Japan November Core Machine Orders Slump for 1st Drop in 3 Months on Lower Demand from Manufacturers; Computer Orders Mixed

–Core Orders Mark 9th Straight Y/Y Drop Despite Solid FY23 Capex Plans

–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 much weaker than expected in November, down 4.9% for the first drop in three months after a surprise 0.7% rise in October, amid uncertainty over global growth and a pullback in computer demand from some industries after recent gains, data released Thursday by the Cabinet Office showed.

Core private-sector machinery orders, which exclude volatile orders from electric utilities and for ships, marked their ninth straight decline from a year earlier, down 5.0% (worse than the consensus call of a 0.6% dip), following a 2.2% fall in the prior month.

The Cabinet Office maintained its assessment after downgrading it in January 2023 for the November 2022 data, saying, “Machinery orders are pausing.”

“The three-month moving average for core orders fell 0.9% in November but that is not a major fluctuation compared to the 0.5% rise in October, so we are leaving our assessment unchanged,” a Cabinet Office official told Mace News. 

Companies are generally cautious about implementing their solid capital investment plans for fiscal 2023 ending in March, as seen in the second straight quarterly decline in capex in the July-September GDP data. There is strong 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 the December quarter showed large firms revised down their plans for investment in equipment for fiscal 2023 only slightly from the September survey while smaller firms continued raising their capex plans. The survey also showed stronger-than-expected business sentiment in both the manufacturing and non-manufacturing sectors.

The key points from machinery orders data:

* Core machinery orders slumped 4.9% from the previous month on a seasonally adjusted basis to ¥816.7 billion in November, hitting the lowest amount since ¥804.3 billion in April 2021, after rising 0.7% to ¥858.7 billion in October. It was weaker than the median economist forecast of a 1.5% fall (forecasts ranged from a 4.2% drop to a 0.5% gain).

* Orders from manufacturers plunged 7.8% on the month in November after rising 0.2% in October while those from non-manufacturers in the core measure edged down 0.4% after rising 1.2% the previous month.

* The decrease in core orders in November was led by lower demand for boilers and turbines from “other manufacturers” in playback for an increase in the prior month as well as cranes and conveyors from general and production machine makes. Orders for computers from telecommunications firms rose while those from financial firms and information service providers fell. 

* Machinery orders in the fourth quarter are unlikely to hit the official projection.

Last month, the Cabinet Office forecast that core orders would edge up 0.5% in the October-December quarter, led by a sharp rebound in orders from the non-manufacturing sector, which is expected to offset a second straight quarterly drop in those from the manufacturing sector. In order to meet this forecast, core orders would have to rebound by 7.2% in December.