Concerns that a “consumption cliff” might damage the economy are mounting.
According to the industrial activity report for January released by Statistics Korea on Thursday, the drop in retail sales has gained speed, falling 0.3 percent in November, 0.5 percent in December and 2.2 percent in January.
It is the first time consumption has declined for three straight months since the global financial crisis in 2008. Sales of semi-durable goods such as shoes and bags rose 0.6 percent, while those of durables and nondurables declined 4.5 percent and 1.9 percent, respectively.
However, industrial activity did not fall, with production increasing 1 percent in January from a month earlier, service output rising 0.5 percent and facility investment expanding 2.6 percent.
But the outlook is less than rosy, except for in some industries. Trade with the US and China faces headwinds from rising protectionism in America and Chinese retaliation over a US anti-missile system to be deployed in South Korea.
The consumption cliff has resulted from factors including stagnant wages, a decrease in disposable income due to swelling household debt, mass layoffs from industrial restructuring and gloomy prospects for economic recovery.
The phenomenon of the poor getting poorer as the middle class shrinks, is giving momentum to the decrease in consumption.
In addition, the anti-corruption law dampens retail sales, as it limits expenses for entertaining clients and the prices of gifts.
Despite the circumstances, the government seems to lack the will to kick-start consumption. The primary causes are probably the leadership vacuum in the wake of the parliamentary impeachment of the president and the protracted economic slump. That said, economic policymakers should not act passively. They should think of practical measures more aggressively and not beat around the bush.
Last year, the government cut excise tax on cars to stimulate automobile sales and held shopping promotion events, but retail sales did not bounce back in the fourth quarter. Consumption is shrinking faster than expected and additional countermeasures were announced late last month. Policymakers are worried about an economic vicious circle: Less consumption could cause less production and more layoffs, which would reduce consumption further.
Some of the measures are eye-catching, but sound hollow.
One of them is to designate a “family day” that involves companies forcing employees to leave their offices on time or early once a month so they can shop or dine out with their families. They would have more free time, but spending money is another matter. This is easily enforceable for companies with flexible hours already in place. However, only 53 percent of large companies have flexible hours.
Low-interest loans to restaurants, florists, livestock farmers and fishermen, whose sales were hurt by the anti-graft law, appear misguided, too. Why would they need to borrow money when sales are not picking up? Unless spending increases, sales will remain limited.
The measures to stimulate consumption need further review and elaboration. Policymakers should recognize that these measures would have little effect if the root cause -- income -- is not tackled: undoubtedly, the less the income, the less the consumption.
However, the conditions for increasing income are challenging. More than 1 million job seekers are unemployed, with the youth jobless rate hitting an all-time high of 9.8 percent. Household debt has surged to 1,344 trillion won ($1.17 trillion), the largest ever in history. Inflation is outpacing wage hikes.
Employment holds the key to income and consumption. Efforts to create jobs would have a limited effect without companies hiring employees. An extra budget should be made if needed, and bipartisan support is essential.
Jobs have become a high priority for national leaders. US President Donald Trump has pressured global companies to build factories in the US and hire more Americans. The Korean government should act more aggressively to create jobs and avoid the consumption cliff.