Service Sector Records First Drop in Production

An economic recession has pulled service sector production down in March for the first time since relevant data began to be recorded.

With consumer sentiment shrinking, sales at department and discount stores have seen a steady decrease from February through April. Negative growth in economic sectors has also expanded to include wholesalers, retailers, lodging and restaurant businesses.

First decrease in service production

The Korea National Statistical Office announced yesterday that service sector production in May shrank 0.3% compared with the same period a year ago. It was the first time that the monthly growth rate in the service sector marked negative figures since January 2000 when relevant data began to be collected.

Service sector production enjoyed annual growth of 8.8% in 2000, 5.7% in 2001, and 8.6% in 2002, respectively until it slowed to 3.7% in January and 1.3% in February this year.

When considering service sector production in May by category, wholesale and retail production dropped 3.6% and 4.7%, respectively.

Lodging and restaurant industries witnessed a 1.7% decrease in production activities as revenue from condominiums, hotels, traditional Korean restaurants, Japanese restaurants, and bars reduced drastically.

Due to dramatic revenue loss from the stock brokerage commission, the securities industry suffered a 50.3% cut in production while financial and insurance businesses saw a 2.9% decrease in overall production.

In the meantime, public and social welfare, such as medical services, enjoyed a 6.1% production increase over the same period last year as revenue from medical treatment increased.

Knowledge-based industries, including IT and R&D, saw a 5.1% increase; transportation, logistics and communications industries, 1.8%; real estate business, 2.7%; educational services, 3.8%; and public welfare and private service businesses increased 2.9%, respectively.

In the first quarter of this year, service sector production was estimated to grow 1.5% year-on-year. By sector, only wholesale and retail businesses witnessed negative growth rates at 1.0%.

Sales of distributors also declined

The wholesale and retail business recession was predicted in a report on business trends for distributors in April, as released by the Ministry of Commerce, Industry, and Energy (MOCIE).

In April, department stores and discount stores saw sales decline by 10.7%, and 3.6% respectively, putting them on three-month consecutive declines.

Sales shrank on overall items in department stores, but miscellaneous goods and men’s suits, in particular, saw the largest drops. Sales decrease rates by item are as follows: male garments by 16.0%; sundry goods, 13.4%; home items, 11.8%; sporting goods for children, 9.8%; female casual clothes, 8.2%; female suits, 7.8%; grocery, 6.0%; and luxury items, 1.7%.

Number of shoppers in department stores declined 6.1% in April as compared to the same month last year, and average spending per item for a shopper also decreased by 4.6% to 7,915 won.

Discount stores witnessed a sales decline on almost all items except sportswear, and saw a drop in the number of shoppers by 3.6%.

The MOCIE forecasts a 4.2% revenue increase for discount stores in May and a 2.6% sales decline for department stores.

Kwang-Am Cheon Ja-Ryong Koo iam@donga.com bonhong@donga.com