Underlying job data vital to watching Korea economy

As well as new apartment figures.

It has been observed that while South Korea’s headline unemployment rate has been remarkably stable at a low level, the more detailed labour-market data tells a different story.

According to a research note from Standard Chartered, headline unemployment (seasonally adjusted) averaged 3.6% in 2015, and has averaged 3.4% over the past three years.

However, the youth unemployment rate (for ages 15-29) reveals a weak spot – it has not improved for more than a decade, staying at around 7-9% on average since 2002.

This reflects a persistent labour imbalance between generations. Statistics Korea also releases a series of supplementary labour-market indicators. These also paint a dimmer picture of the labour market than headline unemployment, and are more volatile.

Here's more from Standard Chartered:

There are three supplementary unemployment rates, which add the following groups to the standard unemployment calculation: (1) people who are currently working part-time or in temporary positions but want to work full-time; (2) potential economic participants who are currently not looking for jobs, such as women who have temporarily quit working to focus on childcare; and (3) both of the above groups.

The third supplementary rate has reached well over 10% in the past year, peaking in February 2015 at 12.5%. Supplementary labour-market data and youth unemployment are broader and more accurate reflections of Korea’s job market than the headline unemployment rate, in our view.

The supplementary unemployment rates, which capture those who are not actively looking for jobs but who want to work, are 7-8ppt higher than the headline rate, which only captures those who are actively looking for work.

This is particularly relevant ahead of major elections in 2016 and 2017, when labour reforms and social benefits for those excluded from the job market are likely to be focus issues for voters.

As a key component of households’ net worth, the housing market is a major factor influencing consumer behaviour in Korea. Real-estate sentiment is turning more optimistic, and the normalisation in prices has boosted market activity. In addition to the widely followed broad housing price index, we think the apartment price index and the number of newly approved apartments provide important market insight. Nearly 50% of Korea’s population resides in high-rise apartments.

The apartment price index is the most sensitive to real-estate sentiment and most accurately reflects the broader housing-market trend. The housing price index released monthly by the Korea Appraisal Board includes prices by region and by property type. While the regional breakdown is closely watched, we think data by housing type – particularly apartments – more accurately reflects market trends. Apartment bunyang numbers are also an important indicator to watch.

Under the bunyang system (which is unique to Korea), the Ministry of Land, Infrastructure and Transport pre-approves the number of apartments to be built ahead of actual construction. Developers can gauge apartment demand based on the number of applicants for new units relative to pre-approved supply.

Applicants usually move in when construction is completed after two to three years (though this is not binding), so the bunyang system provides an indication of apartment prices with a three-year lead. The current narrowing of the gap between the number of pre-approved housing units and applications suggests upside for prices in the coming years.