Consumer spending power growth recovers as cost of essential spending eases

The latest figures from Asda’s Income Tracker reveal that:

  • Family spending power is up £2.63 in March compared with the same month in 2017
  • Employment levels at the highest they have been since records began in 1971
  • Weekly gross income for under 30s surpasses £800 for the first time
  • Under 30s and over 75s spend the most on housing and utilities

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.

It measures the amount that households have left over to spend on discretionary purchases such as leisure and recreational goods and services – offering a ‘state of the nation’ view of UK household finances.

The latest Income Tracker report can be found here:

YEAR-ON-YEAR CHANGE IN ASDA INCOME TRACKER

In March 2018, weekly spending power rose by £2.63 compared with the same month a year earlier, equivalent to a 1.3% increase.

Growth in the Asda income tacker was supported by both an increase in wage growth and easing inflationary pressures, helping to ease the fall in discretionary spending power endured throughout much of 2017.

Inflation (as measured by the Consumer Price Index) stood at 2.5% in the year to March, down from 2.7% recorded in the previous month.

The largest contributors to the slowdown in inflation were falls in the cost for clothing and footwear, furniture and household equipment as well as alcoholic drinks and tobacco.

Fuel prices increased only marginally in March, however transport inflation still went up thanks to the cost of new and used cars increasing. This led to an overall increase in transport inflation to 3.0% in the year to March, up from 2.8% in the previous month.

The labour market went from strength to strength, helping to push up wages, with unemployment figures dropping to 4.3% in the three months to February, the lowest rate since 1975.

This month compared the discretionary income of five age groups and how they are affected by changes in the cost of essential spending and incomes. Weekly gross income for under 30s surpassed £800 for the first time in Q1 2018. However, this figure still remains at nearly 20% below that of 30 to 49 year olds.

Amongst the key age groups, other significant differences highlighted that under 30s and over 75s are also spending the highest share of their incomes on housing and utilities with 26% and 20%, respectively. Over 75s spent on average £263 per week on essentials during Q1 2018.

The cost of essential spending increased at nearly the same rate for all age groups over the first quarter of 2018, though the recent fall in inflation should provide a relief for households in coming months.

Whilst all age groups below 65 enjoyed gains in discretionary income growth, households over the age of 65 suffered from a spending power squeeze in Q1 2018.

Older households were worse off, with spending power decreasing by 0.7% for 65 to 74 year olds and 0.4% for those aged 75 years or older.

These two age groups are also the only ones to endure four consecutive quarters of falling spending power growth.

OUTLOOK

Price pressures are expected to continue to ease over the coming months, with falling prices for clothing and footwear contributing to the slowing rate of inflation. This should help spending power continue to recover.

However, high energy prices are expected to continue to exert pressure on household budgets as major suppliers announced further price increases which would impact essential spending.

The strong labour market also continues to provide relief for households. Record low unemployment rates should help wage growth continue to rise.

Those aged 50 to 64 are still enjoying the highest spending power at £271 per week in Q1 2018, however we are seeing 30-49 year olds close the gap on this.

The below chart shows the average weekly income along with average spending power and growth in spending power year on year of each age group:

Age Bracket

Weekly gross income

Weekly gross income growth

Spending power

Spending power growth

Under 30’s

£801

2.5%

£158

0.9%

30 to 49

£994

2.7%

£252

2.1%

50 to 64

£920

2.5%

£271

1.3%

65 to 74

£653

1.8%

£210

-0.7%

75 or over

£470

1.7%

£172

-0.4%

Kay Neufeld, Economist, Cebr, said:
”This month’s increase in the Income Tracker is a welcome extension of the good news seen in February, when family spending power increases for the first time in seven months. This is largely due to the continuation of two trends: easing inflation and accelerating wage growth.

“Higher import prices now seem nearly fully reflected in the inflation figures, which leads us to expect that we will see the rate of price growth slow further over the coming months. Meanwhile, households can feel assured by a labour market that boast the highest-ever employment rate, very low unemployment and slowly-but-surely accelerating wage growth.

“Domestic inflationary pressures and a slowing world economy could yet spoil the picture for 2018, but for the near future, households can expect some further gains in spending power.”