Capital Spending Down 4.9% in the April-June Quarter

September 3, 2007
By Ken Worsley

According to data released today by the Ministry of Finance, capital spending in Japan fell 4.9% in the April to June 2007 quarter. This is the first decline in the quarterly year-on-year figures after seventeen consecutive quarters of growth in capital spending.

Although manufacturers spent 11.7% more on plant and equipment that they had in the same quarter last year, non-manufacturers dragged that figure down by spending 13.1% less in the same period. The report shows service industry firms spending 20.1% less and real estate firms down 47.3%. Increased interest rates and weak demand for rental units are named as sources of the decline.

One of the key figures may be when we look at capital spending by business size. According to the Ministry, capital spending at large firms (with over 1 billion yen in capitalization) was up by 2.5% in April-June, while at mid-size firms (capitalization over 100 million yen) it shrank by 3.7%. At small firms, however, capital investment plummeted by 19.9%.

Revised GDP data for the April-June quarter will be released next Monday. Preliminary data from the Cabinet Office had GDP up 0.1% in that quarter, and had assumed a 1.2% rise in capital spending. It will be interesting to see if they call it flat or are willing to go into negative territory, or if we might find that consumer spending was really much higher than first thought (it really wasn’t).

Filed Under Capital Spending, Economic Reports, Ministry of Finance