Asda Income Tracker Report: March 2013 Released: April 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 Centre for Economics and Business Research 2013
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 Method 20 Disclaimer 22 1 Centre for Economics and Business Research 2013
Introduction Asda Income Tracker Over the last few months we ve seen a gradual improvement in the income tracker, but the latest figures shows that we are far from out of the woods. The recent cold snap has clearly impacted household utility bills; with the recent change in weather hopefully this will help to ease some of this pressure. In this tough environment we are holding down the price of essentials like bread and eggs and, coupled with our recent lead on lowering petrol prices, we continue to work hard to help families balance their books. Andy Clarke Asda President and CEO 2 Centre for Economics and Business Research 2013
Headlines Asda Income Tracker Headlines The average UK household had 152 a week of discretionary income in March 2013, down by 1 on the same month a year before and remaining 7 below the level in March 2011. This is the first annual decline in 12 months, as the slowdown in the labour market puts pressure on family finances. Annual price inflation on essential spending items climbed higher in March to stand at 3.0 per cent, up from a previous reading of 2.9 per cent. Faster inflation was seen on housing costs, such as electricity and gas tariffs and mortgage interest payments. Although strong employment growth over 2012 helped to boost household incomes, the level of employment has now started to fall back. In addition, annual regular earnings increases have slowed again significantly to just 1.0 per cent year on year. This is the slowest since the data series began, standing well below the pace of inflation and constraining discretionary income growth. This month s annual decline in the Asda Income Tracker highlights the tough conditions being faced by UK households, as pay growth slows and the cost of living rises at 3.0 per cent year on year. Asda family spending power was down by 1 a week year-on-year (a 0.7% annual decline) Moreover, the outlook for family finances 2013 remains fragile. High unemployment and weak pay increases are likely to continue as economic growth remains slow, while inflation looks set to remain elevated for much of the year. Rob Harbron Economist, Cebr 3 Centre for Economics and Business Research 2013
Constructing the Asda Income Tracker Model Total household income 699 per week - e.g.. national insurance contributions, income tax Taxes = Net income 578 per week e.g.. wages, investment income, pensions, social security, self employment earnings 121 per week i.e. take home pay Net income 578 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 152 per week i.e. take home pay 426 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 2013
Asda Income Tracker Dashboard: March Dashboard Indicator Regular earnings growth* (Feb) Employment growth* (Feb) Unemployment rate** (Feb) Net income Mortgage costs Food Vehicle fuels Home electricity, gas & fuel Essential item inflation Family spending power Annual percentage change 1.0% (excl. bonuses) 1.7% (+488,000 employment on year) 7.9% (-0.3 % points on year) 2.4% 4.6% 3.7% 0.1% 7.3% 3.0% -0.7% Latest trend KEY IMPROVEMENT NO SIGNIFICANT CHANGE DETERIORATION * three months to month stated **unemployment rate for three months to month stated 5 Centre for Economics and Business Research 2013
Weaker labour market takes its toll, as discretionary incomes start to fall again Income Tracker Trends The Asda Income Tracker was 1 a week lower in March 2013 than a year before Year-on-year change in Asda income tracker, In March 2013, household discretionary incomes excluding bonuses showed a year-on-year fall for the first time in 12 months. This return to annual decline highlights the effect of current economic conditions on the finances of the average household. Growth in the cost of living increased, pushed up by utility prices and higher mortgage interest payments. At the same time, labour market conditions have weakened. The latest data showed joblessness rising again and exceptionally low wage growth. Once the effect of bonus payments are included, the decline is more severe; discretionary incomes dropped annually by 2 in March, as bonus payments fell back year on year. 6 Centre for Economics and Business Research 2013
Very weak wage growth is holding back household spending power Income Tracker Trends The Asda Income Tracker was 1 a week lower in March 2013 than a year before Contributions to annual change in the Income Tracker (excluding bonuses), March 2013 The average UK household had 152 a week in discretionary income in March 2013, down from 153 in the same month a year before and well below a reading of 159 in March 2011. Net household incomes rose over the past 12 months by 2.4 per cent, boosted by increases in the income tax free personal allowance and the level of employment, which remains higher than a year ago. However, further slowdowns in the pace of wage increases has caused net income growth to slow, from a previous reading of 2.7 per cent. At the same time, the pace of growth in the cost of living rose again in March to its highest rate since October 2012, putting higher pressure on household finances. 7 Centre for Economics and Business Research 2013
Headline UK inflation stands unchanged, but cost of essentials grows faster Cost of living Annual essential item price inflation rose to 3.0 per cent in March 2013 from 2.9 per cent in February Annual inflation on the consumer price index and essential item annual inflation Annual inflation on the headline consumer price index stood still at 2.8 per cent in March, unchanged from February s reading. However, the rate has not been higher since May 2012. However, inflation on the price of essential items rose in March to 3.0 per cent, from a previous reading of 2.9 per cent. The rate of essential item inflation has not been higher since April 2012. The retail price measure of inflation climbed marginally to 3.3 per cent, from 3.2 per cent in February, as the pace of inflation on mortgage interest payments sped up. Growth in the cost of living is expected to remain elevated in 2013 due to increases in regulated prices such as public transport, energy and education. 8 Centre for Economics and Business Research 2013
