Asda Income Tracker Report: September 2015 Released: October 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 020 7324 2850 w www.cebr.com
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 Regional trends 12 Contact 16 Data charts & tables 17 Method update 22 Method notes 24 Disclaimer 26 2
Introduction Asda Income Tracker Two years of solid growth on discretionary income shows real stability in the economic recovery. Across the UK the benefit will be being felt, granted in some areas more than others, but double digit growth can only be good news for those holding the purse strings. It s interesting that people continue to spend differently however, carrying their savvy shopping habits from the financial crisis with them and reprioritising their spending on treats and activities with their families, making the most out of their new found spare income. Barry Williams, Asda Chief Customer Officer 3
Headlines Asda Income Tracker Headlines The average UK household had 192 a week of discretionary income in September 2015, up by 18 a week on the same month a year before. The income tracker has now seen two full years of growth on an annual basis and 11 consecutive months of double-digit increases. Given the widespread boost that lower inflation, which dipped back into negative territory in September, has provided, each region of the UK has seen increases in spending power ranging from 12-24 a week. However, there remains a considerable gap between regions such as London, the East of England and the South East compared with other regions of the UK, which, in monetary terms, continues to widen. The further falls in gas and fuel prices in September provided more good news to households in September. With inflationary pressure remaining muted, an interest rate rise looks likely to be the next challenge facing households. This is now expected to come in mid-2016, as a more turbulent global economy means rates could stay lower for longer. Sam Alderson, Economist, Cebr Family spending power was up by 18 a week year on year in September (an 10.6% annual increase) 4
Constructing the Asda Income Tracker Model Total household income 740 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 118 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 192 per week i.e. take home pay 430 per week e.g. holidays, cinema, theatre, eating out, toys, sports, savings, jewellery, national lottery and other gambling payments, computer software and games 5
Dashboard Asda Income Tracker Dashboard: September Indicator Regular earnings growth (Aug) Employment growth (Aug) Unemployment rate (Aug) Net income Mortgage costs Food & non-alcoholic drinks Vehicle fuels Home electricity, gas & fuel Essential item inflation Family spending power Annual percentage change +2.8% (excl. bonuses) +1.2% (+359,000 employment on year) 5.4% (-0.6% points on year) +3.1% -1.3% -2.3% -14.9% -4.3% -0.4% +10.6% 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
24 th consecutive month of year-on-year increases in spending power The Asda Income Tracker was 18 a week higher in September 2015 than a year before In September 2015, average household discretionary incomes excluding bonuses were 10.6% higher than the same month in 2014. This represents two full years of annual growth in the income tracker. 30 25 20 Year-on-year change in Asda income tracker, Income Tracker Trends September saw another double digit increase in family spending power but growth appears to have levelled off at between 10-11%. With unemployment beginning to fall back once again, discretionary incomes are being boosted by both rising employment and faster wage growth. While wage growth has accelerated, it is still to reach the levels seen in the years prior to the financial crisis. However, in contrast to that period, consumer price inflation has stood at near-zero levels since February providing a significant boost to real wage growth. 15 10 5 0-5 - 10-15 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 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 7
Further falls in the price of essentials provides additional boost in September Income Tracker Trends The Asda Income Tracker was 18 a week higher in September 2015 than a year before Contributions to annual change in the Income Tracker (excluding bonuses), September 2015 The average UK household had 192 a week of discretionary income in September 2015, up from 174 at the same point a year ago. Net Income Households experienced a 3.1% rise in net income in the 12 months to September. Robust levels of wage growth, rising employment and increases in the income tax free personal allowance have all contributed to the growth in net incomes over the past 12 months. Spending power has also been supported by the falling price of essential items, particularly food, fuel and energy prices. September saw further falls in the price of vehicle fuels and additional cuts to household gas tariffs. Essential spending Income Tracker - 5 0 5 10 15 20 8
