Asda Income Tracker. Report: March 2012 Released: April Centre for Economics and Business Research ltd

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1 Asda Income Tracker Report: March 2012 Released: April 2012 M a k i n g B u s i n e s s S e n s e Centre for Economics and Business Research ltd Unit 1, 4 Bath Street, London EC1V 9DX t w

2 Contents Asda Income Tracker Introduction 02 Headlines 03 Constructing the Income Tracker 04 Dashboard 05 Income Tracker trends 06 Cost of living 08 Labour market 10 Regional trends 11 Contact 16 Data charts & tables 17 Methodology update 21 Disclaimer 25

3 Introduction Asda Income Tracker It s worrying to see the cost of essentials creeping back up, increasing the demands on family budgets and putting pressure income growth. Unemployment drove the continued drop in disposable income in March and throughout the quarter, with a growing divide between the nations and regions. We re firm in our commitment to help tackle this in 2012, by creating new jobs, working with new communities and bringing Asda value where it matters most to families across the UK. Andy Clarke Asda President and CEO 2 Centre for Economics and Business Research 2012

4 Headlines Asda Income Tracker Headlines The average UK household had 144 a week of discretionary income in March 2012, 10 less than twelve months before. This latest worsening in discretionary incomes reflects on-going tough labour market conditions and the persistently high inflation rate, and takes discretionary income to its joint-lowest level since November During the three months to February 2012 average weekly earnings (excluding bonuses) grew by just 1.6 per cent year on year. Growth in earned income has not been slower since June 2010, as the unemployment rate remains well above pre-recession levels. Annual consumer price inflation reversed its recent downward trend in March, rising to 3.5 per cent from 3.4 per cent in February and remaining well above earnings growth. Family budgets in 2012 are continuing to be squeezed by the three pressures of high unemployment, very weak wage increases and stubbornly elevated inflation. While growth in the price of essentials is likely to fall back slowly this year, the current tough conditions in the UK labour market look set to prevail. Average earnings growth is expected to trail inflation over 2012, keeping pressure on household incomes. As such we are likely to see continuing declines on the Asda Income Tracker over the coming months, although at a slower pace than during Asda family spending power down 6.5 per cent year on year in March 10 a week less Charles Davis Head of Macroeconomics, Cebr 3 Centre for Economics and Business Research 2012

5 Constructing the Asda Income Tracker Model Total household income 696 per week - e.g.. national insurance contributions, income tax Taxes = Net income 575 per week e.g.. wages, investment income, pensions, social security, self employment earnings 121 per week i.e. take home pay Net income 575 per week - e.g.. food, clothing, housing costs, bills, transport, communication costs, health, children s schooling, house maintenance and repair Cost of living = Average family spending power 144 per week i.e. take home pay 431 per week eg. holidays, cinema, theatre, eating out, toys, sports, savings, jewellery, national lottery and other gambling payments, computer software and games 4 Centre for Economics and Business Research 2012

6 Asda Income Tracker Dashboard: March Dashboard Indicator Earnings Growth* (February) Unemployment** (February) Net income Mortgage costs Food Petrol Utilities Essential item inflation Family spending power Annual percentage change 1.6% (excl. bonuses) 8.3% 1.3% 0.6% 4.6% 4.2% 6.2% 3.7% -6.5% Latest trend KEY IMPROVEMENT NO SIGNIFICANT CHANGE DETERIORATION * three months to month stated **unemployment rate for three months to month stated Please note that the dashboard should be read in conjunction with the main body of the report 5 Centre for Economics and Business Research 2012

7 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Rising inflation and slowing wage growth erodes living standards Trends The Asda Income Tracker was 10 lower in March 2012 than a year before Discretionary incomes excluding bonuses are now 6.5 per cent lower than twelve months ago. Household gross income growth has slowed significantly in recent months to its lowest level in 35 months. Annual growth in the price of essential items was unchanged in March, as the recent trend of falling inflation came to a halt. Income growth continues to trail essential item price growth, putting pressure on household real incomes. Year-on-year change in Asda income tracker, Once bonuses are included, family incomes declined over the last year by 7.1 per cent, a drop of 13. Bonus payments are continuing to fall compared to last year, following weak business conditions in Centre for Economics and Business Research 2012

