Average prices for the working class have risen even faster, up 4.4% from a year earlier. This means that real wages, or the purchasing power of wages for U.S. workers, have fallen for the second month in a row, and are now 0.8% less than a year ago. This was enough to bring the average worker back to their purchasing power in January 2025, right before Trump took office for his second term.

Trump keeps repeating how great the economy is, which is true for him and his billionaire buddies, who own most of U.S. stocks, with the S&P 500, a broad measure of the stock market, up 22% since Trump took office.

Unfortunately for working people, more price increases are on the horizon. Prices of key commodities used in production, such as diesel fuel, fertilizer and helium, have also spiked, as much of their production was shipped through the strait of Hormuz. This will lead to higher prices for goods that are moved, food, and semiconductors. A measure of these so-called “intermediate goods,” goods that are manufactured but used to make other goods, or not sold to consumers, was up 6% year over year in April, again foretelling higher inflation to come.

In another sign of economic distress, America’s Car-Mart, Inc., a seller of used cars and lender to car buyers with limited incomes and/or poorer credit, said that it was looking for an emergency loan. The company is also preparing for a bankruptcy filing. This is just another sign that workers have been forced to buy used cars as new car prices march ever higher.

Stocks fell across the board, with the broad S&P 500 falling more than 1.5%, while the technology-heavy NASDAQ sank almost 2%. The drop in stock prices was also fed by news of renewed military clashes in the U.S.-Israeli war on Iran, which boosted oil prices.

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Job growth was concentrated in the hotel and restaurant industry, which added 70,000 net new jobs in May, making up 40% of the total job growth. Next came local government (excluding school jobs), with 55,000 more jobs, as healthcare added 35,000 new jobs. Together these three industries added almost 90% of net new jobs.

One problem is that this trend is not expected to last. Traveling and going out to eat are not necessities, and with more and more households being caught in a vise as prices rise faster than wages, spending, and thus jobs, are likely to slow. Local governments are facing budget pressures as cuts in federal spending trickle down to state and local governments. Finally, the Medicaid cuts in the Republican “Big Beautiful Bill” of tax cuts for the rich and service cuts for the poor will speed up after the November elections, limiting the scope of future gains in healthcare jobs.

While the job numbers were strong, the number of long-term unemployed, who have been out of work for more than six months, rose by more than a third from a year ago. These workers now make up 27.5% of all the unemployed, as compared to only 20.4% a year ago.

Wage growth also slowed. In April, the year-over-year increase in wages was 3.6%, but in May, wages only increased by 3.4% over the previous year. The inflation rate measured by the Consumer Price Index is expected to rise to a 4.2% annual rate when the newest inflation numbers come out on Wednesday. This will widen the gap between prices rising faster, while wage growth is slowing down.

The strong job creation number combined with rising inflation caused bond prices to fall and their interest rates to rise on Friday. Since bonds pay a fixed interest payment, their price and the interest rate change in opposite directions. Bond interest rates have been rising since the being of the U.S.-Israeli war on Iran, which in turn drives up other interest rates, including mortgages to buy homes.

The drop in bond prices and higher interest rates also spooked the stock market, with the technology-heavy NASDAQ 100 index down 5% on Friday, led by chipmaker stocks, which fell 10%. The broader S&P fell half as much, or 2.5%.

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That same day, the BEA also released a report on Personal Income and Outlays for April 2026. After-tax income, when adjusted for inflation, fell by 0.5%, the second month that income fell this year. While spending, also adjusted for inflation, rose by 0.1%, the fall in income meant the savings rate fell to only 2.6%, the lowest in four years.

The flip side of a lower average savings rate is the more people are borrowing more to make ends meet. According to the Federal Reserve Bank of New York, more than 13% of credit card borrowers are 90 days or more behind on their payments, the highest rate in 15 years, when the economy was still struggling to recover from the 2008 Great Financial Crisis.

More than 10% of student loans are also 90 days or more late on payments. Student loans make up the greatest amount of consumer borrowing – more than credit cards or auto loans. Auto loans were not immune, with more than 5% of auto loan borrowers 90 days or more behind on payments, the highest in more than 20 years.

Not surprisingly, late borrowers were most likely among low-income households, followed by middle-income, and high-income households having the lowest rate, at less than half that of low-income borrowers. People are being squeezed by higher interest rates, higher balances (more than 20% of credit card users have balances of over $10,000), and paychecks shrinking from inflation.

