Production Activities in Various Sectors Still Hampered by Low Consumer Confidence

As the increasing rate of production activities in the service sector recorded minus growth for the second consecutive month, people are greatly worried over possible elongation of the economic downturn.

The distribution industry especially suffered great losses due to depressed consumer confidence while sales of some world-renowned high-priced brands increased during the period, showing how polarized the private consumption market is.

According to the Ministry of Commerce, Industry and Energy and the National Statistical Office, production in the service sector for April decreased by 0.5 percent compared to the same period last year due to a severe slump in the wholesale, retail, hotel and restaurant business areas.

They also slid by 0.2 percent in March, which means continuous minus growth for the first time since January, 2001.

Low consumption

Depression in the distribution industry which accounts for the largest part of service production is not showing any signs of getting better.

The increasing rate of wholesale and retailing businesses compared to the same period last year decreased to negative 5.1 percent in April from negative 3.9 percent in March.

This has been attributed to a slowdown in sales of food and beverages, cigarettes and automobiles.

The increasing rate of automobiles, an area very sensitive to the economy, also greatly decreased from negative 1.0 percent in March to negative 8.3 percent in April, showing how much damage has been done to domestic demand.

Reflecting consumer confidence among common buyers, the increasing rate of retail business in departments and big supermarkets has worsened to negative 8 percent in April from negative 4.7 percent in March.

The hotel and restaurant business went down by 0.6 percent and 1.2 percent, respectively, compared to April last year. Especially, hotels suffered a whopping 16.7 percent decrease in their business due to a decline in the number of customers.

The medical sector slid from 6.1 percent to 4.6 percent and the transportation and communication sector slowed down from 1.6 percent to 0.8 percent.

Real estate and house-renting and private business sector only went up by 0.2 percent.

The only sector that saw enough expansion compared to the same period last year is the educational service business including private educational institutes which are raking in more income from teaching. The sector saw a 4.1 percent increase in March and a 5.1 percent increase in April.

High-priced goods

Sales of high-priced brand-name goods decreased by 1.7 percent in April but turned to the positive 1.4 percent increase in May.

Major department stores have been offering discount prices for classic brand goods since early June and the result has been successful – their sales have increased more than 100 percent compared to the same period last year.

Lotte Department Store in Myong-dong estimated that its sales increase for brand-name goods from June 6 to 8 recorded 138 percent growth compared to last year while Galleria Department Store saw some 130.7 percent growth in its special brand-name goods section.

Brand-name goods sales at Hyundai Department Store have also gone up by 134 percent during the same period.

An official from Lotte Department Store said, “Brand-name goods sales this year have shown better performance than last year, and are less vulnerable to the economic slowdown than other items.”

Eun-Woo Lee Heon-Jin Lee libra@donga.com mungchii@donga.com