Asda Income Tracker

Report: April 2011 Released: May 2011

making business sense

Centre for Economics and Business Research ltd Unit 1, 4 Bath Street, London EC1V 9DX t 020 7324 2850 f 020 7324 2855 w www.cebr.com

Contents
Introduction Headlines Asda Income Tracker model Dashboard Income Tracker trends Cost of living Net income Appendix Asda Income Tracker tables Methodology Disclaimer 02 03 04 05 06 08 10 12 14 15 18

Asda Income Tracker

Introduction
Spending power has seen another significant fall this month which is adding further pressure on family budgets. We know that shoppers are being savvy and managing their finances by scratch-cooking and buying what they need, when they need it."

Asda Income Tracker

Andy Clarke Asda president and CEO

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Headlines Asda Income Tracker

The average UK household had 167 a week of discretionary income in April 2011, 7.1 per cent lower than a year earlier. The 13 a week fall compared to the same month a year earlier is the largest decline on record. Over the three months to March 2011 average earnings (excluding bonuses) rose by 2.1 per cent year-on-year. This is 1.9 percentage points lower than than the long-run average earnings growth of 4.0 per cent seen prior to the recession. Inflation on the consumer price index was at 4.5 per cent in April sharply up from 4.0 per cent in March - the highest rate of inflation since September 2008 and over double average earnings growth at present. This implies significant falls in household real incomes are taking place. While the Asda Income Tracker showed signs of stabilising in March, as falling food prices pushed down inflation, subsequent rises in transport and utilities prices have pushed the cost of living back upwards This is being compounded by lacklustre annual earnings growth, which is currently running at less than half the rate of inflation. Households are under significant financial duress at the moment and it looks like high inflation will keep up the squeeze throughout the year.
Charles Davis Managing Economist, Cebr

Headlines

Asda family spending power down 7.1 per cent in April year-on-year

13 a week less

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Constructing the Asda Income Tracker

Total household income 726 per week
e.g.. wages, investment income, pensions, social security, self employment earnings e.g.. national insurance contributions, income tax

= Taxes 134 per week

Net income 592 per week

i.e. take home pay

Net income 592 per week

i.e. take home pay

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

- Cost of living
425 per week

Average family spending power = 167 per week

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

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Asda Income Tracker Dashboard: Apr

Indicator Earnings Growth* (Mar) Unemployment* (Mar) Net income Mortgage costs Food Petrol Utilities Cost of living Family spending power
KEY IMPROVEMENT * three months to month stated Please note that the dashboard should be read in conjunction with the main body of the report

Dashboard

Annual percentage change 2.1% (excl. bonuses) 7.7% 2.1% 4.1% 4.4% 12.7% 4.4% 6.3% -7.1%
DETERIORATION

Latest trend

NO SIGNIFICANT CHANGE

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After stabilising in March spending decline steepens in April

The Asda Income Tracker was 13 lower in April 2011 than in April 2010 the largest annual fall on record.
The 7.1 per cent year-on-year decline is also the largest since records began in January 2007. Gross incomes (excluding bonuses) grew at an annual rate of 2.1 per cent in April, slightly down from the previous month and about half the typical annual growth seen prior to the 2009 recession. The annual rise in the cost of essential goods and services was 6.3 per cent in April 2011 the highest annual growth since September 2008. When the impact of bonus payments is included, family spending power decreased by 14 over the year to April, a fall of 6.7 per cent. Year-on-year change in Asda income tracker
25 20 15 10 5 0 -5 -10 -15

Trends

Apr-07

Apr-08

Apr-09

Apr-10

Oct-07

Oct-08

Oct-09

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Oct-10

Apr-11

After stabilising in March spending decline steepens in April

The Asda Income Tracker was 13 lower in April 2011 than in April 2010 the largest annual fall on record.
Consumer price inflation rose sharply in April and the Bank of England has warned that inflation could increase still further over the coming months predominantly due to soaring utilities bills. At the same time, the latest labour market data, while showing a fall in unemployment, also shows earnings growth running far below inflation and typical pre-recession levels. So while the UK economy continues to gradually recover, consumers remain under significant financial duress as the growth in their incomes fails to keep pace with the rising cost of living. Much uncertainty hangs over when the Bank of England will raise its base interest rate. While it may wish to raise rates as a response to high inflation, this could push up mortgage interest payments for many households an additional financial squeeze.
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Trends

Year-on-year change in Asda income tracker

25 20 15 10 5 0 -5 -10 -15

Apr-07

Apr-08

Apr-09

Apr-10

Oct-07

Oct-08

Oct-09

Oct-10

Apr-11

Prices growing twice as fast as incomes

Annual CPI inflation rose to 4.5 per cent in April, up from 4.0 per cent in March
The rate of annual CPI inflation is more than double the Bank of Englands target rate of 2.0 per cent and over double gross income growth at present. On the wider retail price index which includes housing costs inflation is even higher at 5.2 per cent in April, though fell from 5.3 per cent in March. The Bank of England continues to face criticism for being too complacent over the issue of inflation. Despite ongoing pressure, the Bank has yet to raise interest rates in response to high price growth. In its May Inflation Report, the Bank warned that CPI inflation could reach 5.0 per cent later this year, mainly due to rising utilities bills. However, the Bank expects inflation to fall back towards target from next year, as the effect of the VAT rise on inflation falls out of the comparison and global commodity prices show signs of stabilising.

