–Core Orders Post 3rd Straight Y/Y Rise After Marking 1st Rise in 13 Months in March
–Cabinet Office Downgrades View Only 2 Months After Upgrading It: Pickup in Machine Orders Pausing Vs. Orders Showing Signs of Pickup
By Max Sato
(MaceNews) – Japanese core machinery orders, the key leading indicator of business investment in equipment, unexpectedly posted a second straight drop in May, down 3.2% on the month, on a pullback in those for computers from the communications and financial industries but overall demand for digitizing operations remains strong, data released Thursday by the Cabinet Office showed.
The indicator, which tends to fluctuate widely from month to month, came in much weaker than the median economist forecast of a 0.7% increase (forecasts ranged from a 0.5% drop to a 3.0% rise) and followed a 2.9% drop in April, which was the first decrease in three months. The three-month moving average of core orders fell 1.1% in the March-May period after rising 2.4% in February-April.
As a result, the Cabinet Office downgraded its assessment for the first time in four months and only two months after upgrading it, saying, “The pickup in machinery orders is pausing.” Last month, it said, “Machinery orders are showing signs of a pickup.”
However, companies in general have solid plans for investing in automation amid labor shortages and in digitization and emission control. The Bank of Japan’s quarterly Tankan survey for June released last week showed firms revised up their capital investment plans for fiscal 2024 that began in April.
Orders from manufacturers rose 1.0% on the month in May after slumping 11.3% in April and soaring 19.4% in March, led by those for computers and X-ray equipment from electric machine makers as well as for computers and cranes/conveyors form producers of information communications equipment. Orders from non-manufacturers fell 7.5% after rebounding 5.9% in April and dipping 11.3% in March due to declines in orders for communications equipment and computers from telecommunications firms and those for boilers and turbines from the real-estate industry.
Core machinery orders, which track the private sector and exclude volatile orders from electric utilities and for ships, showed a third straight year-over-year increase, up 10.8%, after increases of 0.7% in April and 2.7% in March, which was the first rise in 13 months. It was higher than the consensus forecast of a 7.1% increase.
In May, the Cabinet Office forecast that core orders were likely to slip back 1.6% in the April-June quarter for the first drop in two quarters after a solid 4.4% rebound in January-March, which are expected to be pulled down by both the manufacturing and non-manufacturing sectors in payback for recent gains.
In order for core orders to meet the official projection, they must not fall more than 2.4% on the month in June. The indicator would have to rise at least 2.6% in June to avoid a drop in the second quarter.
Core orders fell to a four-month low of ¥857.8 billion on a seasonally adjusted basis in May after slipping to ¥886.3 billion in April and surging to ¥913.0 billion in March, which was the largest since ¥920.1 billion in January 2023.