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Capital spending down 1.2% in July-September quarter; GDP to be revised upward?

Earlier today, the Ministry of Finance reported that capital spending had fallen 1.2 percent during the July-September quarter. Following a 4.9 percent fall in the April-June quarter, this is the second consecutive quarter with a fall in capital spending.

According to the Ministry’s results, profit fell 0.7 percent at the firms surveyed. This was the first fall reported in five years.

Bloomberg, however, says that the fall is less than the 2.5 percent that had been predicted by its survey of economists. We also see the warning that risk is developing over Japan’s continued reliance on exports and the health of external markets.

Export growth to Asia has been particularly visible this year, making up for some of the loss that might have resulted from a dropoff in exports to the United States. The question now is whether Asian economies are healthy enough in order to keep growing at a sustained pace and continue with their demand for Japanese products.

Despite the negative news on capital spending, Reuters tells us that its survey of economists predicts a slight upward revision in Japan’s GDP figures for the second quarter. Preliminary figures from the Cabinet Office put second quarter GDP growth at 0.6%, for an annualized rate of 2.6%. The Reuters survey expects to see that revised upward to 0.7% quarterly and 2.7% annually.

The revised figures are set to be released just before 9am on Friday.

Nikkei: April-June GDP to be Revised Downward

Just yesterday, we speculated whether the unexpected drop in capital spending for the April-June quarter in Japan would translate into lowered expectations for revised GDP figures for that same quarter when the Cabinet Office announces them next Monday.

Back on August 13, the Cabinet Office announced in its preliminary GDP figure that GDP had grown 0.1% in the April-June quarter. However, this morning, the Nikkei announced that its survey of 13 private economists showed an expectation that revised GDP would come to -0.2%, for an annualized rate of -0.7%.

That pessimism, however, is not fully carried forward to the future. The Nikkei quotes Takahide Kiuchi of the Nomura Securities Financial and Economic Research Center as saying, “It is premature to say that capital spending will keep losing speed. Economic growth will slowly gain momentum from the July-September quarter.”

It’s a familiar tune. Hopefully we will actually get to hear it being played sometime soon.

Capital Spending Down 4.9% in the April-June Quarter

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).

Cabinet Office Raises GDP Projections

On Monday, the Cabinet Office announced that it was revising its GDP forecast for the current fiscal year upward from 2.0% to 2.1% growth. The Cabinet Office also said that it does not expect to see any inflation take hold in the economy during that time.

Exports and capital spending are expected to drive the GDP growth, with the Cabinet Office projecting a 3.8% increase in capital spending. The Bank of Japan projected capital spending increases at 7.7% in its most recent Tankan survey, and the Development Bank of Japan recently published a prediction of an 11% increase in a report last week.

Does this have any effect on predictions for the August Bank of Japan policy board meeting?

Fukui Called It! (Right?)

Just hours after the Ministry of Finance announced that capital spending had increased for the 16th consecutive quarter and that corporate profits were up 7.4% in the same quarter, Bank of Japan Governor Toshihiko Fukui told reporters after a meeting of the Council on Economic and Fiscal Policy that the numbers were just as he expected: “The survey results were within (our) forecast,” the Governor said, apparently without elaborating any further.

I wonder what else is in that crystal ball?

Capital Spending Marks its 16th Consecutive Quarter of Increase; Corporate Profits Up

As the Cabinet Office gets set to release revised GDP data for the first quarter of 2007, things are looking brighter on the corporate front. According to the Ministry of Finance, capital spending in Japan was up 13.6% in the first quarter of 2007, showing an increase for the 16th consecutive quarter, and a double-digit increase for the fifth straight quarter. Capital spending accounts for about 15% of GDP.

The Ministry also said that corporate profits in the first quarter of 2007 were up by 7.4% compared to the same period last year. This marks the 19th straight quarter of aggregate company gains, and matches the previous longest period of expansion recorded during the 1965-1970 economic boom.

So what does this all mean for the revising of GDP figures? Back on May 17, the Cabinet Office released its preliminary report on first quarter GDP growth, and projected it to have been 2.4% (annualized).

Those figures are set to be revised on June 11, and Bloomberg’s survey of economists places the revised figure at 3.2 percent, a figure that might make the Bank of Japan’s June Policy Board meeting slightly more interesting. We’re still standing pat that no rate hike will come until after the July Upper House elections, which means July is fair game for a rate hike.

Nikkei projection: Japan’s capital spending to increase for fifth straight year in 2007

Last year, capital spending by Japanese firms increased by 12.6%, showing a rise for the fourth consecutive year. Today, the Nikkei announced its projection that capital spending in Japan will again increase in 2007, though not at the same blistering pace as last year. The Nikkei is projecting an 8.7% rise this year.

The Nikkei’s projection is based on a survey of 1,556 companies located both in Japan and overseas. Major growth is expected from the shipbuilding industry, which is expected to increase capital spending by 41.1 percent, after having seen a decline of 15% last year.

The big news of the Nikkei’s report is that non-manufacturers are expected to spend more than manufacturers in 2007. The Nikkei projects a 9.8% increase for non-manufacturers and an 8% increase amongst manufacturers.

In its April report on the state of Japan’s economy, the Cabinet Office said machinery orders, which are viewed as a leading indicator of corporate capital spending, are forecast to fall 11.8% in the second quarter of 2007.

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