–January Weakness Partly Due to Suspended Vehicle Output Amid Safety Test Scandal
–Core Orders Mark 11th Straight Y/Y Drop Despite Solid Capex Plans
–Cabinet Office: Machine Orders Have Weakened Vs. Pausing
By Max Sato
(MaceNews) – Japanese core machinery orders, the key leading indicator of business investment in equipment, fell 1.7% on the month in January, hit by a slump in orders from manufacturers partly due to suspended vehicle output over a safety test scandal, giving up most of a downwardly revised 1.9% gain in December, data released Monday by the Cabinet Office showed.
The January figure was weaker than the median economist forecast of a 0.7% drop. Orders from manufacturers, including chemical companies and automakers, plunged 13.2% on the month while those from non-manufacturers rose 6.5%, led by transportation. Demand for computers remained mixed.
Recent data were updated in an annual revision to seasonal adjustments: The December rise was revised down to 1.9% from 2.7% and the November fall was revised up to 3.7% from 4.9%.
Core machinery orders, which track the private sector and exclude volatile orders from electric utilities and for ships, marked their 11th straight decline from a year earlier, down 10.9% (consensus was a 9.8% drop), following a 0.7% dip in the prior month.
The Cabinet Office downgraded its assessment after holding it for more than a year, saying, “Machinery orders have weakened recently.” The change was triggered by a large 1.2% drop in the three-month moving average for the core measure, which was a third straight monthly decline. Previopusly, the Cabinet Office had described orders as “pausing.” The latest expression was last used in April and May 2020, just before orders showed a clearer fall in the initial phase of the pandemic.
Companies are gradually implementing their solid capital investment plans, as seen in the GDP data for the final quarter of 2023 that showed business investment posted the first rise in three quarters with a 2.0% jump. There is strong demand for automation amid labor shortages as well as government-led digitization and emission control.
Other details from machinery orders data:
* Core machinery orders fell 1.7% from the previous month on a seasonally adjusted basis to ¥823.8 billion in January after rising a revised 1.9% to ¥837.8 billion in December and falling a revised 3.7% to ¥821.9 billion in November, which was the lowest amount since a revised ¥795.8 billion in April 2021. The latest figure was weaker than the median economist forecast of a 0.7% drop (forecasts ranged from a 4.1% drop to a 2.4% gain).
* The downgrade in the assessment of machinery orders was the first since January 2023 for November 2022 data. The Cabinet Office has downgraded its view twice since it upgraded it in June 2022 for April 2022 data, which showed signs of a pickup at the time.
* Machinery orders made a poor start to the first quarter of 2024, when the core measure is predicted by the Cabinet Office to rise 4.9% (revised up from a 4.6% gain forecast last month) for the first increase in four quarters, led by a sharp gain in orders from the manufacturing sector and a modest rise in those from non-manufacturers. But core orders would have to rise 6.6% in each of February and March to hit the forecast. “It is a tough situation,” a Cabinet Office official told Mace News. “Orders from the auto industry fell for the second straight month. We have to keep a close watch.”
* The forecast for the January-March quarter is still based on the Cabinet Office survey concluded by Dec. 25, which means the effects of the powerful New Year’s Day earthquake and suspension of all domestic production by Toyota Motor group firm Daihatsu over a vehicle safety scandal from late December until mid-February are not reflected in the outlook provided by firms.