May Machinery Orders

Non-manufacturers’ capex becoming active

RSS
  • Tsutomu Saito

Summary

◆Machinery orders (Cabinet Office [CAO]; private sector excl. those for shipbuilding and from electric utilities; this basis hereafter unless otherwise specified) advanced 10.5% m/m in May, the first gain in two months, substantially surpassing consensus expectations (up 1.9%).


◆By demand source, manufacturing and non-manufacturing orders posted the first gains in two months, advancing 3.8% and 25.4% m/m, respectively. Manufacturing orders were driven by advances in those from the chemical and general machinery industries. Non-manufacturing orders exhibited a robust rise, mainly due to sharp gains in those from the financial/insurance industry and transportation/postal services.


◆Overseas orders posted the first m/m gain in two months (up 10.3%). Looking at exports of general machinery, those to the US maintained an uptrend and those to China began to signal a bottoming. Considering that the effects of a weaker yen will emerge in earnest going forward, overseas orders will likely continue to grow.


◆We expect machinery orders to post the first q/q gain in five quarters in Apr-Jun 2013. Given that sentiment of insufficient capacity intensified among non-manufacturers in the Bank of Japan’s June Tankan survey of corporate sentiment, and looking at machinery order trends, we expect industries, centering on communication services and retailing, will probably pursue active capex going forward. Meanwhile, sentiment regarding capacity remained on the excess side among manufacturers in the Tankan survey. At the same time, the Tankan and other surveys indicate that manufacturers’ earnings are likely to improve, benefitting from booming consumption and a weaker yen. However, this will not necessarily lead to production enhancement investment. Nevertheless, we expect investment to replace obsolete facilities to improve productivity will gradually increase going forward.

Daiwa Institute of Research Ltd. reserves all copyrights of this content.
Copyright permission of Daiwa Institute of Research Ltd. is required in case of any reprint, translation, adaptation or abridgment under the copyright law. It is illegal to reprint, translate, adapt, or abridge this material without the permission of Daiwa Institute of Research Ltd., and to quote this material represents a failure to abide by this act. Legal action may be taken for any copyright infringements. The organization name and title of the author described above are as of today.