January Manufacturing Production Down 12.7%, Largest Decline in 14 Years (Comprehensive)

Statistics Korea, January 2023 Industrial Activity Trends
Coincident and Leading Cyclical Adjusted Indices Decline for 4 and 7 Consecutive Months Respectively

In January of this year, manufacturing production, including semiconductors, decreased by more than 13% compared to the same period last year, causing industrial production to plunge by 12.7%. The coincident and leading composite indices, which indicate the current state and outlook of the economy, also continued to decline for four and seven consecutive months, respectively. Statistics Korea assessed that "(industrial production) is still showing a sluggish trend."

On the 2nd, Statistics Korea released the "January 2023 Industrial Activity Trends" report containing these details.

Total industrial production increased by 0.5% month-on-month, turning positive for the first time in four months, as production rose in manufacturing (2.9%) and services (0.1%) despite a decline in public administration. However, the story differs when compared to the previous year. Total industrial production decreased by 0.8% year-on-year due to a 12.7% drop in manufacturing, although services increased by 5.9%.

Month-on-month (or quarter-on-quarter) statistics reflect future trends well, while year-on-year (or same period last year) statistics better represent the current situation. The 2.9% month-on-month increase in manufacturing production in January suggests that if this upward trend continues for another two to three months, the economy could improve compared to before. However, the double-digit (12.7%) year-on-year decline indicates that the current economic situation remains poor. Manufacturing production has been in decline since October last year and has been negative for four consecutive months through January. Moreover, the decline rate recorded double digits for two consecutive months, including December last year.

Notably, the 12.7% year-on-year decrease in manufacturing production in January is the largest drop since January 2009 (-25.3%). This was due to a 13.2% reduction in manufacturing output during the same period. Consequently, manufacturing exports also fell sharply by 13.6% year-on-year, marking the steepest decline since January 2009 (-22.0%).

Kim Bo-kyung, Economic Trend Statistics Officer at Statistics Korea, explained, "The semiconductor industry's downturn caused a significant year-on-year decrease in manufacturing production. Additionally, the number of working days was one day fewer than last year, and the manufacturing production index was high at 115.4 in January last year, which contributed to a base effect."

The outlook remains bleak when looking at the current coincident and leading economic indices. The coincident composite index, which reflects the current economic flow, fell by 0.4 points month-on-month. It has been declining for four consecutive months since a 0.2-point drop in October last year. The leading composite index, which indicates economic prospects, also decreased by 0.3 points month-on-month, marking a decline for seven consecutive months since July last year (-0.3 points).

Kim said, "(The January industrial activity indicators) did not reach a level that reverses the recent sluggish trend," adding, "With employment numbers also decreasing, the coincident composite index, which reflects the current economic situation, has fallen for four consecutive months."

Retail sales declined by 2.1% month-on-month as sales of non-durable goods such as food and beverages (-1.9%), semi-durable goods such as clothing (-5.0%), and durable goods such as passenger cars (-0.1%) all decreased. Compared to the same month last year, sales of semi-durable goods like clothing (-5.8%) and durable goods like home appliances (-3.5%) fell, but sales of non-durable goods such as food and beverages increased by 3.9%, resulting in a 0.7% overall increase.

Facility investment decreased by 1.4% month-on-month as investment rose in transportation equipment such as automobiles (15.9%) but declined in machinery such as special industrial machines (-6.9%).

In construction, civil engineering work decreased by 10.3%, but residential and non-residential construction increased, leading to a 1.8% month-on-month rise in building construction (5.9%). Construction orders increased by 7.7% year-on-year, with orders rising in civil engineering such as machinery installation (237.5%) despite a 41.0% drop in building orders such as housing.

Statistics Korea was cautious in evaluating the economic situation. Kim said, "Statistics Korea tentatively set May 2020 as the economic trough. Since then, there has been some recovery, but recently, the pace has slightly slowed or even declined a bit. However, to make a clearer judgment, we need to observe data accumulated over 10 months, so it is difficult to specify the current phase."

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