8 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Rising inflation and slowing wage growth erodes living standards Trends The Asda Income Tracker was 10 lower in March 2012 than a year before Following a trend of improvements in the year-onyear change to the Asda Income Tracker, conditions have now worsened. March s annual decline is the largest since December Tough conditions in the labour market are holding back household earnings growth, with an elevated unemployment rate and very slow average weekly earnings growth. Year-on-year change in Asda income tracker, At the same time, the official inflation rate rose again in March, reversing the trend over the past six months Inflation is likely to fall back over 2012, easing pressure on family budgets. However, real incomes are expected to see further erosions over the year as essential item price growth continues to outpace average wage increases Centre for Economics and Business Research 2012

9 Recreation & culture Health Restaurants & hotels Clothing & footwear Transport Furniture & household goods Food & non-alc drinks Communication Education Housing & household services Alcohol & tobacco Electricity Gas Rising cost of living accelerates again this month Cost of living Annual CPI inflation rose to 3.5% in March, halting the recent downward trend Growth in the cost of living accelerated again in March, as the consumer price index (CPI) rose over the year by 3.5 per cent, up from 3.4 per cent in February. 20% 15% 10% Inflation of selected goods, annual change to March 2012 This is the first increase to the annual rate in six months, bringing a halt to the downward inflationary trend since September. This month s movement takes the headline rate further away from the Bank of England s 2.0 per cent target, above which it has stood since November % 0% -5% Price growth on the broader Retail Price Index (RPI) slowed again in March to 3.6 per cent, down from 3.7 per cent in February. This movement differed from the CPI change largely due to falling car insurance payments, which have a greater weight in the RPI. 8 Centre for Economics and Business Research 2012

10 Recreation & culture Health Restaurants & hotels Clothing & footwear Transport Furniture & household goods Food & non-alc drinks Communication Education Housing & household services Alcohol & tobacco Electricity Gas Pump prices reach all-time high, putting further pressure on household budgets Cost of living The main factors putting pressure on family discretionary income in March were: 20% Inflation of selected goods, annual change to March 2012 Utility prices continue to be a major factor putting pressure on household budgets, despite the last of the big providers making cuts to bills in March. Over the year, gas and electricity prices rose by 8.1 and 16.1 per cent respectively. Transport costs remain a large contributor to the headline rate of inflation, as petrol and diesel prices rose over the year by 4.2 and 4.7 per cent. The cost of crude oil continued to rise in March, with pump prices hitting an all-time high during the month. Food prices also drove annual inflation in March, with the largest upward pressures coming from meat, bread and vegetables. 15% 10% 5% 0% -5% 9 Centre for Economics and Business Research 2012

11 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Unemployment falls, but pay growth remains very weak Annual wage increases haven t been lower in 20 months Unemployment fell back during the three months to February, with the rate dropping to 8.3 per cent from 8.4 the previous quarter. This is the first quarterly decline in unemployment since the three months to May However, weakness persists in the labour market. Annual regular pay growth stood at just 1.6 per cent in the three months to February, unchanged from a revised January figure. Regular earnings growth has not been slower since June % 9% 8% 7% 6% 5% 4% 3% UK unemployment rate (LHS), per cent and 3-month annual growth in regular pay (RHS), per cent Labour Market 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% Total pay growth (including bonuses) fell back to just 1.1 per cent over the same period. Average bonus payments plunged, particularly in the finance and business services sectors. 2% 1% 0% 1.0% 0.5% 0.0% In addition, timelier data on the claimant count measure of unemployment showed 3,600 more claimants in March than February, pointing to ongoing tough conditions for the UK s jobless. Unemployment rate Earnings growth 10 Centre for Economics and Business Research 2012

12 North West Northern Ireland North East East Midlands South West UK London East South East Scotland Wales Yorkshire & Humber West Midlands Real income erosions diminished across the nation this quarter Regional Trends Annual declines in household discretionary incomes continue, but at a slower rate than previously 5% Regional income trackers, annual change to quarter indicated Household discretionary incomes are continuing to decline year on year across the UK, but the situation eased for all regions and countries in Q % The North West saw the strongest pressure on family budgets over the past year. Households face particularly tough employment conditions in the region, with the unemployment rate rising to 9.6 per cent in the three months to February, up from 7.9 per the previous year. -5% Families in Northern Ireland continue to face severe erosions to real incomes, as spending on essentials makes up a proportionally greater amount of income than elsewhere in the UK. -10% The West Midlands fared relatively well over the year to Q Recently improvements have been seen in the local labour market, with the unemployment rate dropping by 0.7 percentage points over the past year. Q Q Centre for Economics and Business Research 2012

