September 2016 Machinery Orders

◆According to statistics for machinery orders in September 2016, the leading indicator for domestic capex and private sector demand (excluding ships and electrical power), orders declined for the second consecutive month by -3.3% m/m, while at the same time falling below market consensus at -1.5%. Both manufacturing and non-manufacturing suffered declines for the second consecutive month showing negative results overall, but domestic demand (excluding ships and electrical power) for the entire Jul-Sep period was up by +7.3% on a q/q basis, exceeding the Cabinet Office’s outlook of +5.2%.

◆Looking at orders by source of demand in September, the manufacturing industries declined for the second consecutive month by -5.0% m/m, while non-manufacturing orders (excluding ships and electric power) also declined for the second consecutive month by -0.9% m/m. Meanwhile, overseas orders grew for the second consecutive month at +1.4% m/m.

◆Machinery orders, the leading indicator for capex, are expected to gradually decline in the future. With the stagnant world economy and the strong yen/weak dollar situation, as well as domestic demand lacking in strength, there is the growing sense that corporate earnings are about to peak out. Consequently, corporations are becoming increasingly cautious as regards capex spending. At the same time, however, supply and demand for labor remains tight, making investment in rationalization and labor-saving devices likely, while the non-manufacturing industries are expected to carry out investment in transport and distribution infrastructure. This should be a plus factor providing underlying support for machinery orders in the future.