Economy

Paychecks are growing, but buying power is shrinking: real wages fall 0.6%

Washington • October 31, 2026 • By Press Pass USA

Editorial illustration: a worker holding a grocery bag and an envelope at a supermarket checkout, with rising-price arrows around the shelves

Editorial illustration — Press Pass USA

American workers are earning more on paper — but their paychecks buy less than they did a year ago. New federal data show inflation-adjusted wages fell 0.6% over the 12 months through September, the second straight quarter in which pay has lost ground to prices.

The Bureau of Labor Statistics reported Friday, October 30, that its Employment Cost Index — the broadest measure of what employers pay for labor — rose 0.8% in the third quarter, down from 0.9% in the April-to-June period. Over the year, total compensation rose 3.4%, wages and salaries rose 3.1%, and benefit costs rose 3.9%.

Adjusted for inflation, however, private-sector wages and salaries fell 0.6% over the year, the agency said. State and local government workers saw a 0.5% inflation-adjusted decline. The 0.6% drop follows a 0.3% decline in the 12 months ended in June, making it the second consecutive quarterly fall in real pay.

The gap comes down to prices rising faster than raises. Consumer prices rose 3.7% in the 12 months through September, the Bureau of Labor Statistics reported October 14, while the Federal Reserve's preferred inflation gauge, the personal consumption expenditures price index, rose 3.6% over the year, according to a Commerce Department report released October 29. Rising fuel costs have added to the pressure, with gasoline and diesel prices climbing amid concerns about energy shipments moving through the Strait of Hormuz.

At the same time, employers' costs are still climbing — just not in workers' take-home pay. Benefit costs rose 3.9% over the year, outpacing the 3.1% wage gain, driven in large part by a 6.4% jump in employers' health insurance costs, according to an Indeed Hiring Lab analysis of the federal data. The analysis also noted that the average monthly premium workers pay rose 8.5% for single coverage, to $174, and 7.6% for family coverage, to $730 — the largest year-over-year increases since 2010.

For policymakers, the slowdown in wage growth cuts both ways. Reuters reported that the moderation in labor costs suggests the job market is unlikely to fuel further inflation — a welcome sign for the Federal Reserve, which held its benchmark interest rate in the 3.75% to 4.00% range on October 28 while acknowledging that inflation "remains elevated." For households, though, the same numbers mean a tighter squeeze: bigger paychecks that cover less at the grocery store, the gas pump and the pharmacy.

The data do not mean every worker took a pay cut. The Employment Cost Index tracks changes in hourly labor costs across industries and occupations, not individual budgets, and it excludes federal workers, military personnel and the self-employed. But as a national measure, it shows the purchasing-power gains workers rebuilt from 2023 through 2025 have now reversed for two quarters running.

Sources: U.S. Bureau of Labor Statistics, “Employment Cost Index — September 2026” (Oct 30, 2026); Reuters, “Slower wage growth curbs US labor costs in third quarter” (Oct 30, 2026); TMJ4 (Scripps), “Americans are getting poorer despite bigger paychecks, government data shows” (Oct 31, 2026); Indeed Hiring Lab, “Q3 2026 Employment Cost Index: Rising Healthcare Costs Keep Haunting Employers” (Oct 30, 2026).