June Machinery Orders

Jul-Sep period sees non-manufacturing orders achieving major growth

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August 10, 2017

  • Kazuma Maeda
  • Shunsuke Kobayashi

Summary

◆According to statistics for machinery orders in June, the leading indicator for domestic capex and private sector demand (excluding ships and electrical power), orders declined for the third consecutive month at -1.9% m/m contrary to expectations according to market consensus (+3.6%). Non-manufacturing (excluding ships and electrical power) grew for the first time in four months at +0.8%, while manufacturing suffered a decline for the first time in five months at -5.4%, pulling down overall results along with it.


◆As a result, the Apr-Jun 2017 period now expects private sector demand (excluding ships and electrical power) to decline by -4.7% q/q, with manufacturing orders up by +3.7%, and non-manufacturing orders (excluding ships and electrical power) down by -9.9%. Non-manufacturing orders have clearly been in a declining trend recently in comparison to manufacturing orders.


◆The Cabinet Office forecast for the Jul-Sep 2017 period sees private sector demand (excluding ships and electrical power) moving back into the positive range at +7.0% q/q. Looking at orders by source of demand we see manufacturing down by -1.8% and non-manufacturing (excluding ships and electrical power) up by +13.5%. Non-manufacturing is expected to make a comeback from its former declining trend to achieve major growth.


◆Machinery orders, the leading indicator for capex, are expected to experience ups and downs in the future. Operating rates in the manufacturing industry have been in a growth trend since the second half of last year, but although investments in maintenance and repair appear promising, propensity to invest in capacity increase is not great. Meanwhile, the non-manufacturing industries are expected to carry out investments in transport and distribution infrastructure with the continuing growth in foreign visitors to Japan, as well as expectations regarding the 2020 Tokyo Olympics and Paralympics.

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