Asda Income Tracker Report: April 2013 Released: May 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 Contact 11 Data charts & tables 12 Method 16 Disclaimer 18 1
Introduction Asda Income Tracker Whilst our Income Tracker records a drop in national wage growth, the increase in the personal tax allowance should relieve some pressure although it will take time before we see the knock on effects in consumer spending. This is consistent with the view that the economy is showing signs of recovery. Andy Clarke Asda President and CEO 2
Headlines Asda Income Tracker Headlines The average UK household had 155 a week of discretionary income in April 2013, down by 1 on the same month a year before and remaining well below the peak of 165 seen in early 2010. This is the second consecutive annual decline, as the slowdown in wage growth continues to put pressure on family finances. The April increase in the income tax free allowance will help to boost net income growth for the 2013/14 fiscal year. However, a weak labour market continues to hold back overall household finances, as regular wage growth dropped to its lowest since comparable records began. Annual price inflation on essential spending items dipped back in April 2013 to 2.6 per cent, down from 3.0 per cent in March and now the lowest rate since September 2012. Falling annual transport price inflation helped to bring down growth in the cost of living, although price increases for food and home energy continue to put upward pressure on essential item inflation. A higher tax free personal allowance and lower inflation on some essentials, such as petrol, have helped this month to ease the stress on household finances. Asda family spending power was down by 1 a week year-on-year (a 0.5% annual decline) However, ongoing very slow wage growth and high unemployment are preventing any real gains to discretionary spending power. The squeeze on household incomes has returned in 2013 despite the gradually improving economy. Rob Harbron Economist, Cebr 3
Constructing the Asda Income Tracker Model Total household income 699 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 117 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 155 per week i.e. take home pay 427 per week eg. holidays, cinema, theatre, eating out, toys, sports, savings, jewellery, national lottery and other gambling payments, computer software and games 4
Asda Income Tracker Dashboard: April Dashboard Indicator Regular earnings growth* (Mar) Employment growth* (Mar) Unemployment rate** (Mar) Net income Mortgage costs Food Vehicle fuels Home electricity, gas & fuel Essential item inflation Family spending power Annual percentage change 0.8% (excl. bonuses) 1.5% (+434,000 employment on year) 7.8% (-0.4 % points on year) 2.1% 4.4% 4.6% -3.7% 7.5% 2.6% -0.5% Latest trend KEY IMPROVEMENT NO SIGNIFICANT CHANGE DETERIORATION * three months to month stated **unemployment rate for three months to month stated 5
Apr-08 Jul-08 Oct-08 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 Income Tracker falls back further as wage growth slows again Income Tracker Trends The Asda Income Tracker was 1 a week lower in April 2013 than a year before In April 2013, household discretionary incomes excluding bonuses fell year on year by 1, the second consecutive annual decrease and the sharpest drop since March 2012. As illustrated by the chart opposite, the annual change in the Asda Income Tracker highlights the deteriorating conditions faced by household finances seen since the annual increase of 8 in August 2012. 30 25 20 15 10 5 Year-on-year change in Asda income tracker, Although the income tax free allowance was raised in April 2013, boosting net incomes, growth in the cost of living remains high and regular wage increases have reached their slowest growth since records began. Bonus payments fell sharply in the three months to March 2013, standing 2.9 per cent lower than a year before. Once bonus payments are taken into account, the Asda Income Tracker dropped year on year by 4 in April. 0-5 - 10-15 6
Higher income tax allowance helps to boost net income growth Income Tracker Trends The Asda Income Tracker was 1 a week lower in April 2013 than a year before The average UK household had 155 a week in discretionary income in April 2013, down from 156 in the same month a year before and remaining well below the high of 165 seen in early 2010. Although gross household income growth reached a low of 1.4 per cent in April 2013 as wage growth slowed, the latest increase in the income tax free personal allowance helped net incomes to rise by a faster 2.1 per cent. Net Income Essential spending Contributions to annual change in the Income Tracker (excluding bonuses), April 2013 The income tax free personal allowance was raised to 9,440 for the 2013/14 fiscal year, up from 8,105 the previous year and taking more workers out of paying tax altogether. Without the impact of the personal allowance increase, the Income Tracker would have fallen year on year by 6. However, the slow pace of wage increases and continued elevated essential item price inflation means the Income Tracker fell back again in April. Income Tracker - 15-10 - 5 0 5 10 15 7
