Asda Income Tracker Report: December 2012 Released: January 2013 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 20 Disclaimer 22 1 Centre for Economics and Business Research 2012
Introduction Asda Income Tracker "The latest tracker paints a pretty bleak picture. Our customers are no better off than a year ago, and are significantly worse off compared to two years ago. "The recent cold snap will be piling even more pressure on family incomes with energy prices continuing to rise. "On the up side, we are seeing the lowest unemployment levels since March 2011, falling to 7.7%, which is good news for UK Plc." Andy Clarke Asda President and CEO 2 Centre for Economics and Business Research 2012
Headlines Asda Income Tracker Headlines The average UK household had 144 a week of discretionary income in December 2012, unchanged from the same month a year before but remaining some 10 lower than December 2010. Inflation on the cost of essential spending items rose to 3.0 per cent in December, up from a previous reading of 2.8 per cent in November. Energy utility price increases are feeding through into the inflation rate and putting pressure on household incomes. Although there was good news as the UK labour market continued to add more jobs, with the unemployment rate dropping to 7.7 per cent, the weak economy continues to hold back earnings growth. As a result, net household income growth slowed to 2.6 per cent year on year in December, the slowest result since June 2012. Although it remains encouraging that households are no longer seeing sharp declines in discretionary income, December s Income Tracker figures show that risks remain for UK consumers. Pressures on discretionary incomes at the end of 2012 came from high energy price hikes, mortgage and rental costs and food price inflation, factors that are likely to continue into coming year. In addition, income growth remains weak, as the UK economy struggles to grow enough to drive significant pay increases. Asda family spending power was unchanged year-on-year (a 0.0% annual change) Rob Harbron Economist, Cebr 3 Centre for Economics and Business Research 2012
Constructing the Asda Income Tracker Model Total household income 712 per week - e.g.. national insurance contributions, income tax Taxes = Net income 588 per week e.g.. wages, investment income, pensions, social security, self employment earnings 124 per week i.e. take home pay Net income 588 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 444 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
Dashboard Asda Income Tracker Dashboard: December Indicator Regular earnings growth* (Nov) Unemployment** (Nov) Net income Mortgage costs Food Vehicle fuels Housing & utilities Essential item inflation Family spending power Annual percentage change 1.4% (excl. bonuses) 7.7% 2.6% 4.6% 3.7% -0.2% 3.8% 3.0% 0.0% 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
No growth on Income Tracker as wage growth slows to trickle Trends The Asda Income Tracker was unchanged in December compared to a year before Discretionary incomes excluding bonuses are unchanged compared to a year before, but stand some 10 down on December 2010. This latest halt in growth in the Income Tracker follows six months of increases, with the largest being a 4 annual rise in September 2012. Year-on-year change in Asda income tracker, 25 20 15 10 5 Once bonus payments are included, family incomes rose over the last year by 1, an increase of 0.7 per cent compared with December last year. 0-5 Household incomes are struggling to keep pace with the rising cost of living. Net income rose over the year by 2.6 per cent in December, the slowest rate since June 2012. - 10-15 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 6 Centre for Economics and Business Research 2012
No growth on Income Tracker as wage growth slows to trickle Trends The Asda Income Tracker was unchanged in December compared to a year before Annual growth on the Income Tracker was brought to a complete halt in December by weak UK economic conditions holding back earnings growth. This slowdown in earnings growth is compounded by stubbornly high inflation on essential items. The cost of living rose to 3.0 per cent in December compared to a year earlier, up from 2.8 per cent the previous month. Although discretionary incomes have escaped the sharp declines seen through 2011 and early 2012, robust growth on the Income Tracker remains elusive. Year-on-year change in Asda income tracker, 25 20 15 10 5 0-5 - 10 Weak economic conditions are expected to prevail into the first half of 2013, holding back wage growth, while the 1 per cent cap on benefit payment increases will hold back household income growth from April onward. - 15 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 7 Centre for Economics and Business Research 2012