13 Northern Ireland North East Yorkshire & Humber South West West Midlands East Midlands North West Scotland UK Wales East South East London Regional Income Trackers highlight continuing disparity Regional Trends Income Tracker for nation s capital remains well ahead of the UK average 300 Regional income trackers, per week Discretionary income in London was 266 a week according to the Q Asda Income Tracker. This is roughly 83 per cent higher than the national average Income Tracker, a ratio that has remained broadly stable compared to the previous quarter Families in Northern Ireland had just 83 a week of discretionary income in Q equivalent to only 57 per cent of the national average The South East and the East of England continue to have the highest weekly discretionary incomes after London, with Income Trackers of 184 and 170 a week respectively. Q Q Centre for Economics and Business Research 2012

14 North West London North East South East Wales East UK East Midlands Scotland South West Yorkshire & Humber West Midlands Northern Ireland Income growth slows across the UK and remains well below inflation rate Regional Trends All regions have gross income growth of less than 2.5 per cent far beneath the headline inflation rate of 3.5 per cent Labour market improvements have helped to drive household income growth at the top of scale. Both Northern Ireland and the West Midlands have seen improvements to unemployment and relatively buoyant income growth over the past year. 3.5% 3.0% 2.5% 2.0% 1.5% Regional gross income, annual change to quarter At the other end of the scale, income growth for Londoners remains very slow. Wage and salaries make up a proportionally larger share of income in London than other regions. This is holding back gross household income growth in the capital, as annual wage increases continue at a very slow pace. 1.0% 0.5% 0.0% Importantly however, with gross income growth in every region and country standing well below the pace of the rising cost of living, UK real incomes are expected to remain under pressure this year. Q Q Centre for Economics and Business Research 2012

15 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Scottish discretionary income holding up Trends in Scotland relatively well compared to national average The Scottish Asda Income Tracker was 8 a week lower in Q than a year before Discretionary incomes for families in Scotland stood at 144 a week in Q1 2012, largely in line with the national average of 145. Scottish discretionary incomes fell by 5.1 per cent over the past twelve months. However, this is better than the national average, where discretionary incomes fell by 6.1 per cent over the year to Q1. Employment conditions improved over the last quarter, as the unemployment rate fell to 8.1 per cent during December to February 2012, down from 8.6 per in the previous three months. The unemployment rate for Scotland now stands lower than it does for the UK as a whole, where it was 8.3 per cent in the same period Year-on-year change in Scottish Asda Income Tracker, 14 Centre for Economics and Business Research 2012

16 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Falling unemployment in Northern Ireland helps to improve declines on Income Tracker Trends in NI But Northern Ireland continues to see some of the worst discretionary income erosions in the UK In Q1 2012, discretionary incomes for households in Northern Ireland fell by 6 a week compared to the previous year, a decline of 7.0 per cent. This is one of the steepest erosions to household income in the UK, in proportional terms. Families in Northern Ireland spend more as a share of income on essential items, making them particularly exposed to recent strong essential-item price increases, in petrol for example. Improvements to the labour market in recent months have helped to bolster incomes and limit further declines to discretionary incomes. The unemployment rate fell over the last year to 6.8 per cent in the three months to February 2012, down from 7.3 per cent a year before. However, with the highest dependence on the public sector for employment of anywhere in the UK, the outlook for workers in Northern Ireland remains tough Year-on-year change in NI Asda Income Tracker, 15 Centre for Economics and Business Research 2012

17 Data and Methodology Appendix Please find attached the methodology and the tabulated date. Asda produces a monthly income tracker report with a more comprehensive report every quarter. For further information please contact: Joanne Newbould PR Manager joanne.newbould@asda.co.uk Tel Centre for Economics and Business Research 2012

18 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Monthly Asda Income Tracker Figure 1: Asda Income Tracker and year-on-year change (excluding bonuses) Asda Income Tracker tables 20% 15% 10% 5% 0% -5% -10% -15% Asda Income Tracker (LHS) Asda Income Tracker annual % change (RHS) 17 Centre for Economics and Business Research 2012

19 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Monthly Asda Income Tracker Figure 2: Comparison of year-on-year change in Asda Income Tracker including and excluding bonuses Asda Income Tracker tables Asda Income Tracker including bonuses Asda Income Tracker excluding bonuses 18 Centre for Economics and Business Research 2012