Essential item price inflation falls back, but still stands well above income growth Cost of living Annual essential item price inflation dipped to 2.6 per cent in April 2013, down from 3.0 per cent in March Annual inflation on the headline consumer price index fell to 2.4 per cent in April 2013, down from the 2.8 per cent seen in the previous two months and the first decline in the year on year rate since September 2012. In addition, inflation on the price of essential items also dipped in April, to 2.6 per cent, the lowest that it has stood since September 2012. At the same time, the retail price measure of inflation declined to 2.9 per cent, below the 3.3 per cent seen over the year to March, as inflation on mortgage interest payments ticked up. 6% 5% 4% 3% 2% 1% Annual inflation on the consumer price index and essential item annual inflation Although consumer price inflation and essential item price inflation both fell this month, real income erosions are continuing for households as the rising cost of living continues to far outpace wage growth. 0% Essential items CPI 8
Falling cost of transport helps to bring down growth in cost of living Cost of living The main factors putting pressure on family discretionary income in April were: The annual increase in the cost of heating and powering the home continued to climb in April 2013, with gas price inflation reaching highest rate since August last year, at 8.3 per cent. In addition, electricity price inflation continued to stand high at 7.6 per cent this month. Putting further strain on household finances this month was the cost of food, as annual food price inflation reached 4.6 per cent. This is the highest that the rate has stood since March last year, with the rising price of vegetables in particular pushing up total food costs. However at the other end of the scale, the cost of transport overall fell back year on year in April by 0.1 per cent, the first time transport costs have fallen since July 2009. Vehicle fuel prices meanwhile dropped back year on year by a sharper 3.7 per cent, reflecting the recent falling cost of Brent crude oil. 10% 8% 6% 4% 2% 0% -2% -4% -6% Inflation of selected goods, annual change to April 2013 9
Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Real wage erosions continue as pay growth reaches lowest on record Labour Market Annual growth in regular earnings slows to just 0.8% in three months to March 2013 10% UK unemployment rate (LHS), per cent and 3-month annual growth in regular pay (RHS), per cent 5.0% Employment conditions have worsened in the UK labour market, as the number of unemployed workers rose by 15,000 in the three months to February 2013 from the previous quarter. 9% 8% 7% 4.5% 4.0% 3.5% At the same time, the number of employed people fell by 43,000 over the same period. This decline was faced mainly by part-time workers, whose numbers were reduced by 53,000 at the same time, the number of those employed full-time increased by 10,000. 6% 5% 4% 3% 3.0% 2.5% 2.0% 1.5% Weakening employment prospects come alongside a further slowdown in wage growth. Regular earnings rose by just 0.8 per cent year on in the three months to March 2013, the slowest since comparable records began in 2001. 2% 1% 0% 1.0% 0.5% 0.0% In addition, as bonus payment slumped, growth in total pay fell back to just 0.4 per cent over the same time period. Unemployment rate Regular Earnings growth 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 further information please contact: Bee Rycroft PR Manager Email Bee.Rycroft@Asda.co.uk Tel 0113 826 3448 11 Centre for Economics and Business Research 2012 2013
Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Monthly Asda Income Tracker Figure 1: Asda Income Tracker and year-on-year change (excluding bonuses) 175 170 165 160 155 150 145 140 135 Asda Income Tracker tables 25% 20% 15% 10% 5% 0% -5% 130-10% Asda Income Tracker (LHS) Asda Income Tracker annual % change (RHS) 12
Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 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 - 20 Asda Income Tracker including Bonuses Asda Income Tracker excluding Bonuses 13
Apr-08 Jul-08 Oct-08 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 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 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 2009 159 January 2010 165 January 2011 162 January 2012 154 January 2013 157 February 2009 157 February 2010 165 February 2011 159 February 2012 152 February 2013 154 March 2009 159 March 2010 164 March 2011 159 March 2012 153 March 2013 152 April 2009 163 April 2010 162 April 2011 155 April 2012 156 April 2013 155 May 2009 162 May 2010 162 May 2011 155 May 2012 158 June 2009 163 June 2010 162 June 2011 155 June 2012 160 July 2009 164 July 2010 164 July 2011 155 July 2012 161 August 2009 163 August 2010 163 August 2011 153 August 2012 160 September 2009 163 September 2010 164 September 2011 151 September 2012 159 October 2009 164 October 2010 164 October 2011 152 October 2012 158 November 2009 164 November 2010 163 November 2011 152 November 2012 158 December 2009 164 December 2010 160 December 2011 151 December 2012 155 2009 Average 162 2010 Average 163 2011 Average 155 2012 Average 157 15
Method 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 2011 (released December 2012). 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. 16
Method 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. 17
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, May 2013 18