July Machinery Orders

Short of expectations but favorable overall

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September 12, 2013

  • Shotaro Kugo

Summary

◆Machinery orders (CAO; private sector excl. those for shipbuilding and from electric utilities) saw the second consecutive m/m decline in July (down 0.0%) and short of consensus expectations (up 2.4%). However, they saw the first gain in two months on a three-month moving average basis, confirming the underlying uptrend continues.


◆By demand source, manufacturing orders increased 4.8% m/m, the third consecutive monthly gain, driven by advances in those from materials industries—pulp/paper/paper products (up 993.2%) and nonferrous metals (up 202.0%). However, this was due to multiple midsize projects (Y1-10 bil) taking place at a same time. Thus, it should be discounted to some extent. Non-manufacturing orders (excl. those for shipbuilding and from electric utilities) saw the first m/m gain in two months (up 0.0%).


◆Overseas orders saw the first m/m gain in two months (up 1.4%). However, this was somewhat disappointing, factoring in a plunge in June. Nevertheless, looking at exports of general machinery in the Trade Statistics (Ministry of Finance), those to the EU and China began to signal a bottoming out. Thus, overseas orders will likely continue to grow.


◆As a whole, machinery orders continue to recover. While CAO projects a decline of 5.3% q/q for machinery orders in Jul-Sep 2013, the first slide in two quarters, this would transpire if they decline 6.7% m/m in both August and September. If they decline 1.3% in each month, they would post the second consecutive q/q gain in Jul-Sep, an easy hurdle to clear. We believe the second consecutive quarterly advance is a very likely scenario.

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