Korean car output's 24.8% slump pulls August industrial production down 1.3%

The National Data Office's report does not give the weight of cars in all-industry output, so it is not possible to work out how much of August's 1.3% fall came from the car plants ^[1]. The office said the manufacturing slump largely reflected cars ^[4]. Semiconductor production slipped 2.2% too ^[5].

The official account treats the strikes as only part of the cause. Lee Doo-won, director of economic trend statistics review at the office, said the strikes had a partial impact ^[7]. He spent more of his explanation on the calendar. "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 ^[8].

July's 0.1% dip and August's 1.3% fall compound to a two-month drop of about 1.4% ^[1]. The government answers that July and August together still ran 0.8% above the second quarter ^[18]. Both can be true only if June ended high. If the 0.8% compares monthly averages, June output would have been about 1.6% above the second-quarter average ^[3].

Retail is where the temporary label is weakest. A holiday bunched into one month moves production into the next, but a purchase pulled forward lowers sales until the buyers who moved early would have bought anyway. Two months of retail declines, 2.6% and then 1.8%, come to about 4.4% ^[10][2]. Lee put that down to timing as well. "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," he said ^[12]. "Home appliances were also affected by purchases being pulled forward through discount and rebate events in June and July," Lee said ^[13].

The investment fall came from transport equipment ^[14]. Machinery, including chip-making equipment, rose 1.6% ^[15], and construction work on both semiconductor plants and apartments increased ^[16].

The finance ministry expects production, retail sales and facility investment all to rebound in September ^[21]. Lim Hong-ki, director of the ministry's economic analysis division, expects car output to recover as the new Avante model takes hold ^[19]. "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 ^[20]. A second outcome has production recovering as the lost working days come back while retail stays weak, because some of the demand was spent early. A third has the strikes that began in July continuing and car output staying low ^[7].

I'd expect the second. The best evidence against that view is the cycle gauge. The coincident index's cyclical component rose 0.5 point to 101.7, its highest since May 2008, though the leading index slipped 0.1 point to 104.2 ^[17]. A September report showing retail sales up and passenger car sales recovering would prove the view wrong.