The Value of our Time and ‘Sticky Inflation’
Americans value their time. A lot.
A recent study by the investment firm Empower revealed that the average American values their time at a rate of approximately $240 per hour[1]. That number has raised eyebrows across the industry, especially given the fact that someone who makes $240 an hour on a full-time job would have a salary of just under $500,000.
The reality, however, is that the average salary in the US is closer to $59,000.
Millennials attributed a value of approximately $329 per hour, while baby boomers came in the lowest of the group surveyed, placing a value of closer to $187. 36% of those surveyed would rather pay to have an item delivered than to travel 10 minutes to retrieve it.
It would not be far-fetched to believe that some of this came from the COVID pandemic in 2020. Services like grocery delivery grew substantially in the period that immediately followed lock-downs. The ‘revenge spending’ that blossomed in the ensuing years could very well have been born in a renewed desire for leisure time with family and friends.
What has followed is a period where although spending on goods peaked in early 2022, prices of services have stayed steadily higher than they were before the pandemic, and still show no signs of slowing substantially.
Since the PCE, the Federal Reserve’s preferred measure of inflation is made up of prices on both goods and services, therefore, there is a significant challenge in getting inflation back down to the Fed’s preferred 2% level.
As a result, expectations for rate cuts have slowed substantially from where they were a few months ago. A recession could have the impact of lowering rates (and quite possibly, lowering the value people attribute to their time!).
Alternatively, absent a substantial economic slowdown, we may need to consider the possibility that inflation and interest rates normalize at a higher level than existed in the nearly two decades leading up to the pandemic. We seem to have the inclination to keep ‘paying up’ for services. Whether we have the capacity to do so is yet to be seen!
[1] Source: “Time is Money”, Empower Research, March 2024