Personal income and spending were both squeezed by higher inflation. The Personal Consumption Expenditures or PCE inflation rate rose to 3.8% from a year ago. This is the highest rate of inflation by this measure in three years. The PCE is the inflation rate watched by the Federal Reserve. With this inflation rate higher than the Fed’s 2% target for five years in row and now rising with higher gasoline prices because of Trump’s war on Iran, the Fed’s next interest rate change might be to raise interest rates, seeking to slow the economy and lessen pressure for higher prices.

Workers are also being squeezed by the fact that a larger share of the economy is going to corporate profits, which mainly benefits the top 1% of households who own half of all corporate stocks. The profit share rose to 12.1%, the highest since 1950. At the same time, the labor share, paid to workers, sank to just 51% of income, the lowest since records started in 1947. This growing divide between labor and capital can explain why more and more people are struggling to make ends meet and taking on more and more debt, while the stock market, which is ultimately based on corporate profits, is hitting new record highs.

A big chunk of the increase in the share of income going to capital in the form of profits is because of tax changes, including the 2017 tax bill and the 2025 “big beautiful bill” that cut taxes for higher income households and businesses. Labor unions are also struggling, with barely 10% of all workers in union jobs, down from more than 30% in 1950. Cuts to social programs, such as food stamps and Medicaid are also putting downward pressure on wages.

Typically, a slowing economy would raise the unemployment rate. The oil price increase in 1973 contributed to a recession and higher unemployment, while at the same time inflation rose. Today, oil prices, gasoline, diesel and jet fuel made from oil, as well as helium and fertilizer that are by products or made from oil, are all on the rise. However despite the slowing economy and job growth, so far the unemployment rate has just crept up from 4.0% when Trump took office in 2025, to 4.4% in April 2026, the last month reported on. At the same time, more people have “dropped out” of the labor force, that is, they have given up on working or looking for work. The Labor Force Participation Rate has been going down from 62.5% in February 2025, the first full month of the Trump administration, to 61.8% in April 2026. If these folks had continued to look for work, the official unemployment rate would have been 5.3% in April, a much bigger jump from the beginning of the Trump administration.

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The increase in the PPI means that consumer prices will be heading even higher in the future. For example, the price of diesel fuel, used in trucking, farm and warehouse equipment, was up 12.6% in just one month, adding to the cost of food and almost all goods that are shipped by trucks. The wholesale cost of transport by truck rose 8.1% in April as compared to March. Air freight costs also rose, but by a “smaller” amount of 3.6% for the month.

Major companies such as Whirlpool, a maker of appliances, announced a 10% price increase in April, and another 4% to be imposed in July.

Parts of the PPI report also feed into the Personal Consumption Expenditure, or PCE, price report that is coming out May 28. The PCE price index is the inflation measure followed by the Federal Reserve Bank, which traditionally raises interest rates when inflation rises.

With inflation rising, bond prices are falling, since inflation erodes the fixed interest payments that bonds pay. This means that the interest rate on bonds is going up; for example, the ten-year U.S. Treasury bond before the war on Iran was 4.02%, and it is now 4.46%. The ten-year U.S. Treasury bond is a benchmark that impacts other loan interest rates. For example, the 30-year fixed rate mortgage was just below 6% right before the war started, is now at 6.45%. Rising mortgage interest rates mean larger loan payments, reducing even more the affordability of buying a home.

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The rising costs of energy drove the increase in prices, on the backs of higher fuel prices as a result of Trump’s war on Iran. Gasoline prices were up 28.4% over a year ago. Electricity rates were up 6.1% from a year ago.

These higher prices mean that the purchasing power of workers’ incomes, or what economists call real income, fell in April as compared to March, and also fell compared to a year ago. Using another measure of prices paid by workers, the CPI-W, real wages or hourly earnings fell 0.3% in April from March, and fell 0.2% as compared to a year ago.

There were also signs that higher fuel and energy prices are spreading to goods and services that use a lot of energy to produce. With diesel fuel prices up over 60% from a year ago according to the AAA (American Automobile Association), transportation costs are showing up in the higher prices for food, up 0.5% in April as compared to no increase in March. Airline fares have soared, up more than 20% as compared to April 2025, as jet fuel prices have almost doubled.

While economists often refer to the “core” rate of inflation, which takes out food and energy costs as they are more variable month to month, this means that the actual rate of inflation for lower and middle income households is actually greater than the headline (total) inflation, since those consumers spend more of their income on necessities like food, gasoline and electricity.

