Asda Income Tracker Report: June 2012 Released: July 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 020 7324 2850 w www.cebr.com
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 14 Data charts & tables 15 Methodology update 20 Disclaimer 24
Introduction Asda Income Tracker "Families are no better off than a year ago, and still 7 a week worse off over two years. Our customers tell us it still feels tough out there, and with the kids starting to break up for the summer holidays mums are going to need all the help they can get to balance the books. Andy Clarke Asda President and CEO 2 Centre for Economics and Business Research 2012
Headlines Asda Income Tracker Headlines The average UK household had 150 a week of discretionary income in June 2012, broadly unchanged compared with twelve months ago. This is an improvement from previous months in the level of discretionary income and puts a halt to the year-on-year declines seen since April 2010. Annual consumer price inflation slowed in June, falling to the lowest rate since November 2009 at 2.4 per cent, down from 2.8 per cent in May. During the three months to May 2012 average weekly earnings (excluding bonuses) rose by just 1.8 per cent year on year, unchanged from the previous month s reading. The latest movement in the Asda Income Tracker is good news for UK families, as households see an end for now to falling real incomes. However, employment conditions remain tough in the nation s labour market, holding back income growth. The labour market is expected to weaken over the second half of 2012, as public sector cutbacks bite and a tough business environment means firms lack the confidence needed for job creation. Asda family spending power up 0.2 per cent year on year in June 0 a week more Charles Davis Head of Macroeconomics, Cebr 3 Centre for Economics and Business Research 2012
Constructing the Asda Income Tracker Model Total household income 704 per week - e.g.. national insurance contributions, income tax Taxes = Net income 582 per week e.g.. wages, investment income, pensions, social security, self employment earnings 122 per week i.e. take home pay Net income 582 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 150 per week i.e. take home pay 432 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
Asda Income Tracker Dashboard: June Dashboard Indicator Earnings Growth* (May) Unemployment** (May) Net income Mortgage costs Food Vehicle fuels Utilities Essential item inflation Family spending power Annual percentage change 1.8% (excl. bonuses) 8.1% 2.3% 1.5% 2.3% -1.7% 6.0% 2.6% 0.2% 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
Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Discretionary family incomes stabilised in June Trends The Asda Income Tracker was broadly unchanged in June compared to a year before Discretionary incomes excluding bonuses are now 0.2 per cent higher than they were twelve months ago. Year-on-year change in Asda income tracker, 25 20 15 This is the first time that the Asda Income Tracker has seen any increase, however small, since September 2010, highlighting the improving trend seen in recent months. Annual growth in the cost of essential items slowed markedly in June to the slowest since February 2010. Once bonuses are included, family incomes declined over the last year by 0.1 per cent, a marginal decline of less than one pound. 10 5 0-5 - 10-15 6 Centre for Economics and Business Research 2012
Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Discretionary family incomes stabilised in June Trends The Asda Income Tracker was broadly unchanged in June compared to a year before Erosions to the Asda Income Tracker have generally been lessening since October last year, disappearing entirely in June. Smaller annual declines have largely been due to slowdowns in essential item price growth, as inflation continued to fall back sharply. The level of weekly household discretionary income is now at its highest since March 2011, at 150 a week. Year-on-year change in Asda income tracker, 25 20 15 10 5 0 However, ongoing tough conditions in the UK labour market are constraining wage increases. Unemployment remains elevated and the resulting limit to wage bargaining power is keeping average earnings growth subdued. UK net household income growth was 2.3 per cent in June, compared to growth in the cost of essentials of 2.6 per cent. - 5-10 - 15 7 Centre for Economics and Business Research 2012
