Asda Income Tracker Report: November 2011 Released: December 2011 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 Asda Income Tracker model 04 Dashboard 05 Income Tracker trends 06 Cost of living 08 Labour market 10 Appendix 11 Asda Income Tracker tables 14 Methodology 15 Disclaimer 18
Introduction Asda Income Tracker "2011 saw UK families face an unprecedented budget squeeze, with the cost of basics putting immense pressure on disposable income. "While November's fall in the cost of living gives us optimism for 2012, fears over job security underline that for some families, times are challenging. "Business leaders should view this as call to action by doing what British business does best - finding new ways to remove unnecessary costs from operations to hold back inflation and keep prices as low as possible. "At Asda, our aim is to make sure that next year, our customers know we're doing all we can to save them money everyday." Andy Clarke Asda President and CEO 2 Centre for Economics and Business Research 2011
Headlines Asda Income Tracker Headlines The average UK household had 161 a week of discretionary income in November 2011, 8.4 per cent less than a year before. During the three months to October 2011 average earnings (excluding bonuses) grew by 1.8 per cent year on year, up 0.1 percentage points on the three months to September. Annual growth on the consumer price index fell back again to 4.8 per cent in November, a decrease of 0.2 percentage points from October. This is the second consecutive slowdown in the annual rate of inflation, continuing what is expected to be a protracted downward trend. Difficult times are set to continue for British households, as economic fallout from the on-going debt crisis in the Eurozone takes its toll on employment and wage growth prospects in the UK. With high unemployment set to rise further as deeper than anticipated public sector cutbacks outweigh job creation in the private sector, household spending power is likely to be held back by slow earnings growth. The rising cost of living is expected to slow further in the coming months, taking some pressure off, but household budgets are likely to be constrained for some time to come. Asda family spending power down 8.4 per cent year on year in November 15 a week less Charles Davis Head of Macroeconomics, Cebr 3 Centre for Economics and Business Research 2011
Constructing the Asda Income Tracker Total household income 732 per week - e.g.. national insurance contributions, income tax Taxes = Net income 597 per week e.g.. wages, investment income, pensions, social security, self employment earnings 135 per week i.e. take home pay Net income 597 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 161 per week i.e. take home pay 436 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 2011
Dashboard Asda Income Tracker Dashboard: November Indicator Earnings Growth* (October) Unemployment* (October) Net income Mortgage costs Food Petrol Utilities Essential item inflation Family spending power Annual percentage change 1.8% (excl. bonuses) 8.3% 2.0% 1.8% 4.0% 12.3% 9.2% 5.0% -8.4% Latest trend KEY IMPROVEMENT NO SIGNIFICANT CHANGE DETERIORATION * 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 2011
Declines on the Asda Income Tracker level off Trends The Asda Income Tracker was 15 lower in November 2011 than a year before, as real income erosions stabilise Discretionary incomes are now 8.4 per cent lower than twelve months ago. Gross incomes (excluding bonuses) rose by 2.0 percentage points over the year to November 2011. Annual growth in the cost of essential items decreased to 5.0 per cent in November. This is the second consecutive slowdown in the rising cost of living and reverses the trend over much of the past twelve months of increases in the pace of essential spending growth. Year-on-year change in Asda income tracker 25 20 15 10 5 0-5 - 10-15 Once the impact of bonus payments is included, family spending power dropped over the period by 14 a decline of 7.0 per cent. - 20 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 6 Centre for Economics and Business Research 2011
Declines on the Asda Income Tracker level off The Asda Income Tracker was 15 lower in November 2011 than a year before, as real income erosions stabilise Annual consumer price inflation dropped back in November 2011 to 4.8 per cent, down from 5.0 per cent the previous month the second consecutive slowdown in the headline rate. 25 20 15 10 Year-on-year change in Asda income tracker Trends Weak employment conditions continue to put pressure on family spending power. The unemployment rate remains elevated at 8.3 per cent during the quarter to October, and although regular wage growth (excluding bonuses) rose marginally to 1.8 per cent from the previous reading of 1.7 per cent, real incomes continue to be eroded by the rising cost of living. Official forecasts indicate that the public sector is likely to lay off more workers than previously anticipated, and the Office for Budget Responsibility s (OBR) official forecasts suggest that unemployment will rise from its current 8.3 per cent level to 8.7 per cent in 2012. 5 0-5 - 10-15 - 20 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 7 Centre for Economics and Business Research 2011
Inflationary pressures ease slightly again Cost of living Annual CPI inflation slowed to 4.8 per cent in November, down from 5.0 per cent in October. Inflationary pressures continued to fall back in November, as annual growth on the consumer price index (CPI) slowed to 4.8 per in November. Although the headline inflation rate remains much higher than the Bank of England s central target rate of 2.0 per cent, inflation is likely to continue to slow as the effect of previous import price rises and of the January 2010 VAT rate hike fall out of the annual rate. 25% 20% 15% 10% 5% 0% Inflation of selected goods, annual change to November 2011 Price growth on the broader Retail Price Index (RPI) also dropped back in November, with inflation down to 5.2 per cent from October s 5.4 per cent. Slowing inflation provides further reason for the Bank of England to extend its quantitative easing program in an effort to prop up the fragile UK economy. -5% Recreation & culture Clothing & footwear Health Food & non-alc. drink Restaurants & hotels Communication Furniture & household goods Education Transport Housing & household services Alcohol & tobacco Electricity Gas 8 Centre for Economics and Business Research 2011
