September Machinery Orders

◆September machinery orders (Cabinet Office; private sector excl. those for shipbuilding and from electric utilities; this basis hereafter unless otherwise specified; leading indicator of domestic capex) declined 4.3% m/m, the second consecutive monthly slide and falling wider than the market consensus (down 2.1%). On a three-month moving average basis, orders had turned to increase in August but reversed to decline in September. Jul-Sep machinery orders declined 1.1% q/q, the second quarterly slide in a row, but almost on par with the Cabinet Office forecast (down 1.2% q/q).

◆By demand source, manufacturing orders increased 2.8% m/m for the first time in two months. Among manufacturing orders, reactionary gains to August slides were seen for those from the iron/steel (up 48.5%) and “other” transportation equipment industries (up 73.0%), driving overall manufacturing orders. However, the advance in manufacturing orders was small compared to the August plunge (down 15.1%), indicating that a downtrend continues as a whole.

◆Cabinet Office forecasts, released with September figures, project Oct-Dec machinery orders will increase 5.0% q/q, the first gain in three quarters. While manufacturing orders are projected to decline (down 6.9%) for the third consecutive quarter, non-manufacturing orders are projected to post a good showing (up 14.3%). Meanwhile, the market expects capex to decline in the first preliminary estimate of Jul-Sep GDP to be released on 12 November by the Cabinet Office. However, given the tendency that machinery orders lead GDP-based capex by around three months, capex will likely stagnate through end-2012 and begin to recover in 2013.