Report: August 2015 Released: September 2015

Asda Income Tracker Report: August 2015 Released: September 2015

© Centre for Economics and Business Research 2015

Making Business Sense

Centre for Economics and Business Research ltd Unit 1, 4 Bath Street, London EC1V 9DX t 020 7324 2850 w www.cebr.com

Asda Income Tracker

Contents Introduction Headlines Constructing the Income Tracker Dashboard Income Tracker trends Cost of living Labour market Contact Data charts & tables Method update Method notes Disclaimer

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03 04 05 06 07 09 11 12 13 17 18 20

Introduction “The economy continues to go from strength to strength and stability in the wider economy remains the key driver behind an increase in disposable income across the UK. Since the economic collapse there has been a shift in behaviour around spending versus saving and even though we’ve seen family’s spending power rise, households are choosing to save more money for a rainy day. Events such as this year’s Rugby World Cup provide economies with a shot in the arm and supporters visiting from across the world will be pleased to see that a fall in the rate of inflation across travel, hotel, sports equipment and restaurant are all contributing to an increase in disposable income.” Andy Clarke Asda President and CEO

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Asda Income Tracker

Headlines

Headlines – Asda Income Tracker The average UK household had £191 a week of discretionary income in August 2015, up by £18 a week on the same month a year before. Following a couple of months of weak labour market data, employment growth has returned in recent months and unemployment fell back to 5.5% in the three months to July. In contrast with recent months, the improvements in employment helped to boost the rate of discretionary income growth in August. However, the main drivers of recent growth in household spending power remain the low level of inflation, which dipped back to zero in August, and faster wage growth. “In the wake of the global headwinds emanating from the slowdown in the Chinese economy, further evidence of strong growth in family spending power is welcome news for the UK economy.” “Even though Christmas is fast approaching, with wages rising at rates well above inflation, households are in a great position to enjoy the Autumn months and events such as the Rugby World Cup. ” Sam Alderson, Economist, Cebr

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Family spending power was up by £18 a week year on year in August (an 10.7% annual increase)

Constructing the Asda Income Tracker Total household income £739 per week

e.g. national insurance contributions, income tax

-

e.g. wages, investment income, pensions, social security, self employment earnings

Net income £622 per week i.e. take home pay

5

= Taxes £117 per week

e.g. food, clothing, housing costs, bills, transport, communication costs, health, children’s schooling, house maintenance and repair

-

Cost of living = £431 per week


Net income £622 per week i.e. take home pay

Average family spending power £191 per week e.g. holidays, cinema, theatre, eating out, toys, sports, savings, jewellery, national lottery and other gambling payments, computer software and games

Model

Asda Income Tracker Dashboard: August Indicator Regular earnings growth (July)

+2.9% (excl. bonuses)

Employment growth (July)

+1.3% (+413,000 employment on year)

Unemployment rate (July)

5.5% (-0.6% points on year)

Net income

+3.2%

Mortgage costs

-0.9%

Food & non-alcoholic drinks

-2.4%

Vehicle fuels

-12.9%

Home electricity, gas & fuel

-3.5%

Essential item inflation

-0.3%

Family spending power

+10.7%

KEY

IMPROVING TREND

* three-month average, to month stated 6

Annual percentage change

NO SIGNIFICANT CHANGE IN TREND

DETERIORATING TREND

**unemployment rate for three months to month stated


Dashboard

Recent trend

Income Tracker Trends

Tenth consecutive month of double-digit increases in spending power The Asda Income Tracker was £18 a week higher in August 2015 than a year before £25 £20

• August continued the trend of double digit increases in the income tracker. Households have seen year-on-year increases in spending power for 10 consecutive months, the strongest performance since 2009, when families benefitted from the sharp falls in interest rates.

£15

• This latest period of household spending growth has been heavily driven by the sharp fall in inflation from the latter months of last year. Headline consumer price inflation has now stood at near-zero levels for seven consecutive months.

£0

• A sharp upturn in wage growth has also been a key factor in the pick-up in discretionary income growth. In the three months to August, regular earnings growth hit its highest level since the three months to January 2009.

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£30


£10 £5

-£5 -£10 -£15

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 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15

• In August 2015, average household discretionary incomes excluding bonuses were 10.7% higher than the same month in 2014. This represents the 23rd consecutive month of annual growth in the income tracker.