Slowing food price growth helps bring down inflation rate Cost of living The main factors putting pressure on family discretionary income in November were: The cost of utilities continue to be the largest contributor to upward pressure on the inflation rate, as electricity and gas prices rose by 15.5 per cent and 25.3 per cent respectively. All of the big six power companies have now completed their planned tariff increases. As global oil prices remain persistently around the $110 mark, the cost of transport is another key factor keeping the annual inflation rate elevated. 25% 20% 15% 10% 5% 0% Inflation of selected goods, annual change to November 2011 Indeed, petrol prices increased over the year to November by 12.3 per cent according to the AA, and diesel prices grew by 14.6 per cent. London currently has the highest petrol prices, while Yorkshire & Humber have the lowest. This month, a downward effect on inflation came from food prices, which grew more slowly in November than the same time last year as the impact of sales activity and the results of good harvests take effect. -5% Recreation & culture Clothing & footwear Health Food & non-alc. drink Restaurants & hotels Communication Furniture & household goods Education Transport Housing & household services Alcohol & tobacco Electricity Gas 9 Centre for Economics and Business Research 2011
UK labour market conditions remain fragile Unemployment rate remains stubbornly at high rate of 8.3 per cent The official ILO measure of unemployment for the three months to October 2011 highlighted on-going tough conditions in the labour market, remaining at 8.3 per cent for the second consecutive month. Public sector employment fell by 67,000 in the third quarter of 2011, its lowest since September 2003. Within this figure, 59,000 jobs were lost from local government while 2,000 jobs were cut at central government. The OBR s official forecasts suggest that a total of 710,000 public sector jobs will be lost by 2017, highlighting how conditions in the UK labour market are likely to remain tough for the next few years. The private sector has by far been unable to make up for these public sector employment cutbacks, as private companies increased headcount by just 5,000 over the same period. 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Oct-05 UK unemployment rate (LHS), per cent and 3-month annual growth in regular pay (RHS), per cent Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Unemployment rate Apr-09 Oct-09 Apr-10 Oct-10 Earnings growth Apr-11 Net income Oct-11 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 10 Centre for Economics and Business Research 2011
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 11 Centre for Economics and Business Research 2011
Monthly Asda Income Tracker Figure 1: Asda income tracker and year on year change (excluding bonuses) Asda income tracker tables 190 185 180 175 170 165 160 155 15% 10% 5% 0% -5% -10% 150-15% Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Asda income tracker (LHS) Asda income tracker annual change (RHS) 12 Centre for Economics and Business Research 2011
Monthly Asda Income Tracker Figure 2: Comparison of year on year change in Asda income tracker including and excluding bonuses 20 18 16 14 12 10 8 6 4 2 0-2 - 4-6 - 8-10 - 12-14 - 16 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 Asda income tracker tables May-11 Aug-11 Nov-11 Asda income tracker including bonuses Asda income tracker excluding bonuses 13 Centre for Economics and Business Research 2011
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 2007 163 January 2008 170 January 2009 184 January 2010 182 January 2011 175 February 2007 162 February 2008 169 February 2009 182 February 2010 181 February 2011 171 March 2007 161 March 2008 170 March 2009 184 March 2010 182 March 2011 172 April 2007 162 April 2008 170 April 2009 184 April 2010 180 April 2011 167 May 2007 162 May 2008 169 May 2009 183 May 2010 179 May 2011 167 June 2007 161 June 2008 166 June 2009 182 June 2010 176 June 2011 165 July 2007 166 July 2008 165 July 2009 183 July 2010 177 July 2011 164 August 2007 165 August 2008 162 August 2009 180 August 2010 176 August 2011 162 September 2007 166 September 2008 161 September 2009 181 September 2010 178 September 2011 162 October 2007 166 October 2008 162 October 2009 180 October 2010 177 October 2011 162 November 2007 166 November 2008 166 November 2009 180 November 2010 176 November 2011 161 December 2007 165 December 2008 175 December 2009 180 December 2010 172 14 Centre for Economics and Business Research 2011
Methodology Methodology We use official data to provide an up to date and accurate measure of spending power. From April 2010, the income tracker is based on updated official base data on family expenditure and income from the Office for National Statistics Family Spending 2009 survey; making it not directly comparable with previous versions but up to date as possible with the latest data. In the latest version of the income tracker, we have improved how we account for changes in unemployment using the latest official data on Claimant Count and Labour Force Survey unemployment. A full methodology is available on request. The Asda income tracker indicators are calculated from the following equations: Total household income minus taxes equals net income Net income minus basic spend equals Asda income tracker 15 Centre for Economics and Business Research 2011
Methodology Methodology These components are based on official statistics and Cebr calculations. Total household income for the United Kingdom is derived from the Family Spending Survey 2008 (released 2010). 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 of 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. The average amount of tax paid for 2006 is calculated using the latest version of the Family Spending Survey. This is updated on a monthly basis using National Accounts and Public Financial Accounts. We forecast one month forward using our macroeconomic model for the United Kingdom. 16 Centre for Economics and Business Research 2011
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 subtracted from our net income figures to create our Asda income tracker indicator. Basic spend items are listed in the appendix. The Asda income tracker is the amount remaining after the average UK household has had taxes subtracted from income and bought their essential items, such as groceries, electricity, gas, transport costs and mortgage interest payments. The income tracker measures the amount left over to spend on leisure and recreation goods and services; these are listed in the appendix. 17 Centre for Economics and Business Research 2011
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, Charles Davis and Scott Corfe. 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, December 2011 18 Centre for Economics and Business Research 2011