October Machinery Orders

◆Machinery orders (Cabinet Office [CAO]; private sector excl. those for shipbuilding and from electric utilities; leading indicator of domestic capex) posted the first gain in three months in October (up 2.6% m/m), but short of consensus expectations (up 3.0%). On a three-month moving average basis, orders saw the second monthly slide in a row, meaning the underlying downtrend continues.

◆By demand source, manufacturing orders declined for the first time in two months (down 3.6% m/m). Among manufacturing orders, a reactionary slide to the September gain was seen for those from the iron/steel industry (down 13.1%) and those from the info/communications equipment industry continued to decline (down 12.5%), decreasing overall manufacturing orders. Non-manufacturing orders (private sector excl. those for shipbuilding and from electric utilities) made the third consecutive monthly gain (up 2.8%). Among non-manufacturing orders, substantial gains following lengthy stagnation were seen for those from the construction industry (up 36.2%) and leasing industry (up 102.3%), and those from the information services industry remained firm with the third consecutive gain in a row (up 23.9%), driving overall nonmanufacturing orders.

◆The CAO projects that machinery orders will increase 5.0% q/q, the first gain in three quarters for Oct-Dec. To meet the projection, they have to increase 6.5% m/m in both November and December, not an easy hurdle. However, they would see positive q/q growth in Oct-Dec if they increase 1.5% m/m in these two months, a feasible hurdle. Given the tendency that machinery orders lead GDP-based capex by around three months, capex will likely begin to recover from 2013 onward.