November 2016 Machinery Orders

◆According to statistics for machinery orders in November 2016, the leading indicator for domestic capex and private sector demand (excluding ships and electrical power), orders fell for the first time in two months by -5.1% m/m, while at the same time falling below market consensus at -1.7%. While manufacturing won growth of +9.8% m/m, non-manufacturing (excluding ships and electrical power) suffered a decline of -9.4%, bringing downward pressure on overall performance.

◆Looking at orders by source of demand in November, the manufacturing industries grew for the first time in four months at +9.8% m/m, though in the balance manufacturing is seen as marking time. Non-manufacturing orders (excluding ships and electric power) declined for the first time in two months by -9.4% m/m. The trend for orders in non-manufacturing maintains a relatively high level, but as of this point in time, performance continues to experience ups and downs. Meanwhile, overseas orders grew for the fourth consecutive month at +37.3% 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.