Two-thirds of Americans say their paychecks can’t keep up

Most workers expect inflation to win

Americans are not feeling good about their money. Two-thirds of consumers say they expect inflation to outpace their income growth, according to the University of Michigan’s November 2025 Surveys of Consumers.

Earlier in 2025, fewer than half expected any income growth at all. Consumer sentiment now sits about 20% below where it started the year.

The Michigan survey has tracked how Americans feel about the economy since 1946, and right now, the mood is sour.

High prices keep squeezing household budgets

The sticker shock at the grocery store hasn’t gone away.

About 46% of consumers say high prices are eating into their personal finances, and that number has stayed above 40% for seven straight months.

Here’s the bigger picture: overall prices have climbed about 25% since January 2020. That’s more than double the roughly 10% cumulative inflation from the five years before the pandemic.

Even as price increases slow down, years of rising costs continue to weigh on everyday budgets.

Inflation cools but misses the target

Inflation is heading in the right direction, but it hasn’t landed yet.

Year-ahead inflation expectations dropped to 3.4% in the latest reading, the lowest since January 2025. Long-run expectations held at 3.3%, which is still above the pre-pandemic range of below 2.8%.

The consumer price index showed prices rose 2.7% over the past year as of late 2025. The Federal Reserve’s 2% inflation target hasn’t been hit since March 2021.

Wages beat inflation on paper

By the numbers, workers are coming out ahead. Average hourly earnings rose 3.7% in 2025, outpacing 2.7% inflation.

Weekly pay has jumped about 31% over the past six years, faster than prices over that same stretch. But inflation wiped out most of those gains in real terms.

And for lower-wage workers, who saw the biggest pay bumps after the pandemic, the past year has been especially rough. They’re now falling behind again.

People feel poorer than the data suggests

There’s a gap between what the numbers say and what people actually feel. Research shows people tend to credit their own raises to hard work, not inflation adjustments.

A Federal Reserve study on consumer sentiment versus verified retail spending found that people see prices climbing while their paychecks seem stuck.

Americans compare today’s grocery bills to what their money bought in 2019 and feel the difference. A Harvard study found most people don’t think wages keep up with prices, no matter what the data shows.

Stock owners feel better than everyone else

Not everyone feels the same way about the economy.

Sentiment improved among consumers with the largest stock holdings but dropped among those without investments.

Higher-income and college-educated consumers reported brighter outlooks, while lower-income and less-educated consumers did not.

Wealthier Americans feel more protected from economic risks because of stronger income prospects and investment portfolios. This wealth gap in how people see the economy mirrors patterns from 2023 and 2024.

Housing and childcare costs hit families hardest

Some costs hurt more than others. Housing tops the list of expenses Americans worry about most, with 44% citing it in a YouGov poll.

Basic needs like food and clothing concern about 35%.

Daycare costs have surged 39% since 2019, and seven in 10 Americans now say raising a child is unaffordable, up from 58% a year earlier.

Nearly three in 10 Americans delayed or skipped medical care in the past year because of cost.

More Americans say they are falling behind

The financial picture is getting worse for a growing number of families.

About 32% of Americans say their household income is falling behind their expenses, up from 24% earlier in 2025, according to a YouGov/Economist poll on household income versus expenses.

Close to a quarter report spending more each month than they bring in.

A Bankrate survey found 32% expect their finances to worsen in 2026, the highest pessimism since that survey began in 2018. Inflation topped the list of concerns.

Tariffs fueled fresh inflation worries

Tariffs added another layer of anxiety. About 60% of consumers in April 2025 cited tariffs as a concern, up from less than 2% before the November 2024 election.

Consumers who mentioned tariffs reported higher inflation expectations than those who didn’t. Year-ahead inflation expectations surged after tariff announcements in early 2025 but have since come down.

Tariff concerns have eased in recent months, but consumers remain watchful for any new escalation.

Political views shape economic outlook

How people feel about the economy depends a lot on their politics.

Sentiment fell among Democrats and independents in early 2025 while holding steady among Republicans. National sentiment trends track most closely with how independents feel.

Republicans report greater financial optimism and are more likely to plan increased savings. Democrats are more likely to predict financial decline and to delay big purchases.

These differences show up as a documented pattern across multiple surveys.

The Fed cut rates but mixed signals remain

The Federal Reserve cut interest rates in September, October, and December 2025, and markets expect more reductions in 2026.

Household debt reached about $18.8 trillion in late 2025, but debt payments remain well below the 2007 peak as a share of income. The labor market sends mixed signals, with low layoffs but slower hiring.

Consumer spending has held up despite low sentiment, which suggests people are spending more carefully rather than stopping altogether.

Americans adapt but the strain shows

The gap between economic data and how people feel defines this moment.

Inflation has slowed, but cumulative price increases since 2020 have permanently raised the cost of everyday life.

Whether wages continue to outpace inflation and whether tariff policy stays stable are two key factors for household finances in 2026.

Americans are adapting by shifting where they spend rather than cutting back entirely. The numbers may look better, but the strain on family budgets is real.

This article was created with AI assistance and human editing.

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