Report: March 2016 Released: April 2016

Asda Income Tracker Report: March 2016 Released: April 2016

© 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 Regional trends Contact Data charts & tables Method notes Disclaimer

2 © Centre for Economics and Business Research 2015

03 04 05 06 07 09 11 12 16 17 22 24

Introduction “The sustained rise in discretionary income gives family finances a welcome boost ahead of the summer months. While inflation has slightly increased in recent months, low overall interest rates continue to be good news for consumers.” “The outlook remains cautiously positive, despite a slow-down in wage growth across the country as a whole, which really can be seen on a regional level where we are already noticing an increase in household income. Wage levels in Wales in particular are extremely encouraging, while discretionary income in Northern Ireland has reached a milestone of £100 – a promising figure. This represents a number of positive indicators which should give British families confidence for the coming months.” Asda Spokesperson


Asda Income Tracker

Headlines

Headlines – Asda Income Tracker The average UK household had £198 a week of discretionary income in March 2016, up by £12 a week on the same month a year before. The gradual rise in inflation in recent months has weighed on the rate of increase in family spending power in each region of the UK since the turn of the year. However, growth across the board remains robust with the smallest rise equating to an additional £6 per week and, in nine of the 13 regions, annual growth in cash terms remains in double digits.

“While increases in inflation in recent months have weighed on growth rates, households across the country continued to benefit from robust annual increases in spending power in March. ” “While assembly elections and the upcoming referendum on EU membership provide an uncertain background for consumers, the low levels of essential item inflation and growing discretionary incomes should continue to provide support to both consumer spending and overall economic growth.” Sam Alderson, Economist, Cebr


Family spending power was up by £12 a week year on year in March (a 6.3% annual increase)

Constructing the Asda Income Tracker Total household income £747 per week

e.g. national insurance contributions, income tax

-

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

Net income £628 per week i.e. take home pay

= Taxes £119 per week

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

-

Cost of living = £430 per week


Net income £628 per week i.e. take home pay

Average family spending power £198 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: March Indicator

Annual percentage change

Regular earnings growth (Feb)

+2.2% (excl. bonuses)

Employment growth (Feb)

+1.2% (+360,000 employment on year)

Unemployment rate (Feb)

5.1% (-0.5% points on year)

Net income

+2.3%

Mortgage costs

-1.6%

Food & non-alcoholic drinks

-2.7%

Vehicle fuels

-9.2%

Home electricity, gas & fuel

-3.7%

Essential item inflation

+0.1%

Family spending power

+6.3%

KEY

IMPROVING TREND

* three-month average, to month stated

NO SIGNIFICANT CHANGE IN TREND

DETERIORATING TREND

**unemployment rate for three months to month stated


Dashboard

Recent trend

Annual increase in spending power continues to slow The Asda Income Tracker was £12 a week higher in March 2016 than a year before

• In pound terms, annual growth remained in double digits, the 17th consecutive month that spending power growth has stood above £10 per week. • The steady pick-up in inflation since the latter months of 2015 has placed downward pressure on spending power growth. • Similarly, after a short period of relatively healthy growth around the middle of 2015, the rate of increase of earnings has fallen back. • Still, earnings growth continues to outstrip inflation and, with employment continuing to rise, spending power has grown further since the beginning of the year.


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

£30 £25 £20 £15 £10 £5 £0 -£5 -£10 -£15

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 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15

• In March 2016, average household discretionary incomes excluding bonuses were 6.3% higher than the same month in 2015. This represents a slight fall from the rate recorded in February and matches that seen in January.

Income Tracker Trends

Income Tracker Trends

Slowing wage growth provides largest drag on discretionary income growth

Contributions to annual change in the Income Tracker (excluding bonuses), March 2016

The Asda Income Tracker was £12 a week higher in March 2016 than a year before • The average UK household had £198 a week of discretionary income in March 2016, up from £186 at the same point a year ago.

Net Income

• After recovering in February, year-on-year net income growth slowed slightly once again in the latest reading, standing at 2.3%. • With the overall price of essential items beginning to rise on an annual basis, increased costs are having a more notable impact on discretionary incomes. • Given that total pay growth fell below 2% in the latest reading, spending power including the effect of bonus payments has also seen the pace of growth slow. The annual rate including bonuses stood at 4.9%, down from the 5.8% recorded in February.


Essential spending

Income Tracker

-£5

£0

£5

£10

£15

£20

Earlier Easter holidays help inflation jump up in March Essential item inflation ticks into positive territory

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

6% 5%

• The latest data represent the highest rate of headline inflation since December 2014. However, headline inflation was pushed upwards in the latest month by the seasonal effects of this year’s early Easter on the price of goods and services such as air fares.

4%

• Still, despite rising, inflation remains well below the Bank of England’s central 2% target and, given the scale of falls in commodity prices, headline inflation is projected to remain below 1% through 2016 in the Bank’s latest quarterly inflation report.