Cost of living continues to rise faster than Bank of England s target Cost of living Annual CPI inflation stood at 2.7 per cent in December, unchanged since September The headline inflation rate stood on hold for the second month. However, inflation on the cost of essential items rose in December to 3.1 per cent, up from a November reading of 2.8 per cent. The headline inflation rate has now stood above the Bank of England s target rate of 2.0 per cent for over three full years, since November 2009. The overall cost of living is now 5.5 per cent higher than if inflation had stuck at target rate for this time period. Inflation on the broader retail price index (RPI) was also broadly unchanged in December at 3.1 per cent, compared to 3.0 per cent in November. Although inflation fell back sharply through 2012 the rate is not expected to fall much further in 2013. Bank of England Monetary Policy Committee members have noted that rail fares, utility prices and tuition fee increases are expected to contribute 1 percentage point to inflation through much of 2013. 7% 6% 5% 4% 3% 2% 1% 0% -1% Inflation of selected goods, annual change to December 2012 Vehicle fuels Recreation & culture Clothing & footwear Furniture & household goods Transport Communication Health Restaurants & hotels Food & non-alc. drink Housing & household services Electricity Mortgage interest payments Gas Alcohol & tobacco 8 Centre for Economics and Business Research 2012
Electricity & gas costs putting pressure on household budgets Cost of living The main factors putting pressure on family discretionary income in December were: Housing costs were the greatest driver of inflation in December, contributing about a fifth of the headline inflation rate. Cost increases at 5 of the 6 major energy suppliers have now fed through into the inflation rate, with both electricity and gas more expensive now than a year ago. The final supplier is raising their tariffs in January. The cost of food was also a key contributor to the rising cost of living, with food prices rising by some 3.7% year on year in December as the effects of bad harvests continued to take hold. Petrol and diesel prices gave household budgets some respite however, as vehicle fuels were marginally lower in December than they were a year before. 7% 6% 5% 4% 3% 2% 1% 0% -1% Inflation of selected goods, annual change to December 2012 Vehicle fuels Recreation & culture Clothing & footwear Furniture & household goods Transport Communication Health Restaurants & hotels Food & non-alc. drink Housing & household services Electricity Mortgage interest payments Gas Alcohol & tobacco 9 Centre for Economics and Business Research 2012
Cost of falling unemployment is very slow wage growth Labour Market Private sector wages rose by just 1.5 per cent annually in the 3 months to November Unemployment continued to fall in the three months to November to 7.7%, its lowest reading since March 2011. The UK economy continued to add jobs and encouragingly, it was full-time roles that saw the latest increase. The number of part-time employees fell back as more people returned to longer hours, while the share of workers that only took part-time jobs because they couldn t find full-time ones fell back to its lowest in a year. 10% 9% 8% 7% 6% 5% 4% 3% 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% However, despite this positive news from the UK labour market, the weak economy is still having an effect average regular earnings growth in the private sector slowed to its since July 2010 at 1.5 per cent. With inflation running at 2.7 per cent, real earnings continue to face erosion. 2% 1% 0% Nov-06 May-07 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 1.0% 0.5% 0.0% Workers in the public sector saw marginally faster regular wage increases, at 1.9 per cent. Unemployment rate Earnings growth 10 Centre for Economics and Business Research 2012
Discretionary incomes continue to be hit in some areas of the country Regional Trends Income Trackers fell back into decline in Q4 2012 in some parts of the UK Households in Northern Ireland experienced a 7.1 per cent annual decline in their discretionary incomes in Q4 2012, down from a 1.1 per cent decrease in Q3. Labour market conditions in Northern Ireland have become tougher in recent months, with the unemployment rate rising year on year by a significant 1.1 percentage points. Regional income trackers, annual change to quarter indicated 10.0% 7.5% 5.0% 2.5% 0.0% -2.5% The East Midlands and the South East also saw marginal annual declines in discretionary income in Q4 2012, of 1.6 and 1.3 per cent respectively. However, at the other end of the spectrum, the North East saw a strong increase in the Income Tracker, rising year on year by some 6.2 per cent. This boost comes alongside a strengthening of the local labour market, as the unemployment rate dropped year on year by 2.9 points. -5.0% -7.5% Northern Ireland East Midlands South East East West Midlands UK Wales South West Scotland North West Q3 2012 Q4 2012 London Yorkshire & Humber North East 11 Centre for Economics and Business Research 2012