Year-on-year change in Asda income tracker, £

Income Tracker Trends

Rising wage growth and falling inflation provide further boost to spending power

Contributions to annual change in the Income Tracker (excluding bonuses), August 2015

The Asda Income Tracker was £18 a week higher in August 2015 than a year before • The average UK household had £191 a week of discretionary income in August 2015, up from £173 at the same point a year ago.

Net Income

• Households experienced a 3.2% rise in net income in the 12 months to August. • The combination of faster wage growth, rising employment and increases in the income tax free personal allowance have all contributed to the robust rate of growth in net incomes • Spending power has also been supported by the falling price of essential items, particularly food, fuel and energy prices. With the Bank of England maintaining the base rate at historic lows, households are also benefitting from the continued low levels of interest rates on mortgages and loans.

Essential spending

Income Tracker

-£5

8


£0

£5

£10

£15

£20

£25

Cost of living

UK inflation dips back to zero in August Essential item inflation remains negative and falls further below zero • The UK fell back into ‘noflation’ as headline consumer price inflation dropped to 0.0% in August, down from the 0.1% recorded in July.

6%

• This continues the trend of the previous six months when inflation had been at or around zero.

4%

• However, the currently weakness in inflation largely reflects falls in the prices of food and motor fuels. These have reduced the annual rate of consumer price inflation by approximately 0.7 percentage points in August.

2%


3% 1% 0% -1% -2%

CPI

Essential item

Aug-15

Feb-15

Aug-14

Feb-14

Aug-13

Feb-13

Aug-12

Feb-12

Aug-11

Feb-11

-4%

Aug-10

-3%

Feb-10

• Annual essential item inflation also fell back in August, standing at -0.3% compared with -0.2% in July.

5%

Aug-09

• It is likely that inflation will rise in the final few months of this year as the effects of sharp falls in the prices of these goods at the same time in 2014 fall out of the annual comparison.

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Annual inflation on the consumer price index (CPI), and essential item annual inflation

The prices of food and drink fall once again in July The main factors affecting family costs in August were: • The largest downward contribution to the fall in the rate of inflation came from transport. The price of motor fuels provided the main source of downward pressure, with diesel prices falling by 6.2 pence per litre and petrol by 2.4 pence per litre between July and August. • Prices for recreation and culture fell by 0.4% between July and August and remain lower than they were a year ago. The latest downward movements were seen across a range of items, most notably the prices of books and cultural services fell in August. • While falling prices for food and motor fuels remain the key drivers of the weak inflation seen through the year, a range of products have seen prices decline on an annual basis. For example, the cost of audio-visual equipment has fallen by 9.2% over the past year.

10 © Centre for Economics and Business Research 2015

Cost of living

Inflation of selected goods, annual change to August 2015

4% 2% 0% -2% -4% -6% -8% -10% -12% -14%

Labour Market

Return to employment growth halts temporary blip in the labour market The unemployment rate fell to 5.5% in the three months to July • Following two consecutive readings of 5.6 per cent, the rate of unemployment returned to 5.5 per cent in the three months to July. • The fall in the rate of unemployment in the latest reading was supported by a pick-up in employment growth in recent months, which had briefly turned negative. However, while employment is growing, it is growing at slower rates than those seen a year ago, reflecting the tighter labour market.

UK unemployment rate (LHS), per cent and 3-month annual growth in regular pay (RHS), per cent

9%

5.0%

8%

4.5%

7%

4.0%

5.5%

3.5%

6%

3.0%

5%

2.9%

2.5%

4%

2.0%

3%

1.5%

Unemployment rate (LHS)


Jul-15

Jan-15

Jul-14

Jan-14

Jul-13

Jan-13

Jul-12

Jan-12

0.0%

Jul-11

0%

Jan-11

• Regular earnings rose by 2.9% year-on-year on average in the three months to July. This represents a sharp improvement from the 0.8% growth recorded in the same period in 2014 and the highest level in over six years.

Jul-10

0.5%

Jan-10

1%

Jul-09

1.0%

Jan-09

2%

Jul-08

• One upside of the reduction in labour market slack is the strong upturn in wage growth seen over the past year.