Inflation falls back into negative territory Cost of living Essential item inflation hits its joint lowest level in 2015 to date Annual consumer price inflation turned negative for the first time since April, hitting -0.1% in September. This is down from the 0% recorded in August and the eighth consecutive month of nearzero inflation. Falls in the price of food and motor fuels continue to be key factors behind the continuation of low inflation levels. Combined, the two categories are currently knocking 0.8 percentage points off of the headline rate. There has been a notable disparity between the changes in prices of goods vs services over the past year. Physical products that people purchase, have declined overall in price by 2.4%. In contrast, the cost of services has increased by 2.5%. Annual essential item inflation also fell back in September, standing at -0.4% compared with -0.3% in August. 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% Sep-09 Annual inflation on the consumer price index (CPI), and essential item annual inflation Mar-10 Sep-10 Mar-11 Sep-11 CPI Mar-12 Sep-12 Mar-13 Sep-13 Essential item Mar-14 Sep-14 Mar-15 Sep-15 9
Petrol prices fall back near the five-year low seen in February Cost of living The main factors affecting family costs in September were: Falls in the price of vehicle fuels and household gas provided two of the largest downward contributions in September. Petrol prices fell by 3.7 pence a litre between August and September. This takes the cost back near the five-year low seen in February this year. Home gas prices meanwhile fell by 2.1% between August and September, the largest monthly fall since March. While prices for clothes on the whole rose between August and September, the rise was less substantial than that seen in 2014 and 2013 as more items remained on sale in September. Mortgage interest payments fell further in September and now stand 1.3% lower than at the same point a year ago, further easing financial pressures on households. 4% 2% 0% -2% -4% -6% -8% -10% -12% -14% -16% Inflation of selected goods, annual change to August 2015 10
Unemployment rate falls to the lowest since 2008 Labour Market Regular earnings growth remains just shy of the 3% mark The rate of unemployment in the UK continued on its downward trend, falling to 5.4% in the three months to August compared with the 5.5% recorded in the previous reading. While employment growth came in slightly below the level recorded in the three months to July, it continued to mark a turnaround from the declines seen between February and May. There has also been further progress in the level of slack in the labour market. The share of workers employed part-time because they couldn t find full-time employment stood at 15.4% in the three months to August, down from 16.7% in the same period a year ago. The tighter labour market has helped to support more robust rates of earnings growth in recent months, with regular pay up 2.8% year-on-year in the latest reading. 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Aug-08 UK unemployment rate (LHS), per cent and 3-month annual growth in regular pay (RHS), per cent Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 2.8% Aug-14 5.4% Feb-15 Aug-15 5.0% 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
Gross income growth remains relatively steady in most parts of the UK Regional Trends Scotland suffers sharp slowdown in gross income growth in Q3 2015. Households in the West Midlands and London experienced the fastest rate of gross income growth in the latest quarter. In the West Midlands, this was supported by a sharp fall in the unemployment rate across the region. Over the past year the region has seen the rate of unemployment fall by 1.5 percentage points, far outpacing the 0.6 percentage point fall across the UK as a whole. The capital experienced one of the strongest increases in the Q3 2015. This was supported by strengthening wage growth in key sectors such as finance and business services. Both Scotland and the North East saw relatively sharp slowdowns in the rate of gross income growth between the second and third quarter of this year. Falls in the level of employment weighed on both these regions, in addition to relatively weak pay growth in the public and manufacturing sectors. 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Regional gross income, annual change to quarter indicated Q2 2015 Q3 2015 12
Household spending power rises by between 12-24 across the regions Regional Trends Essential item inflation negative in all regions outside of London All regions of the UK saw double digit increases in household discretionary income over the last 12 months. These ranged from the 12 increase seen in Scotland to the 24 increase recorded in London. Of the 12 areas of the UK, 9 experienced increases in household spending power of over 10%. Essential item inflation across the third quarter of the year was negative in 11 of the 12 regions, with only households in London not benefitting from falling prices, largely the result of lower levels of spending on vehicle fuel. Northern Ireland made up further ground to the rest of the regions, again growing at the fastest rate - 15.1% year-on-year. On the other end of the scale, the subdued growth in gross incomes weighed on discretionary income growth in Scotland, which decelerated to 6.7% in Q3. 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Asda Income Trackers by region, annual % change to quarter indicated and annual change to latest quarter + 17 + 24 + 18 + 17 + 12 + 14 + 12 + 22 + 21 Q2 2015 Q3 2015 + 18 + 19 + 20 + 13 13
