Japan August Core Machine Orders Edge Down for 2nd Straight M/M Drop as Overall Demand for Computers Takes a Breather After Recent Gains  

–Demand for Computers and Communications Equipment Rises Among Some Industries

–Cabinet Office Keeps View: Machine Orders Pausing

By Max Sato

(MaceNews) – Japanese core machinery orders, the key leading indicator of business investment in equipment, came in weaker than expected with a slight but second straight drop on the month in August as demand for computers and communications equipment slipped back among some industries, offsetting continued solid orders for those digitization items from others, data released Thursday by the Cabinet Office showed.

Core orders marked their sixth straight decline from a year earlier, with the pace of decline decelerating from July.

Capital investment is supported by demand for automation amid labor shortages as well as government-led digitization and emission control. The Bank of Japan’s quarterly Tankan business survey for September showed large corporations revised up their plans for investment in equipment slightly for fiscal 2023 that began in April, as largely expected, and smaller firms raised their capex plans much more sharply than forecast.

The key points from machinery orders data:

* Core private-sector machinery orders, which exclude volatile orders from electric utilities and for ships, fell 0.5% from the previous month on a seasonally adjusted basis to ¥840.7 billion in August after falling 1.1% to ¥844.9 billion in July, rising 2.7% to ¥854.0 billion in June and plunging 7.6% to ¥831.5 billion in May, which was the lowest amount since ¥825.2 billion in February 2022. The decrease in August was weaker than the median economist forecast of a 0.1% rise (forecasts ranged from a 2.4% drop to a 1.5% gain).

* The Cabinet Office has projected that core orders would dip a further 2.6% in the July-September quarter, led by declines in orders from both the manufacturing and non-manufacturing sectors, after falling 3.2% in the previous quarter.

* Orders from manufacturers rose 2.2% on the month in August after falling 5.3% in July and rising 1.6% in June, while those from non-manufacturers in the core measure fell 3.8% for the first drop in three months after rising 1.3% the previous month.

* The decrease in core orders in August was led by slower demand for computers and communications equipment from the financial and insurance industries as well as lower orders for nuclear power facilities and computers from non-ferrous metal producers and aircraft from “other non-manufacturers.” On the upside, higher orders came from chemical producers for computers, the auto industry for metal working machinery and leasing firms for computers and construction machinery.

* The Cabinet Office maintained its assessment after downgrading it in January for the November data, saying, “Machinery orders are pausing.” The three-month moving average rose 0.4% in the June-August period after sliding 2.1% in May-July, being unchanged in April-June and falling 2.1% in March-May.

* Core orders fell 7.7% from a year earlier in August after plunging 13.0% in July partly, which was in reaction to a sharp 12.8% gain seen in July 2022. It followed decreases of 5.8% in June, 8.7% in May, 5.9% in April and 3.5% in March and a 9.8% jump in February. It was weaker than the median economist forecast of a 6.1% drop. Forecasts ranged from 10.5% to 4.3% falls.