Marcel Thieliant, Senior Japan Economist at Capital Economics, explains that while Japanese machinery orders fell sharply in December, they were broadly unchanged in the fourth quarter as a whole.
“However, we already know from yesterday’s release of the GDP data that business investment continued to expand in Q4 and the figures released today don’t provide much additional insight.”
“Machinery orders excluding ships and those by utilities declined by 11.9% m/m in December. The result was much weaker than the Bloomberg median of a 2.6% m/m drop. However, this is hardly a disaster as orders had reached a nine-year high in November.”
“Orders in both manufacturing and non-manufacturing fell, by 13.3% m/m and 7.3% m/m respectively. The former was due to a 32.7% m/m drop in “other manufacturing” and an 83.7% m/m plunge in non-ferrous metals. The latter isn’t a big concern since non-ferrous metals leapt by 309.3% m/m in November. The drop in non-manufacturing was due to a 38.5% m/m fall in wholesale and retail.”
“Yesterday’s release of the preliminary estimate of Q4 GDP showed a 0.7% q/q rise in non-residential investment, the fifth consecutive increase. Machinery orders don’t feed into the second preliminary estimate, due in three weeks’ time, so the additional insight gained from today’s release is limited.”
“That said, the preliminary GDP estimate doesn’t provide a further breakdown of investment spending. Machinery orders fell by 0.1% q/q last quarter and suggest that the upward trend in spending on machinery and transport equipment paused. In contrast, capital goods shipments excluding transport equipment, another reliable indicator of spending, recorded a strong increase last quarter.”
“Looking ahead, firms are reporting the most severe capacity shortages since the early 1990s. The upshot is that non-residential investment should continue to expand this year. We’ve pencilled in a 2% rise.”
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