Cost of living

Inflation of selected goods, annual change to April 2011

12% 10% 8% 6% 4% 2%
Housing, fuel & power Clothing and footwear

Education

Recreation & culture

Mortgage interest payments

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Food & non-alcoholic drinks

Essential spending

Alcohol & tobacco

Communication

Transport

0%

Transport and heating costs push up inflation

The main factors putting pressure on family spending power in April were:
Transport costs continued to be the largest contributor to the headline rate of inflation in April, contributing 1.5 percentage points to the 4.5 per cent headline rate. Transport costs are now 9.6 per cent higher than a year ago a result of soaring petrol prices and higher train fares. According to data from the Automobile Association, unleaded petrol prices are some 12.7 per cent higher in April 2011 than in the same month a year ago. Housing and household services contributed 0.6 percentage points to the annual rate of inflation, largely due to rising domestic heating costs and rents. Alcoholic beverage and tobacco prices rose by 8.9 per cent over the year to April 2011, largely due to increases in excise duty for these goods which came into effect last month.

Cost of living

Inflation of selected goods, annual change to April 2011

12% 10% 8% 6% 4% 2%
Housing, fuel & power Clothing and footwear

Education

Recreation & culture

Mortgage interest payments

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Food & non-alcoholic drinks

Essential spending

Alcohol & tobacco

Communication

Transport

0%

Earnings growth languishes below prerecession levels

Unemployment falls slightly but earnings growth languishes at prerecession levels.
The latest labour market data show some improvement in the UK labour market in recent months. The broad International Labour Organization (ILO) measure of the unemployment rate fell to 7.7 per cent over the three months to March, down 0.1 percentage points on the previous quarter. However, this still leaves unemployment notably higher than pre-recession levels and the claimant count rose by 12,400 between March and April. Furthermore, average weekly earnings growth continues to trail both far behind the annual rate of consumer price inflation at present and behind typical pre-recession levels of growth in income. For the three months to March 2011, annual growth in regular pay (excluding bonuses) was only 2.1 per cent. This compares with average growth of 4.0 per cent for the years 2001 to 2008 inclusive.
9 8 7 6 5

Net income

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

5.0% 4.5% 4.0% 3.5% 3.0% 2.5%

4 2.0% 3 2 1 0 2005 Jul 2006 Jul 2007 Jul 2008 Jul 2009 Jul 2005 Jan 2006 Jan 2007 Jan 2008 Jan 2009 Jan 2010 Jan 2010 Jul 2011 Jan 1.5% 1.0% 0.5% 0.0%

ILO unemployment rate

Earnings growth

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Data and Methodology

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:

Appendix

Joanne Newbould PR Manager Email joanne.newbould@Asda.co.uk Tel 0113 826 3536

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Monthly Asda income tracker

Figure 1: Asda income tracker and year on year change (excluding bonuses)
190 185 180 175 170 165 160 155 150 Jul-09 Jul-10

Asda income tracker tables

15%

10%

5%

0%

-5%

-10% Jan-11 Jan-10 Jan-09 Jan-08 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Oct-07 Oct-08 Oct-09 Oct-10 Jul-07 Jul-08

Asda income tracker (LHS)

Asda income tracker annual change (RHS)

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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 Aug-07 Aug-08 Aug-09 Aug-10 Oct-10 Feb-11 Dec-07 Dec-08 Dec-09 Dec-10 Feb-10 Feb-09 Feb-08 Jun-07 Jun-08 Jun-09 Jun-10 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Oct-07 Oct-08 Oct-09

Asda income tracker including bonuses

Asda income tracker excluding bonuses

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Monthly Asda 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

Asda income tracker tables

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

January 2011

174

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

June 2007

161

June 2008

166

June 2009

182

June 2010

175

July 2007

166

July 2008

165

July 2009

183

July 2010

177

August 2007

165

August 2008

162 161

August 2009

180

August 2010

176

September 2007

166

September 2008

September 2009

181

September 2010

178

October 2007

166

October 2008

162

October 2009

180

October 2010

177

November 2007

166

November 2008

166

November 2009

180

November 2010

176

December 2007

165

December 2008

175

December 2009

180

December 2010

172

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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:

Methodology

Total household income minus taxes equals net income Net income minus basic spend equals Asda income tracker

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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.

Methodology

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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.

Methodology

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Disclaimer

Disclaimer

This report has been 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 economists Scott Corfe, Charles Davis and Douglas McWilliams. 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, March 2011

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