Feel like your paycheck isn’t going as far as it used to? A new study may explain why

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A recent survey revealed 46 percent of consumers believe it will take until March 2026, or later, to recover from holiday spending

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Does it feel like you’re having a harder time covering the cost of essentials like groceries, gas, and housing? A new report from JPMorgan Chase may explain why.

Real income - the purchasing power your dollars have - is growing slowly, the report found. Specifically, real income grew 1.6 percent year-on-year in October, indicating that wage growth is lagging behind inflation, Joe Camberato, CEO at National Business Capital, told The Independent by email.

“It basically tells us wages haven’t kept up with the cost of living,” Camberato said. “On paper, the job market looks strong. In real life, people feel stretched because their paycheck doesn’t go as far as it should.”

That financial strain is especially prevalent as holiday spending kicks in.

A recent survey, from fintech firm Achieve, revealed that 79 percent of consumers have less than $1,000 set aside for holiday spending this year, and 46 percent believe it will take at least until March or later to recover from the holidays.

What is real income, and how does it impact your daily life?

Economists tend to put income into two categories: nominal and real.

In simple terms, your nominal income is what you earn. If your salary is $50,000, your nominal income is $50,000.

Real income represents the purchasing power of what you earn. Instead of taking your income at face value, real income factors inflation into your nominal income to express how much your income can actually buy.

For example, say you earn $50,000 this year, and your monthly budget is $4,000. Next year, you earn a 10 percent raise that bumps your pay to $55,000, but inflation increases 3 percent, pushing your monthly budget up to $4,120 because everyday items are more expensive.

In this scenario, your nominal income grew 10 percent, but your real income grew roughly 7 percent because inflation negated around 3 percent of that income growth.

“Real income is everything,” Camberato said. “It determines how far your money actually gets you. People feel it every time they buy groceries, fill the tank, shop for clothes, go out to eat, [or] try to book a trip.”

Is October’s real income growth a cause for concern?

JPMorgan Chase’s report that real income is relatively flat isn’t necessarily a red flag for consumers, but it does mean it's not growing as quickly as your wallet probably wants it to.

“It’s a step in the right direction, but 1.6 percent is still pretty modest after the kind of inflation we just lived through,” Camberato said. “It’s progress, but it’s slow progress."

He added that the relatively flat growth doesn’t do much to ease the strain consumers feel on their monthly budget.

“When real income is flat,” he said, “every part of daily life feels tighter.”

Will your purchasing power improve in the near future?

Looking ahead to the coming months, Camberato believes two things need to happen to boost real income in a way that improves your purchasing power in a meaningful way.

“We need a real productivity boost so companies can raise wages without raising prices,” he said. “And, at the same time, we need to see reductions in the big-ticket items like rent, insurance, healthcare, and food to stop rising faster than paychecks. This would give consumers relief.”

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