May Machinery Orders

◆According to statistics for machinery orders in May, the leading indicator for domestic capex and private sector demand (excluding ships and electrical power), orders declined for the second consecutive month at -3.6% m/m, while at the same time falling below market consensus at +1.6%. Manufacturing orders grew for the fourth consecutive month at +1.0% m/m, but non-manufacturing (excluding ships and electric power) suffered a decline for the third consecutive month at -5.1%, pulling down overall results along with it. In response to these results, the Cabinet Office changed its official economic assessment from “there are signs of some recovery but the economy remains at a standstill” to “the economy remains at a standstill.”

◆The Cabinet Office forecast for the Apr-Jun 2017 period sees private sector demand (excluding ships and electrical power) down for the second consecutive quarter by -5.9% q/q. Performance for orders in April and May was down by -3.5% in comparison to the Jan-Mar period, hence it is likely that actual performance for the Apr-Jun period will suffer a slight decline. While performance for manufacturing orders during the months of April and May averaged +5.5% in comparison to the Jan-Mar period, there are signs of a slowdown in non-manufacturing orders at -9.4%.

◆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 caution is required regarding exports to the US and Asia, whose economies have been exhibiting a weakening of their former growth trends. 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. However, one worrisome factor is that a reactionary decline has begun to appear after orders having continued on such a high level until now. We expect computers, conveying, elevating, and materials handling machinery, and industrial robots to do well in the future due to investments in labor saving equipment.