Asda Income Trackeryour.asda.com/system/dragonfly/production/2015/11/30/13...© Centre for Economics and Business Research 2015 Constructing the Asda Income Tracker Model Total household

© Centre for Economics and Business Research 2015

Asda Income Tracker Report: October 2015 Released: November 2015

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

M a k i n g B u s i n e s s S e n s e


Contents Introduction 03 Headlines 04 Constructing the Income Tracker 05 Dashboard 06 Income Tracker trends 07 Cost of living 09 Labour market 11 Contact 12 Data charts & tables 13 Method update 17 Method notes 18 Disclaimer 20

Asda Income Tracker

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“Christmas is a time of year when budgets are under the most scrutiny, which is why I’m pleased to see another strong rise in discretionary income and an easing of pressure on family finances. But what I’m hearing from my customers is a different story, discretionary income is on the rise but spending habits have changed – any extra money on the family account balance sheet is being saved and three quarters of people are planning to spend the same or less than did last Christmas.”

Introduction Asda Income Tracker

Andy Clarke Asda President and CEO

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Headlines – Asda Income Tracker The average UK household had £193 a week of discretionary income in October 2015, up by £17 a week on the same month a year before. Despite a slight slowdown in regular pay growth, increases in family spending power have remained strong thanks to further falls in unemployment and continued deflation in the cost of essential items. Inflation should pick up in the coming months as last year’s falls in vehicle fuels drop out of the headline comparison. However, the Bank of England’s latest forecasts suggest that price growth will remain below 1% for much of 2016. This is likely to help further support discretionary incomes in the coming year.

Headlines

“Consumer confidence remains elevated, supported by factors such as rising incomes and improved job security. However, while the strong growth in spending power over the past year has considerably eased some pressures, many households remain cautious about the overall state of their finances and will be careful not to overextend themselves this Christmas.” Sam Alderson, Economist, Cebr

Family spending

power was up by £17 a week year on year in October

(an 9.6% annual

increase)

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Constructing the Asda Income Tracker

Total household income £741 per week e.g. wages, investment income, pensions, social security, self employment earnings

e.g. national insurance contributions, income tax

e.g. holidays, cinema, theatre, eating out, toys, sports, savings, jewellery, national lottery and other gambling payments, computer software and games

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

i.e. take home pay

i.e. take home pay

Taxes £118 per week

= - Net income

£623 per week

Cost of living £430 per week

= - Net income £623 per week

Average family spending power

£193 per week

Model

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Asda Income Tracker Dashboard: October Annual percentage change Indicator

+2.5% (excl. bonuses) Regular earnings growth (Q3)

5.3% (-0.7% points on year) Unemployment rate (Q3)

Recent trend

+2.8% Net income

-1.2% Mortgage costs

-2.7% Food & non-alcoholic drinks

-14.0% Vehicle fuels

-4.1% Home electricity, gas & fuel

-0.4% Essential item inflation

+9.6% Family spending power KEY IMPROVING TREND NO SIGNIFICANT CHANGE IN TREND DETERIORATING TREND

Dashboard

+1.4% (+419,000 employment on year) Employment growth (Q3)

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Growth in spending power dips below 10% as wage growth slows slightly

• In October 2015, average household discretionary incomes excluding bonuses were 9.6% higher than the same month in 2014. The tracker has now risen on an annual basis for over two full years. • However, year-on-year growth in October stood at its lowest level since February – the last time the rate slipped below 10%. • While wage growth remains much stronger than it did a year ago, the upward trend has stalled and in fact growth in regular pay growth slowed in the third quarter of this year. • Still, households continue to enjoy large increases in spending power thanks to further increases in employment and low levels of inflation - consumer price inflation has stood at near-zero levels since February.

Income Tracker Trends

Year-on-year change in Asda income tracker, £ The Asda Income Tracker was £17 a week higher in October 2015 than a year before

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• The average UK household had £193 a week of discretionary income in October 2015, up from £176 at the same point a year ago. • Households experienced a 2.8% rise in net income in the 12 months to October. This is a slightly slower rate of growth than in recent months, largely reflecting more modest annual increases in earnings. • Still, wage growth remains well above the rate of inflation. In fact, the UK is now seeing the longest period of real wage growth since May 2008. • When compared with price changes across essential items, the gap between inflation and income growth is even more stark. The falling price of essential items such as food, fuel and energy prices are key drivers of the current spell of little/no price growth and means that inflation on essential items currently sits below the negative headline rate.

