The squeeze on middle-class families continues, and is reflected in recently released wage and price statistics.  Data from the Bureau of Labor Statistics show that real hourly earnings declined between March 2007 and March 2008, falling 0.6 percent.  This is the fifth straight month of year-on-year declines in average hourly earnings. (See Snapshot)
Not surprisingly, real average weekly earnings also have declined.  Although average weekly earnings rose by 3.3 percent, seasonally adjusted, from their level a year ago, prices rose even faster, causing real earnings to actually fall by 1.0 percent.  Real earnings, compared to the same month one year ago, have declined for the past six months.
Overall price inflation -- and food and energy prices in particular -- are rising faster than incomes and eroding the purchasing power of households.  Last week the Bureau of Labor Statistics’ inflation release showed the Consumer Price Index for All Urban Consumers (CPI-U) rising at a seasonally adjusted compound annual rate of 3.1 percent during the first quarter of 2008.  The food and energy components of the CPI-U, however, have increased at faster rates.  In the first quarter, food and beverage costs increased by 5.1 percent and energy costs increased by 8.6 percent.
The rise in energy prices is clearly visible at the fuel pump.  Although the winter heating season is over, the summer driving season is just beginning.  Gasoline prices, as reported by the Energy Information Administration (EIA), show that gasoline prices continue to rise across the United States.  Prices for regular grade gasoline averaged $3.39 per gallon last week for the entire United States, ranging from $3.77 per gallon in California to $3.19 per gallon in Massachusetts.  All regions experienced higher gasoline prices last week, with an average increase of more than 5 cents per gallon.  Gasoline is up more than 50 cents per gallon versus this time last year and the news on gasoline prices is likely to get even worse.  According to the EIA Summer Fuels Outlook, gasoline prices are expected to average $3.54 per gallon during this summer’s driving season, an increase of 61 cents per gallon over last summer.
Diesel prices also jumped this week, increasing from $3.95 per gallon to almost $4.06 per gallon on average in the United States.  High diesel prices affect prices of transporting goods as well as the costs of operating farm machinery. EIA is predicting that summer diesel prices will be about $.88 per gallon higher than last summer.
Families also face higher costs for health care.  According to a Kaiser Family Foundation survey of employers, premiums for employer-sponsored health insurance rose an average of 6.1 percent in 2007.  Since 2001, premiums for family coverage have increased 78 percent, while wages have gone up 19 percent and inflation has gone up 17 percent.  According to a recent Urban Institute paper, expected increases in health care costs now cause workers to delay their retirement by about year on average.   (See Richard W. Johnson, Rudolph G. Penner, and Desmond Toohey, “Do Out-of-Pocket Health Care Costs Delay Retirement?,” March 2008).
This week’s economic news shows that middle-class families are facing a squeeze between declining real wages and wealth (due to falling house prices) while facing higher costs for food, gasoline, energy, and health care.  As job losses continue, those families will face more stress.  Those with jobs will be worried about losing their jobs while those who have lost their jobs search for new jobs in an economy that is facing contraction rather than expansion.

.