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On the Rise for 4th Straight Month in Anticipation of Economic Recovery
CLI in July
On the Rise for 4th Straight Month in Anticipation of Economic Recovery
  • By matthew
  • September 2, 2013, 06:12
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In July, the production of Korea's mining industry, which reflects the manufacturing economy, inched down after showing an upward trend in June. However, Korea's Composite Leading Indicator (CLI), designed to anticipate turning points in economic activity relative to trends, gave some hope for an economic turnaround owing to its increase for the fourth consecutive month. 

According to the Industrial Activities of July 2013, published by Statistics Korea on August 30, the production in mining edged down 0.1% compared to the previous month due to a slack in the manufacturing sector. The mining industry saw negative growth in production in January-March, a 0.5% increase in April, a 0.2% decrease in May, and then a 0.6% rise in June. The data shows that the production continues to fluctuate amid an overall downward trend.

Meanwhile, the service industry witnessed a 0.2% production decrease. But the ratios of construction and public administration were up 0.8% and 5.9%, respectively, contributing to a 0.3% monthly gain in the entire industry. 

The Cyclical Component of Composite Coincident Index, which reflects current economic situations, remained unchanged from the previous month. The Cyclical Component of Composite Leading Index, which predicts a turning point in business cycles, gained 0.3 points compared to last month, a continuing upward trend for the fourth month in a row.

The manufacturing industry skidded along with a +0.2% in production. By item, the semiconductor equipment and materials industry posted a 7.5% increase in output from the previous month. And yet, compared to June, auto production, the output of machinery and equipment manufacturing, and oil refinery output saw 6.4%, 5.5%, and 3.9% decreases each. 

An increase in the production of semiconductors came as new models of smartphones, such as the LG Optimus G2, the Samsung Galaxy Note 3, and Apple's next-generation iPhone 5S, were slated for release in August-September.

In the meantime, automobile production was down. GM Korea Company suffered a 47.8% reduction in production compared with a month ago, since union members staged a partial strike in July. In addition, the auto industry did not fully operate because of summer break. 

Moreover, month-on-month machinery and equipment production declined in July on account of less manufactured system air conditioners, which stems from a base effect attributable to seasonal factors. 

Park Seong-dong, the director general of the economic statistics bureau at Statistics Korea, said, "It seems that some auto makers' partial strikes and a reduction in the production of system air conditioners have made an enormous influence on decreased mining output."

Semiconductors, automobiles, machinery, and equipment saw a change in production, with a 1.05% increase, a 0.74% increase, and a 0.46% decrease, respectively. 

The Producer's Inventory Index in July rose 3.6% from the previous month. The semiconductor equipment and materials industry, the machinery and equipment industry, and the primary metals industry witnessed 9.6%, 7.4%, and 4.2% increases each in inventory. The proportion of inventory to shipments in the manufacturing industry was 117.8%, up 5.6% compared to last month. 

The recursive graph of inventory to shipment in the manufacturing sector, which assesses a change in business cycles, shows a reduction in shipments. Shipments dipped from -1.3% in June to -1.5% in July, in tandem with a rise in inventory from 2.9% in June to 6.7% in July. 

The Operation Ratio Index for the manufacturing industry fell 1.6% compared to June. The auto sector and the machinery and equipment industry contributed to the overall drop with -11.7% and -6.3% each. The index decreased 3.0% year-on-year, with a contraction of 7.7% for the auto sector and 6.4% for the machinery and equipment industry.

The Index of Services in July dropped 0.2% compared with the previous month. After tax exemptions for property acquisition were terminated, the housing transaction volume plunged by 30% in July compared to the same period last year. In particular, July activity in property rentals nosedived to -9.8%. The field of Finance & Insurance also saw a decline in activity compared to June due to a reduction in transaction costs for stocks.

The Equipment Investment Index in July fell 2.5% compared to June, and 8.3% compared with the same period the previous year. Nevertheless, with the investment in civil engineering rising, construction witnessed an increase in investment. 

In fact, the investment in construction in July gained 0.8% from the previous month, a 13.5% increase compared with the same period in 2012, thanks to a positive trend in civil engineering. The value of construction orders received in July at current prices shrank by 15.3% compared to the same period last year. The trend is attributable to a decrease in orders for factories, power plants, and roads.