Vehicle fuel & lubricant Clothing & footwear Recreation & culture Transport Food & non-alc drink Restaurants & hotels Furniture & household goods Health Alcohol & tobacco Communication Education Housing & household services Electricity Gas The growth in the cost of living slowed substantially in June Cost of living Annual CPI inflation fell for the third consecutive month to 2.4 per cent in June Inflation decreased in June, with the consumer price index (CPI) rising year on year by 2.4 per cent. 20% 15% Inflation of selected goods, annual change to June 2012 This is down from 2.8 per cent the previous month and is the lowest that the annual inflation rate has been since November 2009. This latest movement takes the inflation rate further toward the Bank of England s 2.0 per cent central target rate for inflation and reduces the strain on consumer real incomes. Meanwhile, annual inflation on the broader retail price index (RPI) decreased to 2.8 per cent in June 2012, down from a reading of 3.1 per cent the previous month. 10% 5% 0% -5% 8 Centre for Economics and Business Research 2012
Vehicle fuel & lubricant Clothing & footwear Recreation & culture Transport Food & non-alc drink Restaurants & hotels Furniture & household goods Health Alcohol & tobacco Communication Education Housing & household services Electricity Gas Early summer sales brought on by bad weather ease consumer price pressures Cost of living The main factors reducing pressure on family discretionary income in June were: Clothing and footwear prices dropped back by 4.2 per cent between May and June, contributing much of the downward movement in the overall inflation rate. 20% 15% 10% Inflation of selected goods, annual change to June 2012 Many retailers reported being forced to bring forward their planned seasonal sales, as a rainy British summer led to reduced demand for warm-weather clothing. Food retailers cut the price of meat products, again as the bad weather held back purchases. Food prices overall dipped in June, placing further downward pressure on the headline rate. 5% 0% -5% As the cost of crude oil continued to decline into June, prices at the pump fell back for the second consecutive month. Vehicle fuels cost some 1.7 per cent less in June 2012 than in the same month last year, easing the constraint on family budgets. 9 Centre for Economics and Business Research 2012
May-06 Nov-06 May-07 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Rising long-term unemployment highlights tough state of labour market Labour Market The number of those unemployed for over two years reached highest since 1997 The headline unemployment rate fell back to 8.1 per cent for the three months to May 2012, down 0.2 percentage points on the previous quarter. The number of unemployed workers decreased by 65,000 over the quarter, taking the level of unemployment to its lowest since the three months to August 2011. However, demonstrating the ongoing underlying weakness in the UK labour market and tough conditions for the nation s jobless, long-term unemployment (over two years) increased by 18,000 over the quarter to its highest level since 1997. 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 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% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% With government cutbacks and weak business prospects ahead, employment is likely to fall back in the coming months. 0% 0.0% Unemployment rate Earnings growth 10 Centre for Economics and Business Research 2012
Yorkshire & Humber North West North East East Midlands South East Scotland Wales UK East Northern Ireland West Midlands London South West This quarter saw regional disparity in real income erosions Regional Trends Annual Income Tracker declines lessened in some regions, but other UK areas saw increasing discretionary income In line with the overall UK situation, the squeeze on family spending power lessened in every region and country of the nation in Q2 2012 compared with the previous quarter. For some regions, the year-on-year declines to discretionary income seen since 2010 came to an end in Q2. Regional income trackers, annual change to quarter indicated 5.0% 2.5% 0.0% -2.5% -5.0% Families in the South West saw the greatest annual increase to spending power, with discretionary income rising by 1.0% over the year to Q2. The region s labour market strengthened, with the local unemployment rate falling by 0.4 percentage points in the quarter to May compared with the same period in 2011. -7.5% -10.0% However, many other regions continued to face declining discretionary income in Q2. This was particularly the case for households in Yorkshire and the Humber, where the Income Tracker fell year on year by 2.7 per cent, reflecting a substantial increase in unemployment in the region. Q1 2012 Q2 2012 11 Centre for Economics and Business Research 2012
Northern Ireland North East Yorkshire & Humber South West East Midlands West Midlands North West Scotland UK Wales East South East London Discretionary income in London pulls further ahead of the UK average Regional Trends Meanwhile, Income Tracker for Northern Ireland slips further behind UK average 300 Regional income trackers, per week Discretionary income in London was 276 a week according to the Q1 2012 Asda Income Tracker. 250 200 This is now roughly 86 per cent higher than the UK average amount of discretionary income, up from 83 per cent the previous quarter. Highlighting growing disparity between the different parts of the UK, Londoner s average discretionary incomes are 327 per cent higher than that of families in Northern Ireland. This is up from 321 per cent higher in Q1. Average discretionary incomes in Northern Ireland were 84 a week in Q2 2012. 150 100 50 0 Q1 2012 Q2 2012 12 Centre for Economics and Business Research 2012
