Labor force participation is at its lowest level in decades outside the pandemic. Unemployment and layoffs remain low, and the economy is still slowly growing while consumers continue to spend. Even though inflation is down from its post-COVID peak, it remains above historical norms and the long-running impact is still felt in Americans' wallets years later.
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US consumer sentiment worse than pandemic years as wage growth lags inflation
