Asda Income Tracker Report: January 2015 Released: February 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 Headlines 03 Constructing the Income Tracker 04 Dashboard 05 Income Tracker trends 06 Cost of living 07 Labour market 09 Contact 11 Data charts & tables 12 Method update 13 Method notes 17 Disclaimer 18 2
Headlines Asda Income Tracker Headlines The average UK household had 185 a week of discretionary income in January 2015, up by 16 a week on the same month a year before. Even with December seeing the strongest annual increase in over five years, the year-on-year change in the Income Tracker rose again in January. The improvements in family spending power are a reflection of a combination of record low levels of inflation and continued improvements in the domestic labour market. The Bank of England s latest forecasts suggest that the current low inflationary environment is likely to last well into the second half of this year which should help to further boost household finances. With such strong increases in household spending power, it is perhaps unsurprising that retailers are beginning to report better than expected sales during the first few weeks of this year. With wages rising and inflation likely to remain subdued for much of the year, households are likely to provide a key driver of growth for the UK economy in 2015. Family spending power was up by 16 a week year on year in January (an 9.3% annual increase) Sam Alderson, Economist, Cebr 3
Constructing the Asda Income Tracker Model Total household income 729 per week - e.g. national insurance contributions, income tax Taxes = Net income 611 per week e.g. wages, investment income, pensions, social security, self employment earnings 118 per week i.e. take home pay Net income 611 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 185 per week i.e. take home pay 426 per week e.g. holidays, cinema, theatre, eating out, toys, sports, savings, jewellery, national lottery and other gambling payments, computer software and games 4
Asda Income Tracker Dashboard: January Dashboard Indicator Regular earnings growth* (Dec) Employment growth* (Dec) Unemployment rate** (Dec) Net income Mortgage costs Food & non-alcoholic drinks Vehicle fuels Home electricity, gas & fuel Essential item inflation Family spending power Annual percentage change +1.7% (excl. bonuses) +2.0% (+608,000 employment on year) 5.7% (-1.5 % points on year) +3.0% +0.5% -2.5% -16.2% -2.0% -0.1% +9.3% 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 5
Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Income tracker growth continues at fastest levels since 2009 The Asda Income Tracker was 16 a week higher in January 2015 than a year before In January 2015, average household discretionary incomes excluding bonuses were 9.3 per cent higher than the same point a 12 months before. This means that average spending power has now risen year-on-year for sixteen months, the most sustained recovery since the Bank of England sharply cut the base rate in 2009. 30 25 20 15 10 Year-on-year change in Asda income tracker, Income Tracker Trends Essential item inflation has fallen sharply in recent months and has now turned negative for the first time since 2009. A combination of reduced cost pressures and an improving labour market has provided a strong boost to household spending power since the middle of 2014. Household discretionary incomes are growing slightly faster once bonuses are included in the Income Tracker, increasing year on year by 18 a week. Bonuses picked up in December compared with a year ago across a number of industries including the financial and business services sectors. 5 0-5 - 10-15 6
Family spending power boosted by sharp fall in essential item inflation Income Tracker Trends The Asda Income Tracker was 16 a week higher in January 2015 than a year before Contributions to annual change in the Income Tracker (excluding bonuses), January 2015 The average UK household had 185 a week of discretionary income in January 2015, up from 169 at the same point a year ago and a new record high. With regular pay growth remaining relatively steady, gross household incomes continued to rise year on year by 2.6 per cent in January supported by continued falls in the rate of unemployment. Net incomes increased at the faster rate of 3.0 per cent in the 12 months to January, thanks to the increase in the income tax free personal allowance in April 2014. With essential item inflation turning negative for the first time since 2009, considerable pressure has been lifted from household finances, boosting growth in discretionary income. Net Income Essential spending Income Tracker - 5 0 5 10 15 20 7
