Asda Income Tracker. Report: August 2015 Released: September Centre for Economics and Business Research ltd

Transcription

1 Asda Income Tracker Report: August 2015 Released: September 2015 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 03 Headlines 04 Constructing the Income Tracker 05 Dashboard 06 Income Tracker trends 07 Cost of living 09 Labour market 11 Contact 12 Data charts & tables 13 Method update 17 Method notes 18 Disclaimer 20 2

3 Introduction Asda Income Tracker The economy continues to go from strength to strength and stability in the wider economy remains the key driver behind an increase in disposable income across the UK. Since the economic collapse there has been a shift in behaviour around spending versus saving and even though we ve seen family s spending power rise, households are choosing to save more money for a rainy day. Events such as this year s Rugby World Cup provide economies with a shot in the arm and supporters visiting from across the world will be pleased to see that a fall in the rate of inflation across travel, hotel, sports equipment and restaurant are all contributing to an increase in disposable income. Andy Clarke Asda President and CEO 3

4 Headlines Asda Income Tracker Headlines The average UK household had 191 a week of discretionary income in August 2015, up by 18 a week on the same month a year before. Following a couple of months of weak labour market data, employment growth has returned in recent months and unemployment fell back to 5.5% in the three months to July. In contrast with recent months, the improvements in employment helped to boost the rate of discretionary income growth in August. However, the main drivers of recent growth in household spending power remain the low level of inflation, which dipped back to zero in August, and faster wage growth. In the wake of the global headwinds emanating from the slowdown in the Chinese economy, further evidence of strong growth in family spending power is welcome news for the UK economy. Even though Christmas is fast approaching, with wages rising at rates well above inflation, households are in a great position to enjoy the Autumn months and events such as the Rugby World Cup. Sam Alderson, Economist, Cebr Family spending power was up by 18 a week year on year in August (an 10.7% annual increase) 4

5 Constructing the Asda Income Tracker Model Total household income 739 per week - e.g. national insurance contributions, income tax Taxes = Net income 622 per week e.g. wages, investment income, pensions, social security, self employment earnings 117 per week i.e. take home pay Net income 622 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 191 per week i.e. take home pay 431 per week e.g. holidays, cinema, theatre, eating out, toys, sports, savings, jewellery, national lottery and other gambling payments, computer software and games 5

6 Asda Income Tracker Dashboard: August Dashboard Indicator Regular earnings growth (July) Employment growth (July) Unemployment rate (July) Net income Mortgage costs Food & non-alcoholic drinks Vehicle fuels Home electricity, gas & fuel Essential item inflation Family spending power Annual percentage change +2.9% (excl. bonuses) +1.3% (+413,000 employment on year) 5.5% (-0.6% points on year) +3.2% -0.9% -2.4% -12.9% -3.5% -0.3% +10.7% Recent trend KEY IMPROVING TREND NO SIGNIFICANT CHANGE IN TREND DETERIORATING TREND * three-month average, to month stated **unemployment rate for three months to month stated 6

7 Tenth consecutive month of double-digit increases in spending power The Asda Income Tracker was 18 a week higher in August 2015 than a year before In August 2015, average household discretionary incomes excluding bonuses were 10.7% higher than the same month in This represents the 23 rd consecutive month of annual growth in the income tracker Year-on-year change in Asda income tracker, Income Tracker Trends August continued the trend of double digit increases in the income tracker. Households have seen year-on-year increases in spending power for 10 consecutive months, the strongest performance since 2009, when families benefitted from the sharp falls in interest rates. This latest period of household spending growth has been heavily driven by the sharp fall in inflation from the latter months of last year. Headline consumer price inflation has now stood at near-zero levels for seven consecutive months. A sharp upturn in wage growth has also been a key factor in the pick-up in discretionary income growth. In the three months to August, regular earnings growth hit its highest level since the three months to January May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 7

8 Rising wage growth and falling inflation provide further boost to spending power Income Tracker Trends The Asda Income Tracker was 18 a week higher in August 2015 than a year before Contributions to annual change in the Income Tracker (excluding bonuses), August 2015 The average UK household had 191 a week of discretionary income in August 2015, up from 173 at the same point a year ago. Net Income Households experienced a 3.2% rise in net income in the 12 months to August. The combination of faster wage growth, rising employment and increases in the income tax free personal allowance have all contributed to the robust rate of growth in net incomes Spending power has also been supported by the falling price of essential items, particularly food, fuel and energy prices. With the Bank of England maintaining the base rate at historic lows, households are also benefitting from the continued low levels of interest rates on mortgages and loans. Essential spending Income Tracker