Clear North-South divide in the level of household spending power Regional Trends London, the South East and East of England all move further ahead in value terms While households in Northern Ireland continue to make up ground on the North East of England, the three most prosperous regions; London, the East of England and the South East, all moved further ahead, with spending power rising by over 20 year-on-year. The average household in the capital currently has more than two and a half times the average household in Northern Ireland. The slow growth in Scotland has seen households in the country fall behind the average level of discretionary income in the UK as a whole. However, it remains 15 a week higher than the next highest region, the South West. Discretionary incomes in Wales also grew slower than in the UK as a whole. As a result, spending power fell marginally compared with the average UK level. 300 250 200 150 100 50 0 Average household discretionary income by region, per week in quarter indicated Q3 2014 Q3 2015 14
Focus on Scotland and Northern Ireland Annual % change in discretionary incomes, Scotland 15.0% 10.0% 5.0% 0.0% -5.0% Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Growth in average discretionary incomes in Scotland slowed in Q3 2015, down to 6.7% year-on-year compared with the 9.8% recorded in Q2. The rate of unemployment in Scotland has risen sharply over the past quarter, up 0.6 percentage points in the three months to August compared with the three months to May. With the labour market weakening, wage growth continues to lag the recovery seen in other regions, weighed down by pay cuts in sectors such as the oil industry and pay restraint in the public sector. While other drivers of discretionary income growth have weakened, essential item inflation remains negative in Scotland, a key factor behind the continued easing of pressure on household finances. Annual % change in discretionary incomes, Northern Ireland 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% Regional Trends Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Northern Ireland once again experienced the strongest year on year growth in discretionary income of all parts of the UK, though growth continued to lag in monetary terms. Household spending power rose by 15.1% in the year to Q3 2015, down slightly from the 17.0% increase recorded in Q2. The slowing largely reflects a moderation in recent improvements in the country s labour market. The rate of unemployment fell by just 0.1 percentage points over the past year compared with the 0.6 percentage point fall seen across the UK as a whole. Still, with earnings rising, negative essential item inflation is providing a considerable boost to household spending power across the country. 15
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 ; 0113 826 4823 Amy Garbutt, Asda PR Manager, Amy.Garbutt@Asda.co.uk ; 0113 826 3369 For data enquiries please contact: Sam Alderson, Cebr Economist, SAlderson@Cebr.com ; 020 7324 2874 Rob Harbron, Cebr Managing Economist, RHarbron@Cebr.com ; 020 7324 2864 16
Monthly Asda Income Tracker Figure 1: Asda Income Tracker and year-on-year change (excluding bonuses) 200 190 180 170 160 150 140 Asda Income Tracker tables 20% 15% 10% 5% 0% -5% -10% 130-15% Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Asda Income Tracker (LHS) Asda Income Tracker annual % change (RHS) 17
Monthly Asda Income Tracker Asda Income Tracker tables Figure 2: Comparison of year-on-year change in Asda Income Tracker including and excluding bonuses 30 25 20 15 10 5 0-5 - 10-15 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Asda Income Tracker including Bonuses Asda Income Tracker excluding Bonuses 18
Monthly Asda Income Tracker Asda Income Tracker tables Figure 3: Twelve-month moving average of Income Tracker (excl. bonuses) level 190 180 170 160 150 140 130 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 19
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 2011 172 January 2012 164 January 2013 166 January 2014 170 January 2015 185 February 2011 170 February 2012 163 February 2013 163 February 2014 169 February 2015 185 March 2011 170 March 2012 163 March 2013 162 March 2014 168 March 2015 186 April 2011 167 April 2012 165 April 2013 167 April 2014 170 April 2015 188 May 2011 166 May 2012 168 May 2013 167 May 2014 171 May 2015 188 June 2011 166 June 2012 169 June 2013 169 June 2014 171 June 2015 189 July 2011 166 July 2012 170 July 2013 168 July 2014 173 July 2015 191 August 2011 163 August 2012 170 August 2013 166 August 2014 172 August 2015 191 September 2011 161 September 2012 168 September 2013 166 September 2014 174 September 2015 192 October 2011 162 October 2012 167 October 2013 167 October 2014 176 November 2011 162 November 2012 167 November 2013 167 November 2014 179 December 2011 161 December 2012 164 December 2013 166 December 2014 180 2011 Average 166 2012 Average 166 2013 Average 166 2014 Average 173 20
Quarterly ASDA Income Tracker Asda Income Tracker tables Table 2: Average household Income Tracker, per week, current prices, excluding bonuses Region Q3 2013 Q3 2014 Q3 2015 Northern Ireland 79 84 97 North East 108 111 123 Wales 149 152 166 West Midlands 140 148 167 Yorkshire & Humber 145 153 170 East Midlands 147 155 172 North West 146 156 174 South West 149 155 175 Scotland 171 178 190 South East 177 183 204 East 189 194 216 London 226 238 262 21
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
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. 23
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 2008. 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
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, October 2015 25