August 27, 2012
Summary
◆The latest indicators of corporate activity suggest the recovery is increasingly likely to stall over the short term. Industrial production gained 0.4% m/m, rising for the first time in three months but still lacking momentum. Export value decreased for the first time in four months, falling 2.3% y/y. Visibility remains clouded as exports to China softened amid growing concerns about the economic slowdown there. Machinery orders (private demand, excl. orders for shipbuilding and from electric utilities) advanced 5.6% m/m, climbing for the first time in two months. However, it appears orders have remained weak in view of the decline a month earlier, with the Jul-Sep outlook calling for negative growth. On balance, indicators of corporate activity may slow down temporarily but we expect them to be largely solid going forward thanks to reconstruction demand following the Great East Japan Earthquake.
◆Household indicators raised concerns about a modest lull in employment, incomes, and consumption. Real household consumption expenditures (excl. spending on housing/automobiles) fell 2.1% m/m, retreating for the second straight month. The unemployment rate improved 0.1 percentage point m/m, while the ratio of job offers to applicants rose 0.01 point m/m. Cash earnings slipped 0.4% y/y, falling for the second straight month. Contracted cash earnings dropped for the first time in five months with a 0.1-point y/y decline. We see employment, incomes, and consumption faring solidly as relatively healthy manufacturing activities should provide support.
◆Upcoming statistical announcements include the financial statement statistics of corporations by industry (slated for 3 Sep). As yen appreciation raises concerns about a hollowing-out of the industrial base, the statistics are likely to serve as an important yardstick to gauge corporate capex. Our focus also rests on the second preliminary Apr-Jun GDP estimates that reflect a revision to the first estimates after the announcement of the financial statement statistics.
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