Japan September Machine Orders Slump, Q3 Drop Largely as Expected; Q4 Rebound Seen 

–Japan Govt Downgrades View: Pickup in Machine Orders Pausing Vs. Orders Showing Signs of Pickup

By Max Sato

(MaceNews) – Japanese machinery orders, the key leading indicator of business investment in equipment, posted the second straight month-on-month drop in September amid slowing global economic growth, as lower demand for freezers, construction machines, and turbines offset higher orders for computers and telecommunications equipment, leading to a slight fall in the third quarter as largely expected, data released Wednesday by the Cabinet Office showed.

It follows Tuesday data that showed Japan’s gross domestic product for the July-September quarter unexpectedly slumped 0.3%, or an annualized 1.2% for the first quarter-on-quarter contraction as a surge in imports led by high costs and easing supply bottlenecks slashed net exports more sharply than expected, dampening the effects of resilient business investment and consumer spending.

Business investment in equipment rose a smaller-than-expected 1.5% on quarter, pushing up the third-quarter GDP by 0.2 percentage point. The second straight solid quarter-on-quarter growth in capex reflects the results of the Bank of Japan’s quarterly Tankan survey for September, which showed companies revised up their capex plans for fiscal 2022 ending next March.

The key points from machinery orders data:

* Core private-sector machinery orders, which exclude volatile orders from electric utilities and for ships, dropped 4.6% from the previous month on a seasonally adjusted basis to Y868.0 billion in September after plunging at a faster-than-expected 5.8% in August and rising an above-forecast 5.3% to Y966.0 billion in July, which was the largest amount since Y973.5 billion in June 2019. The September figure came in much weaker than the median economist forecast for a 0.6% rise, but it was still above the low end of the forecasts that ranged from a 7.0% drop to a 2.9% gain.

* Orders from manufacturers slipped 8.5% on the month in September after rebounding 10.2% in August and falling 5.4% in July while those from non-manufacturers in the core measure rose 5.0% after plunging 21.4% and climbing 15.1%, which was the largest increase since a 19.6% surge in November 2019.

* The decrease in core orders in September was led by lower demand for boilers and turbines from miscellaneous manufacturers, freezing machines from shipyards and transport firms as well as cranes and tractors from construction companies. The drops in those orders more than offset a rebound in orders for computers from manufacturers of electric and telecommunications machine makers and for communications equipment from the telecommunications industry.

* Core machinery orders fell 1.6% on quarter in the July-September quarter, coming in slightly firmer than the official forecast provided in August that the core measure would slip 1.8% following an 8.1% jump in April-June and a 3.6% dip in January-March. The Cabinet Office projected that core orders would rebound 3.6% in the October-December quarter.

* The Cabinet Office downgraded its assessment after upgrading it for the first time in four months in June for April data, saying, “The move toward a pickup in machinery orders has paused.” Until last month, it had said, “Machinery orders are showing signs of a pickup.” The three-month moving average fell 1.8% in the July-September period after being unchanged in June-August and edging up 0.1% in May-July. It had been trending up since the recent bottom hit during the early parts of 2020. 

* Core orders rose 2.9% from a year earlier in September for the 18th straight rise after rising 9.7% in August. It was well below the median economist forecast of a 7.2% rise (forecasts ranged from a 0.2% drop to a 9.6% gain).

* Orders from overseas, which are not part of the core measure, rose 6.3% on the month in September for the first rise in five months after plunging 18.9% in August and following decreases of 2.4% in July, 4.6% in June and 2.4% in May and a 52.1% surge in April. This category also rebounded 14.8% from a year earlier in September after slipping 3.3% in August for the first fall in six months and rising 3.0% in July and posting sharp gains of 26.4% in June, 28.3% in May and 38.2% in April.