Japan machinery orders: July 2012 not quite at the bottom yet

by SR on September 12, 2012

Japan machinery core private orders, seasonally adjusted (billion yen)

Two good months on the trot

Conclusion: ESRI machinery orders are still lagging JTMBA machine tool orders, as is only to be expected, but there are signs of a bottom forming. As I mention in this post yesterday, I’m starting to dig through the debris for machinery stocks – maybe Komatsu as a long and Keyence as a short.

This morning at 8:50am the ESRI reported Japan machinery orders for July 2012. This is a closely watched data series, as machinery tends to have long lead times and thus can give hints on the direction of capex. The key part is the private (i.e. domestic non-public) orders from which orders for ships and power generation equipment have been subtracted, as these are large and have long lead times. These ‘core private’ orders rose on a seasonally adjusted basis by 4.6% in July 2012 compared to June 2012. In June, the same series rose by 5.6% month-on-month, so we’ve now had two consecutive months of improvement and fairly decent ones as well – increases of 4-5% have been in short supply over the past couple of years.

Little rays of hope

However, you can’t eat seasonally adjusted orders any more than you can eat relative performance. At the end of the quarter companies will not be posting seasonally adjusted sales or profits, they use the real underlying values, based on dollar or yen-value orders. If we look at the non-seasonally adjusted data, core private orders in July 2012 rose by 1.7% year-on-year (-16.4% month-on-month) to 670.3 billion yen. Let’s look at the same figures year-to-date, from January to July.

Cumulative orders from January to July 2012 reached 5,248.2 billion, which is 1% higher than for the same period in 2011. It is at least growing, but remember that the Northern Japan earthquake disrupted industry quite severely in the first half of 2011 – it should be an easy year-on-year comparison and we get just +1% over 2011. The chart below shows this: the red line (2012 orders) is almost indistinguishable from the blue line of 2011 and the purple and orange lines showing 2010 and 2009 orders respectively. Notice that for most of this year there was a small gap visible between 2012 and 2011 orders, but that has vanished. So we’re not quite at the bottom yet.

Japan machinery core private orders, cumulative year-to-date (billion yen)

Stabilising?

But maybe we’re being too negative. As the chart below shows, cumulative orders from January to June 2012 rose by 0.9% but January to July cumulative orders rose 1.0%. Nothing to write home about, yet at least it stopped falling in July. Let’s be grateful for small mercies.

Year-on-year change in core private Japan machinery orders year-to-date (%)

Yesterday I pointed out in this post that the JMTBA Japan machine tool orders for August 2012 (they are released far more quickly) suggest that there may be a bottoming in demand for machine tools. The gap between machine tool orders year-to-date in 2012 and the same period in 2011 has been stable for three months running. While today’s ESRI machinery orders are not quite there yet, maybe they too are starting to flatten out.

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