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

Deflation in cost of essential items continues to support spending power

-£5 £0 £5 £10 £15 £20

Income Tracker

Essential spending

Net Income

Income Tracker Trends

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The Asda Income Tracker was £17 a week higher in October 2015 than a year before


Inflation holds below zero in October

• Annual consumer price inflation remained negative in October at -0.1%, unchanged from the previous reading. This represents the ninth consecutive month that inflation has stood within 0.1 percentage point of the zero mark. • The Bank of England’s latest estimates suggest that roughly four fifths of the current weakness in inflation, relative to the target of 2%, is due to current falls in energy, food and other goods prices. • While further falls in Brent crude oil prices have weighed on prices at the pumps in recent months, motor fuels are likely to become less of a drag on inflation in the coming months as the steep declined witnessed at the end of 2014 begin to fall out of the annual comparison. • Annual essential item inflation held at its joint-lowest rate seen this year at -0.4% in October.

Cost of living

Essential item inflation also remains unchanged at -0.4%

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

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-4%

-3%

-2%

-1%

0%

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6%

Oct

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CPI Essential item


Cost of living

The main factors affecting family costs in October were: • Increases in the prices within the clothing & footwear and recreation & culture categories provided the largest upward contributions to the rate of inflation in October. • The price of clothing rose by 2% between September and October, the largest increase in these months since official records began. This continues the atypical price movements seen in the sector over the summer, with reports that retailers have changed their sales strategies. • Within the recreation and culture category, the main prices rose across a range of goods, most notably computer games and consoles. • However, while these movements placed upward pressure on inflation, the impact was offset by further falls in the price of food and drink. The cost of food is now 5.5% lower than the peak in February 2014, after declining for the past year and a half.

Inflation of selected goods, annual change to October 2015

-16%-14%-12%-10%-8%-6%-4%-2%0%2%4%

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Falling food prices keep inflation below zero


Labour Market

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

0.0%

0.5%

1.0%

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Unemployment rate (LHS) Regular earnings growth (RHS)

• The rate of unemployment in the UK continued on its downward trend, falling to 5.3% in the third quarter of 2015, down from the 5.6% recorded in Q2. • The number of people in employment increased by over 176,000 compared with the previous three month period, helping to bring down the level of unemployment and boost the income of the average household. • Not only has the number of jobs risen, the composition of employment as a whole has risen. The share of workers employed part-time because they could not find a full-time job, has continued to decline over the past year and now stands at 15.2% • However, despite continued job creation, regular pay growth slowed in the three months to September. Compared with the previous reading, growth dropped 0.3 percentage points to 2.5% - the lowest reading since the first quarter of this year.

In contrast, regular earnings growth dips to the lowest level since March

Further fall in unemployment through the third quarter

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5.3%

2.5%


Data and Method 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 For data enquiries please contact: Sam Alderson, Cebr Economist, [email protected] ; 020 7324 2874 Rob Harbron, Cebr Managing Economist, [email protected] ; 020 7324 2864

Appendix

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mailto:[email protected]




Monthly Asda Income Tracker Asda Income Tracker tables

Asda Income Tracker (LHS) Asda Income Tracker annual % change (RHS)

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

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Monthly Asda Income Tracker Figure 2: Comparison of year-on-year change in Asda Income Tracker including and excluding bonuses

Asda Income Tracker tables

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Asda Income Tracker including Bonuses Asda Income Tracker excluding Bonuses

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Monthly Asda Income Tracker Figure 3: Twelve-month moving average of Income Tracker (excl. bonuses) level


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Monthly Asda Income Tracker Month Income tracker Month Income tracker Month Income tracker Month Income tracker

Table 1: Average UK household Income Tracker, £ per week, current prices, excluding bonuses

Income tracker Month


January 2011 £172 January 2012 £164 January 2013 £166 January 2014 £170 January 2015 £185

February 2011 £170 February 2012 £163 February 2013 £163 February 2014 £169 February 2015 £185

March 2011 £170 March 2012 £163 March 2013 £162 March 2014 £168 March 2015 £186

April 2011 £167 April 2012 £165 April 2013 £167 April 2014 £170 April 2015 £188

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 £170 August 2013 £166 August 2014 £172 August 2015 £191

September 2011 £161 September 2012 £168 September 2013 £166 September 2014 £174 September 2015 £192

October 2011 £162 October 2012 £167 October 2013 £167 October 2014 £176 October 2015 £193

November 2011 £162 November 2012 £167 November 2013 £167 November 2014 £179

December 2011 £161 December 2012 £164 December 2013 £166 December 2014 £180

2011 Average £166 2012 Average £166 2013 Average £166 2014 Average £173

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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

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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.

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

Method notes

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Method notes

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.

These components are based on official statistics and Cebr calculations.

Method notes

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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, November 2015

Disclaimer

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Documents

Asda Income Trackeryour.asda.com/system/dragonfly/production/2015/11/30/13...© Centre for Economics and Business Research 2015 Constructing the Asda Income Tracker Model Total household