February machinery orders down; March machine tool orders up

April 12, 2008
By Ken Worsley

There have been a few relevant economic reports that we haven’t had the time to touch on this past week, so now is a good time to play a bit of catch-up and look at some of the numbers coming in. This post will cover machinery orders and machine tool orders, which hardly sound exciting but do give an indication as to how Japan’s manufacturing sector is faring.

First, a sharp drop was seen in machinery orders in February. Compared to a year before, February 2008 saw a 12.7% decline in the value of such orders, to 1.06 trillion yen. This drop comes on the heels of a 19.6% increase seen in January. The Cabinet office has described machinery orders as “seesawing” for the past 10 months, and feels that the first quarter totals from 2008 will be higher than those of 2007 - even if a slide of up to 17.9% is seen in March.

The Cabinet Office has forecasted a 3.5% increase in machinery orders for the first quarter, and for that to happen we would need to see a 7.6% gain in March. The “seesaw” may tell us otherwise, but we still expect to see a quarterly increase against the January-March period from a year ago. If the total does actually represent an increase, it will be the third consecutive quarter to have done so.

However, the most recent Tankan survey gives little reason to be optimistic about machinery orders for the rest of the year, as many firms have expressed a desire to hold back on capital spending in 2008. It does look as though capex will continue to grow, though not at the rate seen over the past few years.

One telling statistic is that orders from the transport sector dropped 52.6% in February while those from the electricity sector fell 35.5%. As we know, the transportation industry has been hit hard by bankruptcies over the past year.

Also this past week, the Japan Machine Tool Builders Association announced that machine tool orders were up 2.9% in March after having been down 0.5% in February and flat in January. Looking at a breakdown of the numbers, we see that orders from overseas increased by 11.2% against March of 2007 while domestic orders fell by 5.8%. The domestic figure is a tad worrying, though not wholly unexpected after the strong numbers seen a year ago. Once again, the primary worry for the Japanese economy as a whole is that capital spending will slow at firms that feel less and less certain about earnings over the coming quarters.

Filed Under Business, Cabinet Office, Economic Reports