The U.S. Department of the Treasury recently published an article updating consumers on the purchasing power of American households. Purchasing power refers to the quantity of goods or services that a single unit of money can buy.
The report indicated that inflation, real wages, and unemployment rates are three critical statistics utilized in analyzing the purchasing power of households in the United States. Since 2022, inflation has dropped by six percentage points. Unemployment in the United States has consistently remained low, while real wages have been on an upward trend. Despite these positive indicators, Americans continue to feel the impact of higher prices, which subsequently diminishes purchasing power. Post-pandemic, real wages for American consumers have significantly increased, thereby enabling them to purchase more goods and services.
According to the same report, there has been a rise in purchasing power for the median American worker since 2019. Gas and food prices have remained high due to the war in Ukraine; however, when compared to increases in median earnings pre-pandemic, prices for many other goods and services have only marginally increased. On average, price growth for a typical consumption bundle for U.S. consumers has been less than that of median earnings, suggesting an increase in purchasing power. Other advanced economies worldwide have not experienced similar improvements in purchasing power during this period. Italy reported a decrease of -9.1%, while Germany saw a -7.2% decline.
Over the past three years, robust economic policies have stimulated wage growth according to a press release by the U.S. Department of the Treasury. This wage growth has outpaced inflation over this period, leading to greater purchasing power for average consumers. Stronger support for labor unions has provided workers with a more potent voice regarding higher wages; as such workers now have more opportunities to negotiate better pay scales. Between 2019 and 2023, real weekly earnings for the median worker grew by 1.7 percent. This implies that a week's pay for an average worker in 2023 can purchase more goods than it could in 2019. The report further indicated that real earnings increases were particularly strong for median Black and Hispanic Americans, who experienced increases of 5.7% and 2.9% respectively. The 25th percentile saw a growth of 3.2% in real earnings since 2019.
