Business

What falling wage growth says about where the U.S. economy is heading

April 8, 2026 3 Min Read

Americans are getting smaller pay raises while tariffs and higher gas prices are threatening to make everything more expensive.

Translation: The affordability problem isn’t improving.

New government data released Friday showed non-supervisory workers getting a 3.4% pay raise on average hourly earnings over the last year. That’s the slowest pace of wage gains since 2021, and a downshift from the last two years, when pay bumps were closer to 4%.

The slowdown comes as economists worry about rising inflation, with the Iran war choking off oil tankers and pushing gas prices up over $1 per gallon in just a month, to a national average of $4.09 on Friday.

As diesel costs break $5.50 a gallon (compared to just $3.89 a month ago), retailers and grocers are now contending with higher transportation costs. Amazon said Thursday it will begin charging sellers a 3.5% “fuel and logistics-related surcharge” beginning on April 17.

Airlines like United and JetBlue are raising bag fees in an effort to offset sky-high jet fuel costs. The International Air Transport Association says the price of jet fuel is up 104% in the past month.

“With the recent uptick in inflation driven by energy prices, real wage growth is likely to decelerate further, putting increased pressure on consumers,” said Thrivent’s chief financial and investment officer, David Royal.

For now, Americans are still seeing their earnings rise at a faster pace than the increase in price tags at the store. As pay rose by 3.4%, the most recent inflation data showed prices rising by 2.4% year-over-year.

Wage gains for non-supervisory employees — a category that includes roughly four out of every five non-farm workers — have been outpacing price increases since March 2023, when post-pandemic inflation finally began to cool.

But the concern is that the story could change soon. Because of the bump from oil prices, Navy Federal Credit Union Chief Economist Heather Long said it’s possible inflation could pace at 4% this month.

“Four percent is above that 3.5 percent annual wage gain, and that’s where you see a lot of squeeze on workers, particularly middle-class and moderate-income workers,” Long said.

Warning signs are flashing that slowing wage growth could ripple beyond the gas station and prices at the grocery store. Higher mortgage rates now have some worried about icing out even more potential homebuyers.

The average 30-year fixed mortgage rate rose from 5.99% at the start of the war to 6.45% on April 3, according to Mortgage News Daily. The rise is due in part to concerns that the Federal Reserve will have to raise interest rates to tamp down on war-driven inflation.

“With choppy job growth, weaker labor-force attachment and rising uncertainty, many households — especially renters and first-time buyers — could become more cautious as weaker inflation-adjusted wages erode recent affordability improvements,” said Zillow senior economist Orphe Divounguy.

If wages can’t keep up with rising costs across the board, it’s likely that affordability will become a larger issue than it already was prior to the war. An NBC News poll conducted during the first week of the war with Iran found that, for a plurality of respondents, inflation and the cost of living was the most important issue facing the country.

Economists feel the same way.

Responding to a question from NBC News at a March 18 news conference, Federal Reserve Chair Jerome Powell noted that “real” wage gains — a measure of wages adjusted for inflation — need to be positive in order for Americans to feel better about affordability.

“it will take some years of positive real earning gains for people to feel good again, we think. But you’re right — when you talk to people, they do feel squeezed,” Powell said.