Production, Consumption, and Investment 'Triple Increase'... But Only a Slight Rebound (Comprehensive)

Statistics Korea Announces 'June Industrial Activity Trends'
'Triple Increase' for Two Consecutive Months First Time in 5 Years 4 Months
Semiconductors Drive Production... Inventory Rate Lowest in 8 Months
Good Indicators but Slow Pace and Concerns Over Recession-Type Growth

Production, consumption, and investment indicators recorded a 'triple increase' for two consecutive months for the first time in 5 years and 4 months. The semiconductor industry, which had been in a recession, also appears to be regaining momentum. However, the overall pace of recovery is still minimal, so it is expected to take some time before the economic recovery is felt.

According to the 'June Industrial Activity Trends' released by Statistics Korea on the 28th, production, consumption, and investment all increased last month. Production rose by 0.1%, consumption by 1.0%, and investment by 0.2%. These three indicators also increased by 1.3%, 0.4%, and 3.5%, respectively, in May. It is the first time since January and February 2018 that all major industrial activity indicators have increased consecutively.

Kim Bo-kyung, Economic Trend Statistics Officer at Statistics Korea, when asked about the current economic situation, said, "There is a special factor due to the end of the quarter, and we need to observe future indicators before making a judgment," but also noted, "Looking at what has come out so far, manufacturing has turned to growth on a quarterly basis, and the service sector, which had been declining, has shown a slight increase, indicating an improving trend." When explaining the industrial status in May, the assessment was more cautious, stating "It is difficult to say the rebound is clear" and "The situation remains highly uncertain," but the evaluation has since become more positive.

Semiconductors Driving Production... Inventory Ratio Lowest in 8 Months

The increase in production was driven by semiconductors. Semiconductor production rose 3.6% month-on-month, marking four consecutive months of growth. This was due to improved shipment and export indicators of high-performance DRAM. On a quarterly basis, after continuous decline since the second quarter of last year, it has started to rebound again. Total semiconductor shipments increased by 41.1%, with domestic shipments up 12.7% and export shipments up 43.7%. The operating rate index, which reflects business conditions, also rose by 1.3%.

The manufacturing inventory ratio fell by 11.3 percentage points to 111.4% compared to the previous month, the lowest level in 8 months since October 2022 (111.2%). The overall manufacturing inventory index decreased by 2.1%. Recently, the market has started to perceive that the economy has bottomed out and will soon begin to rebound, as the inventory index soared to an all-time high. Both the Korea Development Institute (KDI) and the Bank of Korea have also forecasted a gradual improvement in the semiconductor industry, albeit with some time lag.

However, despite the strong performance of semiconductors, mining and manufacturing production, including manufacturing, decreased by 1.0% month-on-month due to petroleum refining and automobiles. Petroleum refining saw a 14.6% decline as production of lubricants and diesel decreased due to regular maintenance of major facilities. Automobile production also shrank by 12.9% as production of RV passenger cars and small passenger cars declined.

Service sector production increased by 0.5% month-on-month, despite decreases in health and social welfare (-1.4%), real estate (-2.2%), and transportation and warehousing (-0.9%). Financial and insurance (3.5%) and arts, sports, and leisure (5.7%) sectors increased.

Retail sales rose by 1.0% month-on-month. Sales decreased in non-durable goods such as food and beverages (-0.3%) and semi-durable goods such as shoes and bags (-0.1%), while sales of durable goods such as passenger cars increased by 4.7%. Compared to the same month last year, sales declined in semi-durable goods such as clothing (-2.1%) and non-durable goods such as cosmetics (-0.6%), but sales of durable goods such as passenger cars increased by 8.2%, resulting in a 1.4% overall increase.

Facility investment increased by 0.2% month-on-month, driven by increased investment in transportation equipment such as passenger cars (1.6%). Investment in machinery such as general industrial machinery decreased by 0.2%. Construction performance decreased by 2.5% month-on-month as both civil engineering (-8.0%) and building (-0.8%) declined.

Indicators Show Positive Signs but Pace is Slow, Concerns of 'Recession-type Growth'

With positive signals in the three indicators, the Leading Composite Index's cyclical component, which reflects future economic conditions, rose by 0.3 points for two consecutive months, supported by increases in inventory circulation indicators and export-import price ratios. The leading composite index for last month was initially flat but was revised to a 0.1-point increase after late-arriving construction sector order data was incorporated. The Coincident Composite Index, which reflects the current economic situation, fell by 0.2 points, interpreted as a result of four consecutive months of increases since February.

However, the pace of the rebound itself remains slow. Compared to the same month last year rather than the previous month, major indicators are still unfavorable. Mining and manufacturing production shrank by 5.6% year-on-year. This was due to a 15.9% decline in semiconductor production and poor performance in chemical products (-10.4%) and electronic components (-12.2%). During the same period, manufacturing inventories increased by 3.2% overall, with semiconductor inventories rising by 49.1%. This is why Kim emphasized, "Although it is a triple increase, the figures are not large."

There is also analysis that the improvement in major indicators resembles 'recession-type growth.' The Bank of Korea announced on the 25th that real GDP grew by 0.6% in the second quarter compared to the previous quarter, marking two consecutive months of growth following 0.3% growth in the first quarter. However, a closer look reveals that most indicators recorded negative figures, with only net exports improving. This was due to the import decline (4.2%) being larger than the export decline (1.8%).

Shin Seung-chul, Director of the Economic Statistics Bureau at the Bank of Korea, explained, "Although major expenditure items such as domestic demand and exports decreased, the net export size was larger than the decrease in domestic demand, resulting in positive growth."

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