0%


2% 1% -1% -2%

CPI

Essential item

Mar-16

Sep-15

Mar-15

Sep-14

Mar-14

Sep-13

Mar-13

Sep-12

Mar-12

Sep-11

Mar-11

Sep-10

-4%

Mar-10

-3%

Sep-09

• In line with the headline rate, annual essential item inflation also rose in March, standing at 0.1% compared with 0.0% in February. This marks the first time since the end of 2014 that this measure has stood above zero.

3%

Mar-09

• Annual consumer price inflation rose to 0.5% in March, up from the 0.3% recorded in the previous two readings.

Cost of living

Seasonal fare increases provide the main pressure on inflation The main factors affecting family costs in March were: • Transport costs were a main contributor to the rise in inflation in March. While there was a downward effect from fuel, the price of air and train travel rose sharply as fares rose for the Easter break. • The price of clothing and footwear also placed upward pressure on inflation in March. Prices of these goods rose by 1% between February and March compared with a slight fall at the same time in 2015.

Inflation of selected goods, annual change to March 2016

4% 2% 0% -2% -4% -6% -8%

• Elsewhere the prices in restaurants and cafés rose more sharply than they did a year ago. Average price levels stood 1.9% higher than at the same time a year ago. • In contrast with these upward pressures, the price of groceries continued to fall, down 0.6% between February and March. The drop came across a variety of product groups though most notably was seen in the price of vegetables.


Cost of living

-10% -12%

Labour Market

Wage growth remains steady despite upcoming introduction of NLW Rate of unemployment remains steady for the third consecutive reading


7%

3.5%

5.1%

6%

3.0%

5%

2.5%

4%

2.0%

3%

1.5% 2.2%

2%

1.0%

Unemployment rate (LHS)

Feb-16

Aug-15

Feb-15

Aug-14

Feb-14

Aug-13

Feb-13

0.0%

Aug-12

0%

Feb-12

0.5%

Aug-11

1%

Feb-11

• With inflation beginning to pick-up steadily and the formal introduction of the National Living Wage (NLW) fast approaching, wage growth is expected to rise once again in the coming months.

4.0%

Aug-10

• The extended period of very low inflation has contributed to this by reducing expectations for price growth, which in turn feeds through to wage negotiations.

8%

Feb-10

• Despite the labour market being as tight as it has been for years, wage growth is still failing to notably pick up. Regular pay growth in the three months to February stood at 2.2%, unchanged from the previous reading.

4.5%

Aug-09

• The employment rate over the same period stood at 74.1%, its highest level on record.

9%

Feb-09

• The rate of unemployment in the UK remained steady at 5.1% in the three months to February, unchanged for the third consecutive reading.

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

Regular earnings growth (RHS)

East continues to lead regions for gross income growth

Regional Trends

North East slips to bottom of the table • While the UK as a whole saw household gross income growth slow between the final quarter of last year and Q1 2016, not all regions experienced a slowdown in this indicator.

Regional gross income, annual change to quarter indicated

4.0% 3.5% 3.0%

• The East of England once again came out as the region where incomes were rising at the fastest rate. The East of England, Wales and the West Midlands were all boosted by falling rates of unemployment since the turn of the year. This is in contrast to most regions, which have seen the rate of unemployment either hold steady or rise. • While London saw gross income growth accelerate slightly, it, alongside a number of other regions, remains below the UK average.

2.5% 2.0% 1.5% 1.0% 0.5% 0.0%

• The North East saw the slowest growth in gross incomes in the latest quarter. Over the past 12 months, the rate of unemployment in the region has risen as opposed to falling as seen across the UK as a whole.

Q4 2015 12 © Centre for Economics and Business Research 2015

Q1 2016

Regional Trends

Rising inflation weighs on spending power growth in each region Growth slows across all regions but many still see double-digit increases • While some regions saw income growth accelerate in the latest quarter, the general rise in essential item inflation has led to a slowdown in annual growth in spending power in each region of the UK. • Still, growth in cash terms remained above £10 per week in nine of the 13 regions. Overall, increases ranged from £6 per week in the North East to £19 a week in the East of England. • In line with income growth seen in the previous slide, the East of England and Wales were the fastest rising regions in terms of discretionary income growth – replacing Northern Ireland, where growth notably slipped in the latest quarter.

Asda Income Trackers by region, annual % change to quarter indicated and annual £ change to latest quarter

12% +£14 +£12

8% 6%

+£6

+£13

+£11

+£14 +£9

+£8

4% 2% 0%

• Scotland, the North East, London and Yorkshire & Humber all saw annual growth of less than 6% over the first quarter of the year taking them below the average for the UK as a whole.

Q4 2015


+£19

+£13

+£7

10%

Q1 2016

+£13

+£14

Discretionary incomes in Northern Ireland reach £100 East of England closes the gap with London once again • Despite remaining at the bottom of the table, Northern Ireland continued to catch up with the North East of England in the latest quarter. Additionally, the average household saw spending power rise to £100 per week in Q1 2016. • While households in London once again experienced one of the slower rates of spending power growth, the average household discretionary income across the capital (£266) remains well-above other UK regions. • However, the strong growth seen in the East of England over the last year has seen the gap with London narrow on an annual basis for the second consecutive quarter.

