October 2016 Machinery Orders

◆According to statistics for machinery orders in October 2016, the leading indicator for domestic capex and private sector demand (excluding ships and electrical power), orders grew for the first time in three months by +4.1% m/m, while at the same time exceeding market consensus at +1.1%. Manufacturing suffered a decline of -1.4% m/m, but non-manufacturing (excluding ships and electrical power) grew by +4.6%, helping to increase overall results.

◆Looking at orders by source of demand in October, the manufacturing industries declined for the third consecutive month by -1.4% m/m. Manufacturing industry orders continue weak performance. Non-manufacturing orders (excluding ships and electric power) grew for the first time in three months by +4.6% m/m. The trend for orders in non-manufacturing maintains a relatively high level, and the industry is expected to continue the favorable trend in the future. Meanwhile, overseas orders grew for the third consecutive month at +1.9% m/m.

◆Machinery orders, the leading indicator for capex, are expected to mark time in the future. With domestic demand continuing to lack strength, corporate earnings in the manufacturing industry show signs of peaking out. Consequently, corporations are becoming increasingly cautious as regards capex spending. However, supply and demand for labor remains tight, making investment in rationalization and labor-saving devices likely, while the non-manufacturing industries maintain a high level of recurring profits, and 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.