Manufacturing index falls below 100 for first time in 5 months

'Fewer working days, strikes, Middle East tensions cited'

Non-manufacturing sentiment hits 3-year high on Chuseok boost

About 600 members of the Korean Metal Workers' Union's Ulsan chapter stage a protest in front of the main gate of Hyundai Motor Company's plant in Buk-gu, Ulsan, on Sept. 9, denouncing the automaker's demands that its suppliers cut parts prices. [Korean Metal Workers' Union Ulsan chapter]
About 600 members of the Korean Metal Workers' Union's Ulsan chapter stage a protest in front of the main gate of Hyundai Motor Company's plant in Buk-gu, Ulsan, on Sept. 9, denouncing the automaker's demands that its suppliers cut parts prices. [Korean Metal Workers' Union Ulsan chapter]

South Korea's overall business sentiment edged down for the first time in three months in September, as strikes at some automakers disrupted production at parts suppliers, compounding the effects of fewer working days during the Chuseok holiday and ongoing tensions in the Middle East. Non-manufacturing sentiment, however, climbed to its highest level in three years, buoyed by holiday spending and a rise in outdoor activity.

According to the Bank of Korea's September Business Survey released Tuesday, the composite business sentiment index, or CBSI, for all industries stood at 99.1 this month, down 0.5 points from the previous month. The index had risen for two consecutive months in July and August before edging down, though the Bank of Korea said the overall upward trend remains intact.

The CBSI is a sentiment indicator derived from key sub-indexes of the business survey index — five for manufacturing and four for non-manufacturing. A reading above 100 indicates that corporate sentiment toward the broader economy is optimistic relative to the historical average recorded between January 2003 and December 2025, while a reading below 100 signals pessimism.

By sector, the manufacturing CBSI fell 4.3 points to 99.5, slipping back below the long-term average of 100 after holding above that threshold for four consecutive months since May. Product inventory weighed most heavily on the index, dragging it down by 1.8 points, while new orders (minus 1.0 point) and production (minus 0.6 points) also contributed to the decline. A rise in product inventory is reflected as a negative in the CBSI.

The non-manufacturing CBSI, by contrast, rose 2.2 points to 98.9 — its highest reading since September 2023 (99.6), three years ago. Improvements in financial conditions (plus 1.0 point) and business conditions (plus 0.7 points) drove the gain. "Manufacturing fell due to fewer working days, strikes and the fallout from the war in the Middle East, while non-manufacturing continued its upward trend on the back of holiday demand and increased outdoor activity," the Bank of Korea said.

Sentiment weakened across company sizes. The large-enterprise CBSI fell 2.5 points to 101.2, while the small and medium-sized enterprise CBSI dropped 5.4 points to 94.4. Export-oriented firms and domestic-demand firms recorded readings of 104.3 and 95.7, respectively, down 4.2 points and 3.7 points from the previous month.

Breaking down the manufacturing sector by industry, earnings deteriorated most notably in automobiles, chemical substances and products, and electronic, video and communications equipment.

The auto industry was hit by a combination of weak exports and domestic demand, strikes, and lower operating rates during the Chuseok holiday. Chemical substances and products were affected by shipping disruptions stemming from Middle East tensions, rising raw materials prices and restructuring in the petrochemical industry. Electronic, video and communications equipment makers — including display, camera and television manufacturers — saw orders and sales decline.

The Bank of Korea said multiple factors combined to weigh on manufacturing sentiment.

Park Yong-min, head of the Bank of Korea's economic sentiment survey team, said responses indicated that strikes at some automakers from late August through early September caused small and medium-sized parts suppliers to experience delivery disruptions and inventory buildup. "The impact extended to downstream industries such as rubber and plastics, and the reduction in working days due to the Chuseok holiday was also cited," he said.

Park added that it was difficult to isolate the contribution of each factor. "The inventory contribution had the largest impact on the manufacturing decline, and some electronic, video and communications equipment firms said they had been building up inventory in anticipation of a rise in demand after Chuseok," he said.

In non-manufacturing, the wholesale and retail sector improved as sales of food, beverages and pharmaceuticals rose on Chuseok holiday demand and seasonal consumption patterns.

Visitor numbers at sports venues and amusement parks increased during the holiday and with the onset of cooler weather, lifting the arts, sports and leisure sector. Expanded orders at architecture and design firms and semiconductor-related engineering companies drove earnings improvement in the professional, scientific and technology sector.

The divergence between manufacturing and non-manufacturing is expected to continue into October.

The October all-industry CBSI outlook stood at 99.6, unchanged from the September forecast in the previous survey. The manufacturing outlook fell 1.4 points to 101.1, while the non-manufacturing outlook rose 1.0 points to 98.6.

The economic sentiment index, or ESI — which incorporates the consumer sentiment index alongside the BSI — rose 0.5 points from the previous month to 99.9 in September, driven by improved household income and consumer spending outlooks. The ESI cycle variation index, which strips out seasonal and irregular factors, rose 0.7 points to 98.3.

The survey was conducted from Sept. 10 to Sept. 17 and covered 3,524 companies nationwide. Of those, 3,163 responded, including 1,760 manufacturers and 1,403 non-manufacturers.


forest@heraldcorp.com