9 UK inflation dips back to zero in August Cost of living Essential item inflation remains negative and falls further below zero The UK fell back into noflation as headline consumer price inflation dropped to 0.0% in August, down from the 0.1% recorded in July. This continues the trend of the previous six months when inflation had been at or around zero. However, the currently weakness in inflation largely reflects falls in the prices of food and motor fuels. These have reduced the annual rate of consumer price inflation by approximately 0.7 percentage points in August. It is likely that inflation will rise in the final few months of this year as the effects of sharp falls in the prices of these goods at the same time in 2014 fall out of the annual comparison. Annual essential item inflation also fell back in August, standing at -0.3% compared with -0.2% in July. 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% Aug-09 Annual inflation on the consumer price index (CPI), and essential item annual inflation Feb-10 Aug-10 Feb-11 Aug-11 CPI Feb-12 Aug-12 Feb-13 Aug-13 Essential item Feb-14 Aug-14 Feb-15 Aug-15 9

10 The prices of food and drink fall once again in July Cost of living The main factors affecting family costs in August were: The largest downward contribution to the fall in the rate of inflation came from transport. The price of motor fuels provided the main source of downward pressure, with diesel prices falling by 6.2 pence per litre and petrol by 2.4 pence per litre between July and August. Prices for recreation and culture fell by 0.4% between July and August and remain lower than they were a year ago. The latest downward movements were seen across a range of items, most notably the prices of books and cultural services fell in August. While falling prices for food and motor fuels remain the key drivers of the weak inflation seen through the year, a range of products have seen prices decline on an annual basis. For example, the cost of audio-visual equipment has fallen by 9.2% over the past year. 4% 2% 0% -2% -4% -6% -8% -10% -12% -14% Inflation of selected goods, annual change to August

11 Return to employment growth halts temporary blip in the labour market Labour Market The unemployment rate fell to 5.5% in the three months to July Following two consecutive readings of 5.6 per cent, the rate of unemployment returned to 5.5 per cent in the three months to July. The fall in the rate of unemployment in the latest reading was supported by a pick-up in employment growth in recent months, which had briefly turned negative. However, while employment is growing, it is growing at slower rates than those seen a year ago, reflecting the tighter labour market. One upside of the reduction in labour market slack is the strong upturn in wage growth seen over the past year. Regular earnings rose by 2.9% year-on-year on average in the three months to July. This represents a sharp improvement from the 0.8% growth recorded in the same period in 2014 and the highest level in over six years. 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Jul-08 UK unemployment rate (LHS), per cent and 3-month annual growth in regular pay (RHS), per cent Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan % Jul % Jan-15 Jul % 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Unemployment rate (LHS) Regular earnings growth (RHS) 11

12 Data and Method Appendix Please find attached method notes and the tabulated date. Asda produces a monthly income tracker report with a more comprehensive report every quarter. For press enquiries please contact: Andrew Devoy, Asda PR Manager, Andrew.Devoy@Asda.co.uk ; Amy Garbutt, Asda PR Manager, Amy.Garbutt@Asda.co.uk ; For data enquiries please contact: Sam Alderson, Cebr Economist, SAlderson@Cebr.com ; Rob Harbron, Cebr Managing Economist, RHarbron@Cebr.com ;

13 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% % Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Asda Income Tracker (LHS) Asda Income Tracker annual % change (RHS) 13

14 Monthly Asda Income Tracker Asda Income Tracker tables Figure 2: Comparison of year-on-year change in Asda Income Tracker including and excluding bonuses Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Asda Income Tracker including Bonuses Asda Income Tracker excluding Bonuses 14

15 Monthly Asda Income Tracker Asda Income Tracker tables Figure 3: Twelve-month moving average of Income Tracker (excl. bonuses) level Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 15

16 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 April May May May May May June June June June June July July July July July August August August August August September September September September October October October October November November November November December December December December Average Average Average Average

17 Method update note Method notes From March 2014, the base data from which the Asda Income Tracker is derived have been updated. This is to account for the latest release from the Office for National Statistics of the Living Costs and Food Survey: 2013 edition. This release gives the detailed data required to compute the spending and income figures for the average UK household that feed into the overall discretionary income result. These updates are conducted on an annual basis, in line with the release of the necessary datasets. This update is required to continue to keep the Income Tracker as relevant as possible, with the most up-to-date data available. The update makes the latest vintage of the Income Tracker report and associated datasets not directly comparable with previous editions. However, the new time series data now available (e.g. in the tables and charts pages) provide the most complete estimates and should be used for any time series analysis. 17

18 Method notes The Asda income tracker is calculated from the following equations: Method notes 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 2012 (released December 2013). 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. 18

19 Method notes Method notes 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. 19

20 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 Sam Alderson and Rob Harbron. 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, September