July Production and Consumption Both Decline... Leading Economic Index Cyclical Component Drops for First Time in 14 Months (Update)

July Industrial Activity Trends

Source: Statistics Korea

[Sejong=Asia Economy Reporter Son Seon-hee] Last month, as the fourth wave of COVID-19 became full-fledged, both production and consumption decreased simultaneously for the first time in two months. The leading composite index cyclical component, which indicates future economic sentiment, also turned downward for the first time in 14 months.

According to the "July Industrial Activity Trends" announced by Statistics Korea on the 31st, the total industrial production index (seasonally adjusted, excluding agriculture, forestry, and fisheries) last month was 112.1 (2015=100), down 0.5% from the previous month. Production in mining and manufacturing (0.4%) and services (0.2%) increased, but construction (-1.9%) and public administration (-8.3%) production decreased. In particular, public administration saw the largest decline in 8 years and 4 months since March 2013 (-9.8%). This was due to a significant reduction in COVID-19 vaccine purchase-related expenditures compared to the previous month.

The retail sales index (seasonally adjusted), which shows consumption trends, was 119.3 (2015=100), down 0.6%. Retail sales also decreased for the first time in two months since May (-1.8%). With strengthened social distancing measures, outings decreased, leading to a drop in sales of semi-durable goods such as clothing (-2.7%).

Oh Woon-seon, Director of Economic Trend Statistics at Statistics Korea, said, "Both production and expenditure weakened compared to the previous month, showing a slight pause in the recent economic improvement trend. However, despite the increased uncertainty due to the fourth wave of COVID-19, mining and manufacturing and service production showed favorable performance, and retail sales decreased only slightly, indicating the economy was in a better condition than initially feared."

As the fourth wave of COVID-19 prolonged, the leading composite index cyclical component, which can gauge future economic trends, fell 0.2 points from the previous month to 102.6. This is the first time in 14 months since May last year (-0.2) that the leading index cyclical component recorded a negative value. During the same period, the coincident composite index cyclical component rose by 0.1 points to 101.3.

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, stated, "It is estimated that changes in economic agents' consumption behavior, learning effects, and expanded vaccination contributed to mitigating this shock," but added, "Since the quarantine situation remains severe, we cannot let our guard down." He continued, "We will do our utmost to minimize damage and stabilize people's livelihoods, and make every effort to recover the economy through enhancing corporate vitality and resolving export logistics issues."

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