Japan September Core Machine Orders Post 1st Rise in 3 Months on Service Sector Demand for Computers

–Core Orders Slip Q/Q in July-September but Smaller Than Officially Forecast

–October-December Orders Projected to Show Slight Rebound 

–Cabinet Office Keeps View: Machine Orders Pausing

By Max Sato

(MaceNews) – Japanese core machinery orders, the key leading indicator of business investment in equipment, rebounded an above-forecast 1.4% on the month in September after a slight 0.5% dip in August, as continued demand for computers from services providers including leasing, financial and telecom firms more than offset lower manufacturer orders for chemical and production equipment, data released Thursday by the Cabinet Office showed.

Core orders marked their seventh straight decline from a year earlier, down 2.2%, with the pace of decline decelerating from 7.7% in August. In contrast to strong capital investment plans for fiscal 2023, actual implementation has been slower than expected amid global uncertainty.

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, rose 1.4% from the previous month on a seasonally adjusted basis to ¥852.9 billion in September after slipping 0.5% to

¥840.7 billion in August, 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 increase in September was higher than the median economist forecast of a 1.0% rise (forecasts ranged from a 2.3% drop to a 2.7% gain).

* Orders from manufacturers fell 1.8% on the month in September after rising 2.2% in August and falling 5.3% in July while those from non-manufacturers in the core measure rose 5.7% after falling 3.8% in August for the first drop in three months.

* The increase in core orders in September was led by higher demand for computers from leasing firms, the financial industry and telecom service providers as well as orders for computers from electric machinery makers and engines from shipyards. On the downside, lower orders came from chemical producers for separators and from production machinery makers for cranes and conveyors.

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

* Core orders fell 1.8% on quarter in the July-September quarter, coming in firmer than the official forecast of a 2.6% decrease provided in August. It followed a 3.2% dip in April-June, a 2.6% rebound in January-March and a 4.7% drop in October-December.

* The Cabinet Office forecast that core orders would edge up 0.5% in the October-December quarter, led by a solid rebound in orders from the non-manufacturing sector, which is expected to offset a second straight quarterly drop in those from the manufacturing sector.

* Core orders fell 2.2% from a year earlier in September for the seventh straight decline after falling 7.7% in August and plunging 13.0% in July, which was partly 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 firmer than the median economist forecast of a 3.5% drop. Forecasts ranged from 6.1% to 2.6% falls.