'Corona Shock' but Household Surplus Rate Highest in 17 Years? ... 'The Two Faces of Surplus'

Statistics Korea Announces First Quarter Household Trends Survey Results

[Sejong=Asia Economy Reporter Kim Hyunjung] Amid the impact of the COVID-19 pandemic on employment and consumer markets, the household surplus rate in South Korea paradoxically reached its highest level in 17 years in the first quarter of this year. This "two-faced surplus" is attributed not to income growth but to households significantly reducing their consumption expenditures.

According to the "First Quarter Household Trends Survey Results" released by Statistics Korea on the 21st, the average monthly disposable income per household in the first quarter of this year was 4,291,000 KRW, a 5.1% increase compared to the same period last year. The surplus amount was 1,413,000 KRW, up 38.4% from last year, and the surplus rate rose by 7.9 percentage points to 32.9% compared to the same quarter last year. Disposable income is the amount remaining after subtracting non-consumption expenditures from income, and surplus amount is the amount left after subtracting consumption expenditures from disposable income. Since the absolute amounts can fluctuate due to various factors, trends are usually compared based on the surplus rate. The surplus rate, which represents the proportion of surplus amount to disposable income, recorded its highest level in 17 years since Statistics Korea began compiling related statistics in the first quarter of 2003.

At first glance, it appears that households have significantly more money left over after spending, suggesting improved financial conditions. However, the reality is different. It is not that households earned more and saved more, but rather that they tightened their belts and spent less than before. In fact, income in the first quarter of this year was 5,358,000 KRW, only a 3.7% increase compared to the same period last year, but expenditures decreased by 4.9% to 3,945,000 KRW. In particular, consumption expenditures fell by 6% to 2,878,000 KRW, and non-consumption expenditures decreased by 1.7% to 1,067,000 KRW. The average propensity to consume, which indicates the ratio of consumption expenditure to disposable income, dropped by 7.9 percentage points to 67.1% compared to the same quarter last year.

Especially, households with lower incomes experienced lower income growth rates and greater reductions in expenditures. Looking at income quintiles, consumption expenditures for the lowest income group (1st quintile) decreased by 10% to 1,486,000 KRW compared to the same period last year, while consumption expenditures for the highest income group (5th quintile) only decreased by 3.3% to 4,686,000 KRW. The 1st quintile mainly cut spending on education (49.8%), household goods and domestic services (-46.7%), and clothing and footwear (-36.0%), whereas the 5th quintile reduced spending on entertainment and culture (34.4%), education (-27.5%), and clothing and footwear (24.7%).

Kang Shinwook, Commissioner of Statistics Korea, explained, "The surplus rate generally indicates how much saving capacity households have after spending," adding, "Unlike usual, despite having income capacity, there was a tendency to restrain expenditures." Commissioner Kang emphasized, "Due to COVID-19, restrictions on movement and social distancing measures were implemented, causing a sharp decline in spending in certain categories. This should be taken into account when comparing changes in the surplus rate trend." He further added, "Compared to the 1998 financial crisis or the 2008 financial crisis, household consumption increased, but spending on dining out, education, and entertainment and culture clearly decreased in both direction and magnitude, which is unusual."

Regarding criticism that the income-led growth policy of the Moon Jae-in administration may have been ineffective as income distribution worsened according to the first quarter household trends survey, Kang stated, "As the producer of statistical data, it is not appropriate to evaluate the specific outcomes of government policies," and explained, "Income distribution deteriorated this quarter, but various economic and non-economic factors likely influenced this, and it is not possible to break down and explain the effects of each factor."

This content was produced with the assistance of AI translation services.