20 Monthly Asda Income Tracker Asda Income Tracker tables Table 1: Average UK household Income Tracker, per week, current prices, excluding bonuses Month Income tracker Month Income tracker Month Income tracker Month Income tracker Month Income tracker January January January January January February February February February February March March March March March April April April April May May May May June June June June July July July July August August August August September September September September October October October October November November November November December December December December average average average average Centre for Economics and Business Research 2012

21 Quarterly ASDA Income Tracker Asda Income Tracker tables Table 1: Average household Income Tracker, per week, current prices, excluding bonuses Region Q Q Q Northern Ireland North East Yorkshire & Humber South West West Midlands East Midlands North West Scotland UK Wales East South East London Centre for Economics and Business Research 2012

22 Methodology update Methodology From February 2012, the income tracker has been updated in two important ways: 1) From February 2012, the base data from which the Asda income tracker is derived has been updated. Detailed data on family expenditure and income come from the Office for National Statistics (ONS) Living Costs and Food Survey 2011 Edition, which covers household expenditure and income in This makes the latest vintage of income tracker data not directly comparable with previous versions but the time series now available (as in page 16 above) is up to date as possible with the latest detailed data on household expenditure. 2) Reflecting lower trend growth in the volume of essential goods and services in the post-financial crisis environment Over time, as well as changes in price (as captured by monthly inflation data from the ONS), the volume of goods and services purchased tends to grow. Indeed, adjusting for changes in price, spending on essential goods and services grew by an average 2.7% per annum between 1998 and 2007 equivalent to 1.4% per household. However, in recent years this growth rate has slowed and indeed turned negative. Hence, we have revised down the assumed trend real growth rate in consumer spending on essentials per household to the average real growth in spending on essentials over the latest 10 year period: 0.5% per annum. 21 Centre for Economics and Business Research 2012

23 The Asda Income Tracker in 2010 according to the latest Family Spending Survey data Methodology Total household income 674 per week e.g.. wages, investment income, pensions, social security, self employment earnings - e.g.. national insurance contributions, income tax Taxes 117 per week = i.e. take home pay Net income 557 per week Net income 557 per week i.e. take home pay - e.g.. food, clothing, housing costs, bills, transport, communication costs, health, children s schooling, house maintenance and repair Cost of living 399 per week = Average family spending power 158 per week eg. holidays, cinema, theatre, eating out, toys, sports, savings, jewellery, national lottery and other gambling payments, computer software and games These data are then updated on a monthly basis using monthly ONS data and Cebr analysis 22 Centre for Economics and Business Research 2012

24 Methodology The Asda income tracker is calculated from the following equations: Methodology Total household income minus taxes equals net income Net income minus basic spend equals Asda income tracker Total household income for the United Kingdom is derived from the Living Costs and Food Survey 2010 (released 2011). This is updated on a monthly basis using official statistics on average earnings, unemployment, social security payments, interest rates and pension income. Earnings data from the Office for National Statistics that is released in the month of the report refers to the previous month. We forecast earnings data for the month of the report. Taxes are subtracted from total household income to estimate the actual amount that can be spent on goods and services, i.e. net income or disposable income. The average amount of tax paid is calculated using the latest version of the Living Costs and Food Survey. This is updated on a monthly basis using Office for National Statistics data and Cebr modelling. 23 Centre for Economics and Business Research 2012

25 Methodology Methodology These components are based on official statistics and Cebr calculations. Net income is calculated by deducting our tax estimate from our total household income estimate. Basic spend (cost of living) figures are updated using monthly consumer price data and the trend growth rate in the volume of essential goods and services purchased over the most recent ten year period. A full list of items constituting basic (or essential ) spending was created in collaboration between Asda and Cebr when the income tracker concept was originally formed in This list is available on request. The Asda income tracker is a measure of discretionary income, reflecting the amount remaining after the average UK household has had taxes subtracted from their income and bought essential items such as: groceries, electricity, gas, transport costs and mortgage interest payments or rent. The income tracker measures the amount left over to spend on discretionary purchases such as leisure and recreation goods and services. 24 Centre for Economics and Business Research 2012

26 Disclaimer Disclaimer This report was produced by the Centre for Economics and Business Research (Cebr), an independent economics and business research consultancy established in 1993 providing forecasts and advice to City institutions, government departments, local authorities and numerous blue-chip companies throughout Europe. The main contributors to this report are Cebr economists Rob Harbron and Charles Davis. Whilst every effort has been made to ensure the accuracy of the material in this report, the authors and Cebr will not be liable for any loss or damages incurred through the use of this report. London, April Centre for Economics and Business Research 2012