Spending pulls out of its pandemic slump

People walk past restaurants in Myeongdong, central Seoul on Wednesday. [NEWS1]

People have been spending more on services after social distancing restrictions were lifted in Korea in May.

During the two years of the pandemic, spending on durable goods, such as home appliances and computers, and nondurable goods, such as food, increased, while consumption of services and semi-durable goods such as clothes dropped.

Purchases of durable goods increased by 14.6 percent in the third quarter of 2020 on year and that of nondurable goods by 0.2 percent in the same period, according to the BOK.

Purchases of semi-durable goods dropped by 10.5 percent in the third quarter of 2020.

Now normal household spending and consumer patterns are coming back, according to a Bank of Korea (BOK) report released on Thursday.

With people spending more time outdoors, spending on face-to-face services has recovered. According to data from Shinhan Card, the BOK reports, face-to-face consumption increased by over 40 percent in the second week of May compared to the third week of March, a huge jump over only eight weeks.

Services-related spending recovered to the 41 trillion won ($32 billion) level in May, the same level as two years ago.

Data shows more people spending time outdoors. The number of people below the age of 20 moving around within Seoul increased by 4.2 percent in May compared to two years ago.

Patterns in most age groups except people in their 60s recovered to normal.

Sales of nondurable goods dropped by 3.4 percent while those of semi-durable goods rose by 7.7 percent in April compared to the previous month, according to data released by Statistics Korea.

Data from Hyundai Card also shows spending on furniture decreased by 3 percent and that on home appliances by 4 percent in April.

“It seems like the purchase of groceries has been converted to consumption on dining out and services as people go out more,” said Eo Un-seon, Statistic Korea's director.

The shift in spending from goods to services is not only being felt in Korea.

U.S. consumers are also “returning to their previous habits with the balance between goods and services spending back to where it stood in May 2020,” according to the Washington Post.

Data from Goldman Sachs shows consumption of goods in the United States is currently about 5 percent higher than before the pandemic.

“We are just in the early stages of seeing the rotation of consumer spending from goods to services,” said Kathy Bostjancic, chief U.S. economist at Oxford Economics. "As time goes on, you are going to see more of that."

The sharp increase in service spending is one of the reasons why the BOK forecasts Korea’s economic growth will reach 2.7 percent this year.

Exports, the key to Korea’s economic growth, may be sluggish due to factors such as the war in Ukraine and the lockdown in China. But the BOK projects private consumption will increase up to 3.7 percent this year, higher than last year’s 3.6 percent.

“There was a significant rise in consumption of face-to-face services in the second quarter after almost all social distancing rules were lifted in the country,” said Park Jong-seok, deputy governor of the BOK.

“Private consumption will increase at a more solid pace than expected.”

BY AHN HYO-SEONG, CHO JUNG-WOO [cho.jungwoo1@joongang.co.kr]