November Machinery Orders

◆According to statistics for machinery orders in November 2014, the leading indicator for domestic capex, private sector demand (excluding shipbuilding and electrical power), were up by +1.3% m/m, while falling below market consensus (+4.4%). While results did achieve growth for the first time in two months, it was fairly limited considering the extent of last month’s decline, leading to the sense that something was to be desired.

◆Looking at results by source of demand, the manufacturing industries suffered a decline for the second month in a row at -7.0% m/m. Manufacturing orders continued their comeback after hitting bottom in May of last year, but the pace of that comeback has recently slowed. Non-manufacturing orders (excluding shipbuilding and electric power) grew for the first time in two months at +0.5% m/m. Growth was limited considering the extent of last month’s decline, and detailed data show much to be negative about with a broad range of industries reporting m/m declines. Performance was generally lacking in energy.

◆According to GDP statistics, Jul-Sep period capex fell in comparison with the previous quarter. Hopes had been pinned on capex to lead the economy back to growth after the April increase in consumption tax, but it was ultimately weaker than expected, and this weakness is considered to be one of the factors behind stagnant domestic demand. However, the coincident index for capex, shipments of capital goods, is steadily moving toward a comeback, and though machinery orders (a leading indicator) seem to be on the decline recently, they are seen as moving into an upswing when all is averaged out. In addition, the BOJ Tankan survey on planned capital spending shows a positive attitude amongst corporations towards capex. Hence we believe that capex spending is likely to recover and move into a growth phase later in the 2014 fiscal year.