Average household discretionary income by region, £ per week in quarter indicated

£300 £250 £200 £150 £100 £50 £0

Q1 2015


Regional Trends

Q1 2016

Regional Trends

Focus on Scotland and Northern Ireland

• Growth in average discretionary incomes in Scotland slowed slightly in Q1 2016, down to 4.4% year-on-year. • Growth has been held back by the sluggish labour market in the country. The rate of unemployment in Scotland in the three months to February was actually 0.1 percentage points higher than at the same time a year earlier. Scotland is one of just a few regions that saw the rate of unemployment rise over the past 12 months. • In addition to a laggard labour market, the typical price of essential household purchases for households in Scotland has stopped falling on an annual basis, placing more downward pressure on spending power growth.


Annual % change in discretionary incomes, Northern Ireland 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0%

Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015

15.0% 10.0% 5.0% 0.0% -5.0%

Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016

Annual % change in discretionary incomes, Scotland

• Unlike recent quarters, Northern Ireland did not experience the strongest year on year growth in discretionary income of all parts of the UK in Q1 2016. • Instead annual growth slipped further to 7.2% or £7 per week. • The slowing largely reflects the increase in inflation in recent months, though continued weakness in the labour market is also a constraint to spending power growth. • Still, households in Northern Ireland have continued to make up ground to those in the North East and average spending power surpassed £100 per week in the latest quarter.

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: Jennifer Devlin, Asda Media Relations Manager, [email protected] ; 0113 826 4823 For data enquiries please contact: Sam Alderson, Cebr Economist, [email protected] ; 020 7324 2874


Asda Income Tracker tables

Monthly Asda Income Tracker Figure 1: Asda Income Tracker and year-on-year change (excluding bonuses) £210

20%

£200

15%

£190

10%

£180

5%

£170 0%

£160

-5%

£150

Asda Income Tracker (LHS)


Mar-16

Nov-15

Jul-15

Mar-15

Nov-14

Jul-14

Mar-14

Nov-13

Jul-13

Mar-13

Nov-12

Jul-12

Mar-12

Nov-11

Jul-11

Mar-11

-15%

Nov-10

£130

Jul-10

-10%

Mar-10

£140

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

Mar-16

Dec-15

Sep-15

Jun-15

Mar-15

Dec-14

Sep-14

Jun-14

Mar-14

Dec-13

Sep-13

Jun-13

Mar-13

Dec-12

Sep-12

Jun-12

Mar-12

Dec-11

Sep-11

Jun-11

Mar-11

Dec-10

Sep-10

Jun-10

-£15

Mar-10

-£10


Monthly Asda Income Tracker Figure 3: Twelve-month moving average of Income Tracker (excl. bonuses) level £200 £190 £180 £170 £160 £150


Mar-16

Dec-15

Sep-15

Jun-15

Mar-15

Dec-14

Sep-14

Jun-14

Mar-14

Dec-13

Sep-13

Jun-13

Mar-13

Dec-12

Sep-12

Jun-12

Mar-12

Dec-11

Sep-11

Jun-11

Mar-11

Dec-10

Sep-10

Jun-10

£130

Mar-10

£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 2012

£164

January 2013

£166

January 2014

£170

January 2015

£185

January 2016

£197

February 2012

£163

February 2013

£163

February 2014

£169

February 2015

£185

February 2016

£198

March 2012

£163

March 2013

£162

March 2014

£168

March 2015

£186

April 2012

£165

April 2013

£167

April 2014

£170

April 2015

£188

May 2012

£168

May 2013

£167

May 2014

£171

May 2015

£188

June 2012

£169

June 2013

£169

June 2014

£171

June 2015

£189

July 2012

£170

July 2013

£168

July 2014

£173

July 2015

£191

August 2012

£170

August 2013

£166

August 2014

£172

August 2015

£191

September 2012 October 2012

November 2012

December 2012 2012 Average

£168 £166 £167

£164 £166


November 2013


£166 £167 £167

£166 £166



November 2014


£174 £176 £179

£181 £173


November 2015


£192 £193 £193

£193 £190

Quarterly ASDA Income Tracker


Table 2: Average household Income Tracker, £ per week, current prices, excluding bonuses

Region

Q1 2014

Q1 2015

Q1 2016

Northern Ireland

80

93

100

North East

108

123

129

West Midlands

144

160

173

Yorkshire & Humber

147

164

173

Wales

150

163

177

East Midlands

150

167

178

North West

148

165

178

South West

153

170

183

Scotland

173

187

195

South East

180

199

213

East

190

207

226

London

229

252

266


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. 22 © 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. 23 © 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 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, April 2016


Disclaimer