Regular earnings growth (RHS)

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 press enquiries please contact: Andrew Devoy, Asda PR Manager, [email protected] ; 0113 826 4823 Amy Garbutt, Asda PR Manager, [email protected] ; 0113 826 3369 For data enquiries please contact: Sam Alderson, Cebr Economist, [email protected] ; 020 7324 2874 Rob Harbron, Cebr Managing Economist, [email protected] ; 020 7324 2864


Asda Income Tracker tables

Monthly Asda Income Tracker Figure 1: Asda Income Tracker and year-on-year change (excluding bonuses)

Asda Income Tracker (LHS)


Aug-15

Apr-15

Dec-14

Aug-14

-15%

Apr-14

£130

Dec-13

-10%

Aug-13

£140

Apr-13

-5%

Dec-12

£150

Aug-12

0%

Apr-12

£160

Dec-11

5%

Aug-11

£170

Apr-11

10%

Dec-10

£180

Aug-10

15%

Apr-10

£190

Dec-09

20%

Aug-09

£200

Asda Income Tracker annual % change (RHS)


Monthly Asda Income Tracker

Figure 2: Comparison of year-on-year change in Asda Income Tracker including and excluding bonuses £30 £25 £20 £15 £10 £5 £0 -£5

Asda Income Tracker including Bonuses


Asda Income Tracker excluding Bonuses

Aug-15

May-15

Feb-15

Nov-14

Aug-14

May-14

Feb-14

Nov-13

Aug-13

May-13

Feb-13

Nov-12

Aug-12

May-12

Feb-12

Nov-11

Aug-11

May-11

Feb-11

Nov-10

Aug-10

May-10

Feb-10

Nov-09

-£15

Aug-09

-£10


Monthly Asda Income Tracker Figure 3: Twelve-month moving average of Income Tracker (excl. bonuses) level £190 £180 £170 £160 £150


Aug-15

May-15

Feb-15

Nov-14

Aug-14

May-14

Feb-14

Nov-13

Aug-13

May-13

Feb-13

Nov-12

Aug-12

May-12

Feb-12

Nov-11

Aug-11

May-11

Feb-11

Nov-10

Aug-10

May-10

Feb-10

Nov-09

£130

Aug-09

£140


Monthly Asda Income Tracker

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 2011

£172

January 2012

£164

January 2013

£166

January 2014

£169

January 2015

£185

February 2011

£169

February 2012

£163

February 2013

£163

February 2014

£169

February 2015

£184

March 2011

£169

March 2012

£163

March 2013

£162

March 2014

£168

March 2015

£186

April 2011

£166

April 2012

£165

April 2013

£167

April 2014

£170

April 2015

£187

May 2011

£166

May 2012

£168

May 2013

£167

May 2014

£171

May 2015

£188

June 2011

£166

June 2012

£169

June 2013

£169

June 2014

£171

June 2015

£189

July 2011

£166

July 2012

£170

July 2013

£168

July 2014

£173

July 2015

£191

August 2011

£163

August 2012

£169

August 2013

£166

August 2014

£173

August 2015

£191

September 2011 October 2011

November 2011

December 2011 2011 Average

£161 £162 £162

£161 £165


November 2012


£168 £166 £167

£164 £166



November 2013


£166 £168 £167

£165 £166


November 2014


£174 £176 £179

£180 £173

Method update note From March 2014, the base data from which the Asda Income Tracker is derived have been updated. This is to account for the latest release from the Office for National Statistics of the Living Costs and Food Survey: 2013 edition. This release gives the detailed data required to compute the spending and income figures for the average UK household that feed into the overall discretionary income result. These updates are conducted on an annual basis, in line with the release of the necessary datasets. This update is required to continue to keep the Income Tracker as relevant as possible, with the most up-to-date data available. The update makes the latest vintage of the Income Tracker report and associated datasets not directly comparable with previous editions. However, the new time series data now available (e.g. in the tables and charts pages) provide the most complete estimates and should be used for any time series analysis.


Method notes

Method notes The Asda income tracker is calculated from the following equations:

•  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 2012 (released December 2013). 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. 18 © Centre for Economics and Business Research 2015

Method notes

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. 19 © Centre for Economics and Business Research 2015

Method notes

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 Sam Alderson and Rob Harbron. 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, September 2015


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