Rising home utility prices continue to put pressure on discretionary incomes Cost of living The main factors putting pressure on family discretionary income in March were: Inflation of selected goods, annual change to March 2013 The rising cost of electricity and gas tariffs continue to be a key driver of the headline inflation rate. Annual price inflation on electricity now stands at its highest since July 2012, while gas price inflation is at fastest since August last year. Food price inflation remains high, broadly unchanged compared to the previous month at 3.7 per cent over the year to March, reflecting the effects of bad harvests in 2012. In addition, inflation on mortgage interest sped up again in March, with payments rising 4.6 per year on year a rate not surpassed since October 2012. However, at the other end of the scale, vehicle fuel prices were virtually unchanged in March 2013 compared to the same month the previous year. 9 Centre for Economics and Business Research 2013
Labour market deteriorates, as unemployment rises and pay growth slows Labour Market UK unemployment stood at 7.9 per cent in the three months to February 2013 UK unemployment rate (LHS), per cent and 3-month annual growth in regular pay (RHS), per cent Following employment growth in the UK across much of 2012, the level of employment has now fallen back quarter on quarter for the first time since the three months to October 2011. Despite this headline, there are signs that the issue of underemployment in the UK economy may be easing. In the three months to February 2013, parttime employment fell by 62,000 compared to the previous quarter but full-time work increased by 60,000. However, with underlying economic conditions remaining weak, the rate of pay growth has fallen back to new lows. In the three months to February, regular pay was just 1.0 per cent higher than a year before, the slowest growth since the data series began in 2000. In addition, total pay (including bonuses) increased by just 0.8 per cent over the same period. 10 Centre for Economics and Business Research 2013
Households in Northern Ireland continue to see sharp declines in discretionary incomes Regional Trends Discretionary incomes fell back into decline in Q1 2013 across much of the UK Asda Income Trackers by region, annual change to quarter indicated Discretionary incomes among households in Northern Ireland slipped back year on year by 11.5 per cent in Q1 2013, a deterioration from a 6.8 annual drop in Q4 2012. Labour market conditions in Northern Ireland have worsened significantly in recent months. The unemployment rate has risen sharply, to stand at 8.4 per cent in the three months to February. This is up from 6.8 per cent in the same period a year before and stands above the UK average of 7.9 per cent. At the other end of the scale, households in the North West and North East continued to see year on year increases to their discretionary incomes in Q1 2013. Discretionary incomes in these regions were supported by strengthening labour markets the unemployment rate in the North West fell by 1.2 percentage points over the past year while the rate in the North East fell by 1.1 points. 11 Centre for Economics and Business Research 2013
Discretionary incomes in Scotland rise further above UK average Regional Trends However, those in Northern Ireland continue to slip further behind Asda Income Trackers by region, per week Households in Scotland had weekly discretionary incomes of 158 in Q1 2013, broadly unchanged from the previous quarter. As discretionary incomes for the average UK household fell back over the same period, those in Scotland are now comparatively better off. The same is true for households in Wales discretionary incomes remained unchanged in Q1 2013 compared to the previous quarter, at 143 per week. However, discretionary income in Northern Ireland is continuing to fall further behind the UK average households here had 54 a week in Q1 2013, down from 56 the previous quarter. 12 Centre for Economics and Business Research 2013
Regional Trends Households in the North of England see fastest income growth, due to employment increases over year Meanwhile, income growth in the East and South East are two of the lowest in the UK Regional gross income, annual change to quarter Unemployment rates over the past year have fallen back across much of the country, helping to boost gross incomes. However there is something of a North / South divide, as unemployment has dropped sharply in the North East and North West, but risen in the regions of the East of England and the South East. This increase in unemployment has had the effect of constraining gross income growth to just 1.6 per cent in both these areas of the UK. With the cost of living rising year on year in these regions by around 3.0%, discretionary incomes are being eroded. 13 Centre for Economics and Business Research 2013
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 14 Centre for Economics and Business Research 2013 2012
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% Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Asda Income Tracker (LHS) Asda Income Tracker annual % change (RHS) 15 Centre for Economics and Business Research 2013
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 2013
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 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 Mar-13 17 Centre for Economics and Business Research 2013
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 153 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 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 157 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 18 Centre for Economics and Business Research 2013
Quarterly ASDA Income Tracker Asda Income Tracker tables Table 2: Average household Income Tracker, per week, current prices, excluding bonuses Region Q1 2011 Q1 2012 Q1 2013 Northern Ireland 65 61 54 Yorkshire & Humber 126 123 123 North East 130 123 128 North West 137 127 131 West Midlands 140 138 135 East Midlands 142 136 136 South West 143 137 138 Wales 147 140 143 UK 160 153 154 Scotland 160 155 158 South East 172 164 160 East 185 178 176 London 242 228 228 19 Centre for Economics and Business Research 2013 2012
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. 20 Centre for Economics and Business Research 2013
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. 21 Centre for Economics and Business Research 2013
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, April 2013 22 Centre for Economics and Business Research 2013