November Machinery orders - Too soon to feel bullish on capex

Jan.13, 2013, 14:00 JST

Summary

 

In November, the seasonally adjusted core domestic machinery orders expanded by 3.9% month on month (MoM). The result was moderately above the prior market expectation (0.5% MoM) definately reassuring as the growth in November comes on top of the 2.6% MoM growth in October. Having said that, as you could see from the chart below, the level of the orders is still low and orders from manufacturers are hardly increasing. The recovering trend is certainly welcome but it is yet too soon to feel bullish on domestic capital expenditure outlook for 2013.   

 

Domestic machinery orders still not beyond stagnation

Source: Cabinet Office, CEIC, JMA

 

By source of orders, we see that there is yet no sign of recovery in the orders from manufacturers. On the other hand, machinery orders from non-manufacturers have been largely stable over the past few years and they seem to be expanding moderately in the last few months.   

 

Machinery orders from manufacturers are still in stagnation

Source: Cabinet Office, CEIC, JMA

 

Looking beyond domestic orders, we see that the orders from overseas are expanding robustly in the last few months. Between September to November, the orders rose by 28%. But again, as you can see from the chart below, the level is still 25% below what it was as recently as January 2012.  

 

Overseas orders expanded by 28% in the last three months

Source: Cabinet Office, CEIC, JMA

 

Conclusion: Still in stagnation with only patches of hope

Overall, the November machinery orders report suggests that Japanese businesses remain cautious in their capital investment decision. There are some marginally encouraging signs, it is too soon to form a hope for a meaningful expansion in domestic capital expenditure in 2013.