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Essential item inflation turns negative for the first time since 2009 Cost of living Headline rate of inflation falls to lowest rate since the 1960s Annual consumer price inflation stood at 0.3 per cent in the year to January 2015, a further drop from the 0.5 per cent recorded in December. With further declines in the prices of essentials such as vehicle fuel and food in January, essential item inflation turned negative for the first time in six years this month dropping to -0.1 per cent from 0.2 per cent in December. With the savings from falling energy prices yet to be fully passed through to households, reductions in many gas tariffs are not scheduled until late February, essential item inflation could ease further. Headline rate of inflation could also fall into negative territory in the coming months. The Governor of the Bank of England, Mark Carney, has acknowledged that the inflation rate is more likely than not to turn negative at some point in the spring. 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% Annual inflation on the consumer price index (CPI), and essential item annual inflation CPI Essential item 8
Price of petrol falls again in January to its lowest level since November 2009 Cost of living The main factors affecting family spending costs in January were: The largest downward contributions to the inflationary slowdown in January came from the prices of vehicle fuels and food. Transport prices fell by 2 per cent between December and January. Most of this came from further falls in motor fuels. The average petrol price fell by 8.5p per litre and now stands at its lowest level since November 2009 at 108.3p per litre. The prices of food and non-alcoholic beverages fell by 0.7 per cent between December and January, with notable falls in the price of milk and a range of fruits. Given that food prices rose slightly a year ago, these further declines take food prices 2.5 per cent below the level in January 2014. However, discounts to the prices of clothing, footwear, furniture and household equipment during the winter sales period do not appear to have been as large as in recent years. 6% 1% -4% -9% -14% -19% Inflation of selected goods, annual change to January 2015 9
Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Unemployment rate drops to lowest level since July 2008 Labour Market Upward trend in regular earnings growth stalls but total pay growth accelerates The UK unemployment rate fell for the second consecutive reading to 5.7 per cent in the three months to December, down from 5.8 per cent in the three months to November. The unemployment rate now sits 1.5 percentage points below the level recorded during the same period a year ago. 10% 9% 8% 7% UK unemployment rate (LHS), per cent and 3-month annual growth in regular pay (RHS), per cent 5.0% 4.5% 4.0% 3.5% The continued falls in unemployment are one factor supporting the buoyant rise in household spending power. Over the past year more members of the typical household have moved into paid employment, which is typically more lucrative than out-of-work benefits. 6% 5% 4% 3% 5.7% 1.7% 3.0% 2.5% 2.0% 1.5% Average pay growth failed to rise for the first time in six months in the three months to December. Regular earnings growth slowed marginally to 1.7 per cent compared with 1.8 per cent in the three months to November. 2% 1% 0% 1.0% 0.5% 0.0% While regular pay growth slowed, total pay including bonuses continued its upward trend in the final three months of 2014, increasing to 2.1 per cent. Unemployment rate (LHS) Regular earnings growth (RHS) 10
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 11
Jan-09 May-09 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 Monthly Asda Income Tracker Figure 1: Asda Income Tracker and year-on-year change (excluding bonuses) 190 180 170 160 150 140 Asda Income Tracker tables 20% 15% 10% 5% 0% -5% -10% 130-15% Asda Income Tracker (LHS) Asda Income Tracker annual % change (RHS) 12
Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 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 Asda Income Tracker including Bonuses Asda Income Tracker excluding Bonuses 13
Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Monthly Asda Income Tracker Asda Income Tracker tables Figure 3: Twelve-month moving average of Income Tracker (excl. bonuses) level 180 175 170 165 160 155 150 145 140 135 130 14
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 169 January 2015 185 February 2011 169 February 2012 163 February 2013 163 February 2014 169 March 2011 169 March 2012 163 March 2013 162 March 2014 168 April 2011 166 April 2012 165 April 2013 167 April 2014 170 May 2011 166 May 2012 168 May 2013 167 May 2014 171 June 2011 166 June 2012 169 June 2013 169 June 2014 171 July 2011 166 July 2012 170 July 2013 168 July 2014 173 August 2011 163 August 2012 169 August 2013 166 August 2014 172 September 2011 161 September 2012 168 September 2013 166 September 2014 174 October 2011 162 October 2012 166 October 2013 168 October 2014 176 November 2011 162 November 2012 167 November 2013 167 November 2014 179 December 2011 161 December 2012 164 December 2013 165 December 2014 181 2011 Average 165 2012 Average 166 2013 Average 166 2014 Average 173 15
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. 17
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. 18
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, January 2015 19