Consumer Confidence Plummets to All-time Low since 1997

Consumer confidence has fallen to its lowest level since the 1997-1998 financial crisis.

An improvement in consumer confidence is unlikely for the time being due to forecasts that business and living conditions will worsen further in the next six months.

According to the National Statistical Office (NSO), the consumer sentiment index for June drifted to 62.7, down 4.3 points from May. The figure is the lowest since November 1998, when the index was established.

The index gauging current consumer sentiment tracks the opinions of households on current economic conditions compared with six months ago. An index reading above 100 means more households are optimistic than pessimistic about their economic health.

Among the sub-indices of the main index, the figure for business conditions plummeted to an all-time low of 48.9, while that for living conditions was 76.6.

“A consumer sentiment index for business conditions below 50 means that three-fourths of all consumers feel that the economy is worse now than six months ago,” said Jeon Sin-ae, an NSO official.

The expectation index of business conditions and living conditions six months ahead fell to 91.7, down 2.8 points from 94.5 in May.

Among the expectation sub-indices, the figure for business conditions inched down to 85.5 with living conditions at 95.7, consumer spending 97.8, purchases of durable consumer goods 89.4, and leisure and cultural activities 86.2.

Consumers with greater household income from a year ago reached 18.6 percent, while those with less income reached 37.9 percent.

Among the sub-indices for assets, which compare current value of assets with that of six months ago, those for houses, stores, forests and lands and savings fell from a month ago, while those for stocks and bonds inched up.

“As the sentiment and expectation indices continued to rise in April and May, many analysts forecast that the economy hit bottom in March,” said Lee Ji-hoon, an economist at Samsung Economic Research Institute (SERI). “It is hard to expect a recovery in consumer confidence in the third quarter this year, given that the indices fell again in June.”

In the meantime, the government released its economic outlook for the second half of this year on July 14. “Although consumer spending may gradually pick up with the help of rising real income and stock prices, the increase will be slow due to the lingering problem of the nation’s 3,150,000 credit delinquents,” said the government.

Kwang-Am Cheon iam@donga.com