Worst fall in household income since 1977
The squeeze on families’ spending is still biting, with today’s Quarterly National Accounts showing that in the first quarter of 2011 there was a 0.8% fall in “household disposable income” – that is, the money we have for spending and saving. Compared with the first quarter of 2010, the fall was 2.7%, the worst since the third quarter of 1977.
Today, the Office for National Statistics also published the results for the 2010 calendar year, which also show a 0.8% fall – also the worst since 1977. Household income has fallen in seven of the 12 quarters since the recession began in the Spring of 2008 – the worst such period since the early 1980s. The ONS says that the reason for the first annual fall in household disposable incomes for over 30 years was that their gross incomes rose by 3.4% but the prices they pay rose by 4.2%.
So inflation is forcing down families’ net disposable incomes. No surprise then that the one-line summary of today’s Consumer Trends is:
Households buy less but spend more in Q1 2011.
Measured by volume, household spending fell by 0.6%, the second consecutive fall after a 0.2% driop in the last quarter of 2010. The message on the prices faced by households is even worse than that from the Quarterly National Accounts, with a 1.9% increase in the “household expenditure implied deflator” in just the first quarter of 2011. Measured by price, spending is still rising – up 1.4% on the quarter – as you might expect when inflation is higher than the growth in incomes.
This has important implications for our chances of economic success. As Consumer Trends points out, household spending makes up about 60% of GDP, so it “has an important part to play in the path of economic growth.”