South Korea's output, consumption and investment all fall in August on auto slump

South Korea's industrial output, retail sales and facility investment all declined in August for the first time in three months, as a sharp drop in automobile production and sales combined with a slump in transport equipment investment dragged down major economic indicators across the board.

The all-industry production index — seasonally adjusted and excluding agriculture, forestry and fisheries — fell 1.3 percent from the previous month to 118.7 (2020=100) in August, according to data released Wednesday by the Ministry of Statistics.

All-industry production had risen 2.6 percent in June before contracting for two consecutive months — down 0.1 percent in July and falling further in August. The August decline was the steepest since October last year, when output fell 2.2 percent.

By sector, services output rose 0.5 percent and construction output gained 1.9 percent, while mining and manufacturing fell 4.8 percent and public administration declined 2.9 percent.

Mining and manufacturing output slipped 4.8 percent from the previous month, snapping two consecutive months of gains — up 6.8 percent in June and 0.5 percent in July. Output rose in machinery and equipment (up 3.1 percent) and non-metallic minerals (up 3.9 percent), but fell sharply in automobiles (down 24.8 percent), rubber and plastics (down 11.0 percent) and semiconductors (down 2.2 percent). The drop in automobile production was the largest since February 2020, when output fell 28.9 percent as COVID-19 began to spread.

Lee Du-won, a senior statistics official at the Ministry of Statistics, said the auto industry's summer shutdown, which is normally spread across July and August, was concentrated entirely in August this year, reducing the number of operating days and dragging down output. "Finished vehicle production fell, and that pulled down plastics, tires and rubber as well, leading to the overall decline in mining and manufacturing output," Lee said.

Services output rose 0.5 percent from the previous month, rebounding within a month after a 1.4 percent decline in July. Wholesale and retail trade fell 0.7 percent, financial and insurance services dropped 0.6 percent, and real estate declined 1.6 percent, but information and communications surged 4.7 percent, professional, scientific and technology services rose 2.3 percent, and education gained 1.8 percent.

The gains in information and communications were led by software development and supply and other information services, while professional, scientific and technology services were driven by natural science and engineering research and development as well as accounting and tax-related services.

The seasonally adjusted retail sales index fell 1.8 percent from the previous month, extending a decline for two consecutive months after rising 2.7 percent in June and falling 2.6 percent in July.

Sales of durable goods — including passenger cars and home appliances — fell 4.5 percent, while non-durable goods such as food and beverages and cosmetics dropped 1.6 percent. Semi-durable goods including clothing edged up 0.4 percent. Passenger car sales fell 13.6 percent from the previous month, the steepest drop since January 2024, when they declined 14.6 percent. Home appliance sales fell 6.2 percent, declining for a second consecutive month.

The durable goods slump was attributed to disruptions in passenger car production cutting into sales, as well as a pull-forward in home appliance demand from large-scale discount events held from June through early July. "The decline in consumption appears to be largely driven by durable goods such as automobiles and home appliances," Lee said, adding that falling share prices also weighed on consumer spending to some degree.

Facility investment fell 9.5 percent from the previous month, reversing course after two consecutive months of gains — up 6.2 percent in June and 8.0 percent in July. Investment in machinery, including semiconductor manufacturing equipment, rose 1.6 percent, but investment in transport equipment such as ships and aircraft plunged 32.8 percent, pulling down the overall figure.

Construction work completed — a measure of actual construction activity — rose 1.9 percent from the previous month. Civil engineering work fell 3.9 percent, but gains in both residential and non-residential building pushed overall building completions up 4.5 percent. On a year-on-year basis, construction output rose 1.3 percent, marking the first increase in 28 months.

New construction orders fell 10.6 percent from a year earlier. Orders for civil engineering projects such as roads and bridges edged up 0.4 percent, but building orders — including factories and warehouses — dropped 14.1 percent.

The cyclical variation index of the coincident composite index, which reflects current economic conditions, rose 0.5 point from the previous month to 101.7, climbing for a third consecutive month. The cyclical variation index of the leading composite index, which signals future economic trends, fell 0.1 point to 104.2, turning negative for the first time in 10 months since October last year.

The Ministry of Economy and Finance said that despite the weak August readings, the economy's underlying growth momentum remains intact. It projected that major industrial activity indicators would rebound in September as temporary factors dissipate, consumer sentiment improves, and leading indicators — including exports, capital goods imports and machinery orders — continue to show solid momentum.

However, the ministry flagged several downside risks: uncertainty stemming from the war in the Middle East, rising bond yields as major economies shift toward monetary tightening, and prolonged high oil prices weighing on household finances. "We plan to make price stability for ordinary households our top priority and concentrate our efforts on the three core social policy areas of housing, jobs and household finance, so that the benefits of growth can spread broadly to people's everyday lives," the ministry said.