South Korea's consumer spending.

Improving consumer sentiment notwithstanding, South Korea's service sector failed to enhance performance in February 2005 falling - 0.6 percent from February a year ago. The Government attributed the decline to seasonal factors including the Lunar New Year holiday period. In January 2005, South Korea's service sector posted a 0.7 percent gain over the previous January.

Taking the first two months of 2005 together, said the Government, service sector performance actually increased 0.1 percent.

According to skeptics interviewed by The Korea Herald (Seoul), the Government seemed to be grasping at straws. In characterizing the Government's position, the Herald used the term "wild optimism". The Herald implied that so eager is the Government to point to a strong economic recovery that it is neglecting the mild economic recovery that appears to be underway.

The newspaper backed up its thought with a comment from a prominent economist who said that even though sentiment indicators were positive, macroeconomic signals were giving mixed messages.

The Herald also pointed to Government statistics that were, at best, disappointing. Wholesale/retail output fell 1.9 percent in February 2005 compared to February 2004. This was the eighth consecutive month that comparisons with months in the previous year showed declines.

When taken separately in February 2005, retail output actually showed a gain of 4 percent when compared with February 2004. This was welcome news because it meant that retail had stopped a 25 month long losing streak. The Herald characterized this as modest news, and a sign of a gradual recovery in consumer spending.

South Korea's problem with the service sector began in 2002 when a consumer credit bubble burst. Interest rates of late have been at record lows, and there doesn't seem to be any sign that the central bank will be raising interest rates soon.

The Government has set a 2005 goal of 5 percent growth for the economy's business and consumer sectors.

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