North West Yorkshire & Humber South East North East Wales Scotland East Midlands East UK West Midlands London Northern Ireland South West Gross income growth picks up across the nation Regional Trends However income growth remains below the rate of essential item price increases for many regions Labour market improvements in 2012 have helped to drive up household gross income growth at the top of the spectrum. This is particularly the case for those in the South West and in London, which both saw a decrease in their unemployment rates of 0.4 percentage points over the past year. 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% Regional gross income, annual change to quarter Northern Ireland also saw a drop in unemployment, with the rate falling by 0.2 percentage points to 6.9 per cent in the three months to May. This is one of the lowest rates in the UK and compares to a national average of 8.1 per cent. 0.5% 0.0% Although lower unemployment should in theory give workers more wage-bargaining power than earlier in the year, the weak economic outlook means income growth is not likely to pick up significantly this year. Q1 2012 Q2 2012 13 Centre for Economics and Business Research 2012
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 Email joanne.newbould@asda.co.uk Tel 0113 826 3536 14 Centre for Economics and Business Research 2012
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 Jun-12 Monthly Asda Income Tracker Figure 1: Asda Income Tracker and year-on-year change (excluding bonuses) 165 160 155 150 145 140 135 130 125 120 Asda Income Tracker tables 20% 15% 10% 5% 0% -5% -10% -15% Asda Income Tracker (LHS) Asda Income Tracker annual % change (RHS) 15 Centre for Economics and Business Research 2012
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 Jun-12 Monthly Asda Income Tracker Figure 2: Comparison of year-on-year change in Asda Income Tracker including and excluding bonuses 24 20 16 12 8 4 0-4 - 8-12 - 16 Asda Income Tracker tables Asda Income Tracker including bonuses Asda Income Tracker excluding bonuses 16 Centre for Economics and Business Research 2012
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 Monthly Asda Income Tracker Asda Income Tracker tables Figure 3: Twelve-month moving average of Income Tracker (excl. bonuses) level 170 160 150 140 130 120 110 100 Asda Income Tracker excluding bonuses 17 Centre for Economics and Business Research 2012
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 2008 144 January 2009 159 January 2010 161 January 2011 156 January 2012 147 February 2008 143 February 2009 156 February 2010 160 February 2011 154 February 2012 146 March 2008 143 March 2009 157 March 2010 160 March 2011 154 March 2012 146 April 2008 144 April 2009 159 April 2010 158 April 2011 150 April 2012 146 May 2008 142 May 2009 158 May 2010 158 May 2011 150 May 2012 148 June 2008 140 June 2009 159 June 2010 157 June 2011 150 June 2012 150 July 2008 140 July 2009 160 July 2010 159 July 2011 150 August 2008 138 August 2009 159 August 2010 159 August 2011 147 September 2008 136 September 2009 159 September 2010 160 September 2011 145 October 2008 137 October 2009 160 October 2010 160 October 2011 146 November 2008 141 November 2009 160 November 2010 158 November 2011 146 December 2008 151 December 2009 159 December 2010 154 December 2011 144 2008 average 142 2009 average 159 2010 average 159 2011 average 149 18 Centre for Economics and Business Research 2012
Quarterly ASDA Income Tracker Asda Income Tracker tables Table 1: Average household Income Tracker, per week, current prices, excluding bonuses Region Q2 2012 Q2 2011 Q2 2010 Northern Ireland 84 84 95 North East 122 122 132 Yorkshire & Humber 124 124 132 South West 133 133 142 East Midlands 135 135 147 West Midlands 136 136 144 North West 138 138 150 Scotland 146 146 152 UK 148 148 158 Wales 154 154 161 East 172 172 181 South East 186 186 196 London 276 276 283 19 Centre for Economics and Business Research 2012
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 2010. 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. 20 Centre for Economics and Business Research 2012
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 21 Centre for Economics and Business Research 2012
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. 22 Centre for Economics and Business Research 2012
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 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. 23 Centre for Economics and Business Research 2012
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, July 2012 24 Centre for Economics and Business Research 2012