According to the November edition of PYMNTS Intelligence’s Wage to Wallet Index, a collaboration with Ingo Payments and WorkWhile, small shifts in wages and confidence among Labor Economy workers are translating into outsized effects on consumer demand.
The Labor Economy, comprised of roughly 60 million workers in the United States earning less than $25 an hour, accounts for about 15% of total consumer spending. When their pay or hours fluctuate, local commerce feels it quickly, particularly in categories such as food service, retail, transportation and personal services.
Wage Volatility Is Back in Focus
In October, average hourly wages for Labor Economy workers slipped 0.81% month over month, falling from $19.55 to $19.39. That decline equated to about a $14 billion annualized reduction in consumer spending, representing a contraction in purchasing power.
The Wage to Wallet Index illustrated that even modest wage changes ripple through spending. Thin savings buffers leave little room to absorb income shocks, meaning households respond by cutting back almost immediately rather than drawing down reserves.
Why Job Security Matters as Much as Pay
Wages only tell part of the story. Perceptions of future earnings prospects often weigh more heavily on spending decisions than current income alone. That dynamic is especially pronounced in the Labor Economy, where work hours and schedules can change with little notice.
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In November, Labor Economy workers’ personal job security sentiment fell 6.7 points in a single month, to 75.2 on a 100-point scale. While broader labor sentiment edged slightly higher, job security was the most negatively affected dimension in the consumer sentiment model.
Workers may still be employed, but growing uncertainty about maintaining steady hours or pay encourages caution. The result is delayed purchases, trading down to cheaper options and reduced discretionary spending, even before layoffs or job losses materialize.
Read the report: Wage Slip Sparks a $14B Hit to Consumer Spending
Spending Pullbacks Hit Young and Low-Income Workers
The spending retrenchment was not evenly distributed. Young and low-income households bore the brunt of October’s pullback, according to the report’s demographic analysis.
Millennials alone accounted for more than half of the total decline, reducing spending by $8.2 billion. Generation Z followed with a $2.6 billion pullback. By contrast, Generation X and baby boomers experienced smaller declines, underscoring how early-career workers are more exposed to variable hours and delayed pay cycles.
Income data told a similar story. Households earning less than $30,000 a year cut spending by $6.9 billion, while those earning between $30,000 and $50,000 accounted for most of the remaining reduction. These income tiers are the most sensitive to wage volatility, and they respond quickly when confidence weakens.
The Ripple Effect for Merchants
For merchants, these pullbacks create uneven demand patterns. Businesses that rely on frequent, low-ticket transactions, like quick-service restaurants, local retailers and service providers, are often the first to feel the impact when Labor Economy workers tighten budgets.
As spending slows, many households turn to credit to bridge cash flow gaps. More than one-third of Labor Economy workers typically carry revolving credit card balances, and those balances average more than 22% of annual income. That reliance helps smooth short-term consumption but also raises sensitivity to interest rates and future income disruptions.
The result is a consumer segment that remains active but cautious, prioritizing essentials, delaying discretionary purchases and reacting to changes in perceived job stability.
A Signal, Not a Collapse
The Wage to Wallet Index did not point to a collapse in Labor Economy spending, but it showed that wage softness, combined with declining job security confidence, is enough to slow spending growth and reshape where dollars flow.
A labor market characterized by volatility is increasingly setting the pace for consumer demand.
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