Japan: Machinery orders plunge in September
November 10, 2011
Machinery orders, a leading indicator of capital spending over a three to six month period, are still not showing a clear recovery trend. In September, core machinery orders (private sector, excluding volatile orders) dived at the fastest rate in one year and contracted a seasonally adjusted 8.2% over the previous month. The September print contrasted the 11.0% expansion recorded in August and undershot market expectations that had orders falling 7.1%. The contraction was the result of a marked deterioration in manufacturing orders, whereas non-manufactory orders rebounded. In addition, overseas demand for machinery, which determines future exports, plummeted sharply. Compared to the same month last year, core machinery orders rose 9.8% in September, which was above the 2.1% increase recorded in the previous month, but below the 10.6% expansion expected by market analysts. The drop recorded in September seems to suggest that the recovery from the 11 March disaster has stalled on the back of global uncertainties and the rising yen. Accordingly, the Cabinet Office downgraded its basic assessment for the first time since November 2010 and currently sees that moves in machinery orders are one step forward, one step back. In addition, the Cabinet expects that machinery orders will contract 3.8% in the fourth quarter.