London discretionary incomes rise further above UK average Regional Trends While Northern Ireland continues to slip further behind Households in Northern Ireland had discretionary incomes of 77 a week in Q4, compared to a UK average of 146 for the quarter. With the latest annual slip in discretionary incomes, the Income Tracker for households in Northern Ireland has fallen to 53 per cent of the UK average, down from 55 per cent in Q3 2012. 300 250 200 150 100 Regional income trackers, per week Meanwhile, households in Scotland and Wales remain just either side of the UK average, with discretionary income of 144 and 154 respectively. Discretionary incomes in London rose further ahead of the average UK household, at 274 a week in Q4 2012. This is 2.55 times higher than the average household, up from 2.37 times more in Q3 2012. 50 0 Northern Ireland Yorkshire & Humber North East South West West Midlands East Midlands North West Scotland UK Wales East South East London Q3 2012 Q4 2012 12 Centre for Economics and Business Research 2012
A strengthening labour market helps boost income growth in the North East Regional Trends The North East continued to see the fastest annual growth in gross income in Q4 2012 4.5% Regional gross income, annual change to quarter While unemployment has fallen back noticeably in many areas of the UK, the effects of a stronger labour market are being felt the most in the North East. 4.0% 3.5% 3.0% Gross incomes rose at an annual rate of 4.0 per cent in Q4 2012 in the North East. This is notably higher than 3.2 per cent growth seen in London, the region with the next fastest-growing income. Year on year income growth in both Scotland and Wales in Q4 2012 was 2.8 per cent. This was in line with growth in the cost of essentials for Scotland, but Wales saw essential item inflation of 3.0 per cent, putting pressure on household finances. Meanwhile, the weak labour market of Northern Ireland put the brakes on income growth for the typical household. Annual growth slowed to 1.7 per cent in Q4, down from 2.2 per cent the previous quarter. 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Northern Ireland South East East Midlands East West Midlands UK Scotland Wales North West South West Q3 2012 Q4 2012 Yorkshire & Humber London North East 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: Bee Hessell PR Manager Email bee.hessell@asda.co.uk Tel 0113 826 2829 14 Centre for Economics and Business Research 2012
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 Asda Income Tracker tables 20% 15% 10% 5% 0% -5% -10% 120-15% 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 Sep-12 Dec-12 Asda Income Tracker (LHS) Asda Income Tracker annual % change (RHS) 15 Centre for Economics and Business Research 2012
Monthly Asda Income Tracker Asda Income Tracker tables Figure 2: Comparison of year-on-year change in Asda Income Tracker including and excluding bonuses 16 Centre for Economics and Business Research 2012
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 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 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 143 January 2009 158 January 2010 160 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 159 March 2011 154 March 2012 145 April 2008 144 April 2009 159 April 2010 158 April 2011 150 April 2012 145 May 2008 142 May 2009 157 May 2010 157 May 2011 149 May 2012 148 June 2008 139 June 2009 158 June 2010 157 June 2011 149 June 2012 150 July 2008 140 July 2009 160 July 2010 159 July 2011 149 July 2012 151 August 2008 138 August 2009 158 August 2010 158 August 2011 147 August 2012 150 September 2008 136 September 2009 158 September 2010 159 September 2011 145 September 2012 149 October 2008 137 October 2009 159 October 2010 159 October 2011 146 October 2012 146 November 2008 141 November 2009 159 November 2010 158 November 2011 146 November 2012 147 December 2008 150 December 2009 158 December 2010 154 December 2011 144 December 2012 144 2008 Average 141 2009 Average 158 2010 Average 158 2011 Average 149 2012 Average 147 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 Q4 2010 Q4 2011 Q4 2012 Northern Ireland 90 83 77 Yorkshire & Humber 133 122 125 North East 131 119 126 South West 142 130 132 West Midlands 140 132 132 East Midlands 145 134 132 North West 151 137 140 Scotland 154 142 144 UK 157 145 146 Wales 162 152 154 East 182 170 170 South East 196 185 182 London 284 267 274 19 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. 20 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. 21 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, January 2013 22 Centre for Economics and Business Research 2012