Income Increased but Wallets Closed... Real Consumption Turns Negative After 7 Quarters

In the first quarter of this year, household real consumption expenditure turned to a decline after 7 quarters. During this period, the monthly average income per household was 5,351,000 KRW, an increase of 4.5% from the previous year, but consumption actually decreased. Despite the increase in income, spending became more cautious, and the average propensity to consume also declined for three consecutive quarters. This is interpreted as the impact of increased domestic and international uncertainties, such as martial law situations and U.S. tariff policies, which have dampened consumer sentiment.

According to Statistics Korea on the 29th, the monthly average consumption expenditure per household in the first quarter of this year was 2,950,000 KRW, an increase of 1.4% from a year ago. However, excluding the impact of prices, real consumption expenditure decreased by 0.7%. This is the first decline in 7 quarters since the second quarter of 2022, and the largest decline since the fourth quarter of 2020 (-2.8%).

By expenditure item, consumption increased in housing, water, and energy (5.8%) and food and non-alcoholic beverages (2.6%), while it decreased in transportation (-3.7%), clothing and footwear (-4.7%), and alcoholic beverages and tobacco (-4.3%). In other words, spending on energy costs and food, which are difficult to reduce, increased, while discretionary spending on cars and fashion decreased, highlighting a trend of 'spending only on essentials.'

The disposable income per household in the first quarter was 4,228,000 KRW, an increase of 4.5%. The 'surplus amount,' which is the money left after consumption, was 1,279,000 KRW, an increase of 12.3% from a year ago. This means that more of the increased income was allocated to savings or reserves rather than consumption.

The monthly average propensity to consume, which shows the consumption capacity of households, was recorded at 69.8%. This is a decrease of 2.1 percentage points from the previous year, marking a decline for three consecutive quarters. Although income increased, the actual level of consumption decreased. Lee Ji-eun, director of the Household Income and Expenditure Trends Division at Statistics Korea, said, "The decline in consumption expenditure in transportation and clothing and footwear related to car purchases affected the decrease in the average propensity to consume."

As the income flow between the upper and lower classes changed, distribution indicators worsened. The monthly average income of the first quintile households in the first quarter decreased by 1.5% from the previous year to 1,140,000 KRW. The disposable income of the first quintile households decreased by 3.6% to 921,000 KRW compared to the same period last year. On the other hand, the monthly average income of the fifth quintile households increased by 5.6% to 11,884,000 KRW. Disposable income also increased by 5.9% to 9,180,000 KRW from the previous year. Accordingly, distribution indicators worsened. The quintile ratio of equalized disposable income in the first quarter was 6.32 times, up from 5.98 times in the same period last year.

spring@fnnews.com Lee Bo-mi Reporter