Paycheck to Paycheck

The Labor market finished 2019 with a solid showing. The economy added 145,000 jobs, making December the 111th straight month of job gains, the longest stretch in 80 years of data. For the full year, employers averaged 175,000 jobs per month, a downshift from the 2018 pace of 223,000, though these numbers will likely change after the BLS releases its annual adjustment to the numbers in February.

Adding to the positive news, the unemployment rate came in at 3.5 percent, matching the lowest reading since 1969 and the broader rate (U-6), which adds underemployed, those working part-time who would prefer full time, and folks who are marginally attached to the work force, fell to 6.7 percent, the lowest on record since 1994.

Average hourly earnings increased by 2.9 percent from a year ago, which may not seem all that great, but given that the overall inflation rate remains under 2 percent, the bump up is sufficient to stay ahead of rising prices. Perhaps the best news on wages is that lower earning and entry-level workers have been making steady progress over the past couple of years. That’s due in large part to municipal and state minimum wage initiatives, which have pushed the effective average minimum wage to nearly $12 per hour, well ahead of the federal rate of $7.25 per hour.

Despite the labor market’s progress, it has been interesting to see a new Twitter hash tag game, called “with my next paycheck I will…” The posts are alternatively funny (“help a recently exiled Nigerian prince reclaim his throne”) and depressing (“still be broke”). The trend coincides with reports that an astounding 74 percent of Americans say that they are living paycheck to paycheck, according to a survey conducted by the American Payroll Association (APA).

Given the upbeat economic news, the big question is: why are so many workers feeling under pressure? The answer is complicated. While there have been wage gains, they are not spread out across every worker, just ask your friendly millennial or career switching Boomer about it.

Additionally, averages are just that, average. A recent Bankrate.com report found that half of American workers said they did not get a raise last year, and over a longer term, middle-income workers have been left in the dust. Government data show that over the past twenty years, median household income has barely budged, after accounting for inflation. Today the median stands at $63,179, a mere 3 percent increase from 1999’s level of  $61,526. Add to those figures the weight of $1.6 trillion dollars worth of student loan debt as well as rising costs for housing in some areas, and you can see how monthly bills take a huge bite out of many workers’ take-home pay.

But what accounts for those upper class earners who also say that they are living “paycheck to paycheck”?

I hear from a lot of these folks, who consistently struggle to “make ends meet”. Not to discount how they feel, but after a few probing questions, I have found that many of these folks are counting cash flow items like home equity lines of credit that were used to renovate the kitchen, vacation funds, and kids’ activities/tutoring as part of their non-discretionary spending.

I know that these seem like “have-to” spends, yet clearly the monthly pressure felt when including those non-essential items is not equivalent to choosing between paying the mortgage or rent and paying the cable bill.

Regardless of whether you are really scraping by or feeling like you are, the advice is the same: comb over your cash flow to find areas to cut and then automatically redirect those funds to savings.