Wages Lag, Wallets Tighten as Consumer Sentiment Slips Again

As the government shutdown loomed, PYMNTS Intelligence last month found consumers’ optimism about their financial stability weakened as income growth trailed rising expenses. Four in 10 consumers said their paychecks are not keeping up with higher prices, and more than half reported that inflation continued to erode their spending power.

As the data indicate, 58% of consumers now say wage gains lag behind the pace of inflation, up from 51% earlier this year. While 1 in 3 have postponed major purchases, roughly a quarter have cut back on discretionary spending to preserve cash.

The share of household budgets devoted to essentials such as food, fuel and housing is at its highest level of the year, leaving less room for savings or non-essential purchases.

PYMNTS Intelligence found these pressures are especially acute among hourly and gig workers, whose incomes fluctuate with unpredictable schedules. Many say they are relying more heavily on credit cards and short-term installment plans to cover recurring bills. Consumers’ assessment of their financial well-being has fallen in each of the past three Wage to Wallet readings, signaling a steady deterioration in confidence that extends beyond inflation alone.

The Paycheck-to-Paycheck Economy

Separately, PYMNTS’ paycheck-to-paycheck data indicate that only 45% of all consumers say they could handle an unexpected $2,000 expense without borrowing.

As consumers perceive their wages falling behind expenses, their sentiment toward the broader economy declines sharply. Among those who describe themselves as “falling behind,” confidence in their ability to improve their financial situation is less than half that of peers who report being “holding steady.” The result is an economy where spending continues but is increasingly necessity-driven rather than confidence-driven.

University of Michigan Data Confirms the Decline

The University of Michigan’s preliminary November Consumer Sentiment Survey, released on Friday (Nov. 7)  mirrors those findings. Sentiment fell 6% from October, marking a fourth consecutive monthly drop and reaching the lowest level since July 2022.  The index now sits almost 30% below its level a year ago.

The expectations component slipped 3%, while the current conditions index fell 11%, one of only three double-digit monthly declines in two years. The university noted that concerns have broadened across all demographic groups, with consumers increasingly citing the ongoing federal government shutdown and a weakening job market as reasons for pessimism.

Within the survey, current personal-finance assessments dropped 17%, and expectations for business conditions over the next year declined 11%. Respondents expressed worries about the economy’s trajectory and a belief that their own finances are unlikely to improve in the near term.

Inflation and Jobs Still Central

Inflation expectations for the year ahead edged higher to 4.7% from 4.6% in October, well below the 6.6% peak recorded in 2023, while long-run inflation expectations eased to 3.6% from 3.9%. The data suggest that sentiment is no longer driven primarily by prices but by unease about jobs and income stability.

The Federal Reserve Bank of New York’s October data, also released on Friday, show that the mean perceived probability of higher unemployment one year from now rose to 42.5%, its third consecutive monthly increase. The perceived likelihood of finding a new job if displaced fell to 46.8%. At the same time, expected household income growth slipped to 2.8%, while expected spending growth climbed to 4.8%, reinforcing the sense that expenses are outpacing pay.

The Broader Message

Together, the Wage to Wallet and University of Michigan findings point to a consumer landscape defined by stress rather than optimism. Households are adapting but not advancing. Wage growth has not kept up with costs, emergency savings are shrinking, and confidence in future income prospects is slipping. Relief from inflation alone may not be enough to restore confidence unless wage growth becomes more durable.

Until then, consumer sentiment will likely remain constrained by the simple arithmetic of income and expenses.