Semiconductor bonuses fuel spending surge in chip hub cities

Monthly consumer spending in major semiconductor hub cities such as Yongin and Icheon ran as much as 4 percent higher than in other regions after bonus payouts this year, according to a new study — a sign that the semiconductor boom is delivering a meaningful lift to household consumption.

Researchers are calling on policymakers to create conditions that steer additional income from the semiconductor sector into consumption and the real economy rather than into asset markets.

Jung Hee-wan, a former head of the Bank of Korea's research coordination team, and colleagues released a report Monday titled "What Will Happen to Consumption in Semiconductor-Beneficiary Regions?" The report concluded that "the semiconductor industry boom is already having a significant positive effect on domestic consumption" and forecast that "as bonus payouts grow larger going forward, the spillover through the consumption channel will expand further."

To assess whether the semiconductor boom was actually lifting spending, the Bank of Korea analyzed card transaction data in what it called "semiconductor-beneficiary regions" — Giheung-gu in Yongin and the cities of Hwaseong and Pyeongtaek in Gyeonggi Province, where Samsung Electronics operates, and Icheon in Gyeonggi Province and Heungdeok-gu in Cheongju, North Chungcheong Province, where SK hynix is based.

The analysis found that monthly spending in those areas ran up to about 4 percent above other regions following bonus distributions in January last year. Cumulative additional consumption from last year through June this year totaled approximately 1.1 trillion won ($799 million). If recent trends continue, the report projected that figure could grow to around 1.7 trillion won by year-end.

The spending increase was estimated to have lifted GDP by 0.01 percent last year and 0.03 percent this year compared with a scenario without the semiconductor boom. Looking further ahead, the report projected that with a sharp rise in bonus payouts from Samsung Electronics and SK hynix next year, GDP could increase by 0.08 to 0.12 percent, pushing the GDP growth rate up by 0.06 to 0.09 percentage points.

The Bank of Korea incorporated this analysis when it revised its economic outlook on Thursday, raising its growth forecasts for this year and next to 3.3 percent and 2.9 percent, respectively.

The Bank of Korea said the ultimate size of the consumption spillover from the semiconductor boom will depend on whether job growth accompanies the boom, the degree to which additional income flows into consumption rather than asset markets, and how broadly spending spreads across different categories of goods and services.

The report particularly highlighted that the smaller the share of bonus recipients who used the money to buy homes, the larger the boost to consumption. Comparing Icheon and Cheongju — both home to SK hynix facilities — the consumption increase from bonus payouts was more pronounced in Cheongju, where a higher proportion of additional income went into spending rather than the housing market.

Existing Icheon residents sharply increased real estate purchases in Dongtan, Yongin, Suwon, Seongnam and Hanam after receiving bonuses, while Cheongju residents largely stayed and spent within the Daejeon and Chungcheong region.

"We estimate that because Icheon is closer to the greater Seoul area and commuting from there is feasible, home purchases in that region were much larger," said Lee Jae-ho, a deputy director at the Bank of Korea's research coordination team. "We need to create conditions where rising incomes can flow smoothly back into consumption and the real economy rather than into asset markets," he added.

The report also noted that historical precedents in industries such as shipbuilding, steel, automobiles and chemicals showed that the consumption spillover was larger when total wage income grew through broader employment gains rather than through higher per-worker pay alone.

So far, the spending increase in semiconductor hub regions has been concentrated in high-end discretionary goods such as automobiles and department store purchases. The average monthly growth rate in Tesla deliveries in those regions from January through June this year reached 105.6 percent year-on-year, far outpacing the national rate of 77.2 percent.

However, the report projected that if spending gradually spreads to a wider range of categories including services, the virtuous cycle of income feeding consumption and consumption generating income could strengthen over time.