With Trump polling at all-time lows, with 70% of people disapproving of him on the economy, Congress is proposing to suspend the federal gasoline tax. However, the tax is only 18 cents a gallon, or about 4% of the current national average price. But with gasoline up more than 40% since the war started, this would at most offset 10% of the increase. Further, the gasoline tax is an excise tax that the seller pays, so there is no way to ensure that the gasoline sellers pass on the tax cut to drivers.

With no end in sight to the war that is blocking the flow of oil, gas, fertilizer, sulfur (used in industry) and helium (used in a lot of tech industries), higher prices are likely to spread to more and more goods and services.

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The employment report, based on a survey of businesses, was strong relative to the weak hiring in 2025, with 115,000 new jobs created. There were still pockets of weakness, with government jobs declining by 8000, making April the seventh month in a row of job losses by government workers. Manufacturing also lost jobs, down by 2000 jobs.

However, the survey of households showed more weakness, with the labor force participation rate declining by 0.1%. Without this decline, the unemployment rate would have gone up. The unemployment rate was also held down by a big jump in self-employed workers, many of whom, like rideshare drivers, are really a new type of temp workers. Last, but not least, the broadest measure of unemployment, which includes people who gave up looking for work and people working part-time who can’t find full-time jobs, rose to the highest this year, at 8.2%.

Workers’ compensation, including wages, benefits and taxes paid by the employer, rose 3.1% in the first three months of the year (January to March) according to another BLS report issued Thursday, May 7. But prices rose even faster, meaning that real compensation, or the purchasing power of workers’ wages and benefits, actually fell by one half of one percent, or 0.5%, during these same three months.

This meant that the share of total output in the economy that goes to workers was only 54.1% in the first quarter, the lowest since these records began almost 80 years ago, in 1947. With more of the share of the economy going to corporate profits, rent, interest and small business income, it is no wonder that more and more people feel that the rich are getting richer, and the poor poorer.

The growing divide between haves and have-nots can also be seen in the contrast between the latest Consumer Sentiment report by the University of Michigan and the booming stock market. The Consumer Sentiment report, which covers the period of April 21 to May 4, fell to an all-time low of 48.2. This drop reflected consumers’ expectation of inflation to rise. Expectations are that inflation will jump over the next year from 3.3% over the last 12 months to 4.5% over the next 12 months. This will further reduce the purchasing power of workers’ wages.

In contrast, the stock market, as measured by the broad S&P 500 Index, is at an all-time high. The stock market is being driven by corporate profits and the fast-growing wealth of those at the top. In particular, semiconductor chip stocks have risen to about 15% of total stock market value, even higher than during the 2000 dot-com stock market bubble.

How have sales and business profits held up with so many working-class households struggling amid soaring gasoline prices? On one hand, more and more consumer spending is based on high-income households as the economic divide in terms of income and wealth continues to grow. On the other hand, lower and middle income households, mainly the working class, are borrowing more to make ends meet. The Federal Reserve report on consumer credit, released yesterday, May 7, shows that credit card borrowing increased at the fastest rate since the last bout of inflation, in 2022.

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Last July, the Trump administration increased work requirements for people who are getting food aid under the Supplemental Nutrition Assistance Program, or SNAP. Since then, almost 3.5 million people have been dropped from SNAP, or 8% of the total. But in some states, such as Arizona, the number of people getting food aid fell by almost half.

This is despite the official government estimate that almost 50 million people, or almost 14% of households, are “food insecure,” meaning that they have to cut back on how much they eat, or reduce the quality of their food. This is even more severe among households with children, where 18% are considered food insecure.

When the Republican Congress did not extend federal subsidies for private health insurance that were expanded during the COVID-19 pandemic, premiums soared. People in Republican-led states that did not expand Medicaid – older people, those with middle incomes – were hit the hardest. Initial sign-ups fell by more than a million people, but millions more are being dropped after not paying the higher premiums, which could increase tenfold or more.

Before the cuts, 8% of Americans, or 27 million people, did not have any health insurance at all. Almost 40% of Americans depend on government health insurance, mainly Medicare (for seniors and disabled) and Medicaid (for lower incomes). In addition, there are the Veterans Administration and the subsidized ACA marketplace, which are also government funded. While statistics for this year and the impact of the cuts won’t be available until the fall of 2027, the number of Americans without any health insurance is rising.

Finally, foreclosures on homeowners still paying their mortgages rose 26% over a year ago, to the highest level in six years. In the first three months of 2026, almost 120,000 foreclosures were filed by lenders against homeowners who fell behind on their payments. Partly this is because of the end of mortgage protections for borrowers passed during COVID-19, but homeowners with mortgages are also under pressure from higher home insurance premiums and property taxes.

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