South Korea's industrial indicators all moved backward in August as a plunge in automobile production coincided with adjustments in consumption and investment. It was the first time in three months that output, spending and investment fell together. The government, however, said temporary factors were largely at work — concentrated summer holidays and strikes at automakers, along with base effects from earlier purchases of durable goods — and projected that major indicators would rebound in September.
All-industry output fell 1.3% from the previous month, according to the August industrial activity report released on the 30th by the National Data Office. It was the second straight monthly decline following July's 0.1% drop, and the steepest since October last year, when output fell 2.2%. Services output rose 0.5% and construction gained 1.9%, but a 4.8% drop in mining and manufacturing dragged down the overall figure.
The weakness in mining and manufacturing largely reflected the slump in autos. Automobile production fell 24.8% from the previous month, the sharpest drop in six years and six months, since a 28.9% decline in February 2020. Auto shipments also fell 20.7%. Semiconductor production declined 2.2%.
Lee Doo-won, director of economic trend statistics review at the office, said strikes that began at some automakers in July had a partial impact. "In the past, summer holidays in the auto industry tended to be spread across July and August, but this year they were concentrated in August," Lee said. The number of working days in the auto industry in August fell by about five from the previous month.
Consumption declined for a second month. Retail sales fell 1.8% from the previous month, extending the 2.6% drop recorded in July. By category, sales of durable goods such as passenger cars fell 4.5%, while non-durable goods including food and beverages declined 1.6%. Passenger car sales in particular fell 13.6%, the largest decline in 31 months, since a 14.6% drop in January 2024. Sales of home appliances fell 6.2%, declining for a second straight month.
The office attributed part of the drop in consumption to base effects from earlier purchases. "For passenger cars, buying was concentrated ahead of the end of the individual consumption tax cut in June, and that base effect combined with fewer working days in August," Lee said. "Home appliances were also affected by purchases being pulled forward through discount and rebate events in June and July."
Facility investment fell 9.5% in August after rising for two consecutive months in June and July. Investment in machinery, including semiconductor manufacturing equipment, rose 1.6%, but investment in transport equipment plunged 32.8%, reflecting a base effect from the large volume of ships and aircraft brought in the previous month.
Construction completed, by contrast, rose 1.9%, as work on both non-residential buildings such as semiconductor plants and residential buildings such as apartments increased.
It was the first time since May, three months earlier, that output, consumption and investment declined simultaneously. Indicators of the broader business cycle, however, were mixed. The cyclical component of the coincident composite index, which reflects current conditions, rose 0.5 point from the previous month to 101.7, the highest in 18 years and three months, since May 2008. The cyclical component of the leading index, which signals future conditions, fell 0.1 point to 104.2.
The government does not see the triple decline as a broader signal of slowing growth. It judged that holidays and strikes in the auto industry, pulled-forward purchases of passenger cars and home appliances, and base effects in facility investment were all reflected in August at once. All-industry output for July and August combined was in fact 0.8% higher than in the second quarter.
Lim Hong-ki, director of the economic analysis division at the Ministry of Finance and Economy, said automobile production is expected to recover in September and that the effect of the new Avante model will take hold in earnest. "As the drag on consumer sentiment from the stock market correction in July and August eases, production, retail sales and facility investment should all rebound," Lim said.
