Households cut spending for 1st time since 2003

Households cut spending last year on declining real income amid the prolonged economic slump, according to Statistics Korea Friday.

This marks the first time that household spending has contracted from the year before, since it began compiling the data in 2003.

Average monthly spending stood at 3.36 million won ($2,968), down 0.4 percent from a year ago. When accounting for inflation, their spending dropped 1.3 percent.

Their inflation-adjusted income dropped 0.4 percent from a year earlier, the first decrease since 2009 when the country was hit by the global financial crisis.

Households’ nominal or inflation-unadjusted monthly income averaged 4.4 million won, up 0.6 percent from the previous year, the smallest increase since 2003.

“The falling income left households with little disposable income, forcing households to cut spending,” an official from the statistics agency said.

By category, transportation expenditures dropped 4.3 percent amid low oil prices and fewer vehicle purchases. Households also cut expenditures on food, beverages and garments. Expenditures on telecommunications also dropped 2.5 percent as households aren’t buying mobile phones as much as before.

Jo Gyu-rim, a researcher at Hyundai Research Institute, said households cut consumption when they are uncertain about their future income.

He said external uncertainties stem from China’s economic slowdown, Brexit and U.S. President Donald Trump as well as internal uncertainties such as corporate restructuring and political risks.

“These uncertainties negatively affect the sentiments of households as well as businesses,” he said.

Analysts said any governmental steps to boost domestic consump- tion would have only a limited impact without any marked growth in their real income.

The average propensity for consumption stood at 69.7 percent in the fourth quarter of last year, marking a record low. It has been dropping since 2010 when it stood at 77.3 percent.

As low-income households were directly hit by the economic recession, income disparity has widened.

The country’s bottom 20 percent income bracket made 1.45 million won a month, which is a 5.6 percent drop from a year before. They saw a 17.1 percent drop in business income and 9.8 percent contraction in earned income.

Those in the top 20 percent income bracket, meanwhile, earned 8.35 million won, which is up 2.1 percent the previous year.

“Amid the economic recession, small merchants are facing tougher competition, which is leading to less business income. Jobs for low-income households also contracted, which cut their earned income as well,” said Kim Bo-kyung, a director in charge of welfare statistics at Statistics Korea.

On top of slowing income growth, households are busy paying off debts. They cannot afford to spend more as household debt surged 141 trillion won from a year earlier to 1,344 trillion won in the fourth quarter of 2016.

On Thursday, the government announced a new stimulus package worth 3 trillion won to boost domestic consumption.