Core private-sector machinery orders increased for the third straight month in December, the government said Thursday, strengthening optimism that the economy could bounce back with an upturn in corporate profits and prompting more companies to boost investment.
The orders, which exclude those for ships and from utilities because of their volatility, grew a seasonally adjusted 2.8 percent from November to ¥752.9 billion as higher stock prices and the weaker yen improved business sentiment, the Cabinet Office said.
The government raised its basic assessment of machinery orders, a leading indicator for capital spending by companies, for the first time in 10 months, saying they are “showing signs of moderately picking up.”
“A recovery in the stock market and the depreciation of the yen have made the manufacturing industry less pessimistic about the economic outlook and encouraged it to increase capital spending,” a Cabinet Office official said.
Machinery orders are expected to continue to rise for the next few months as the government of Prime Minister Shinzo Abe, formed Dec. 26, plans to carry out large-scale public works projects to bolster domestic demand and prevent prices from falling, analysts said.
The Abe administration has “hammered out measures aimed at conquering deflation and revitalizing the economy in a rapid-fire manner,” which could “drive corporate profits,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
If domestic demand recovers with corporate performance improving, that could “provide a tailwind to business investment,” which has been sluggish for an extended period under deflation, he added.
In December, orders from the manufacturers rose 3.0 percent to ¥295.7 billion, up for two months in a row, while those from nonmanufacturers slid 8.0 percent to ¥437.6 billion.
In 2012, core orders dropped 0.9 percent from 2011 to ¥8.81 trillion, down for the first time in three years, with manufacturers decreasing 7.0 percent and nonmanufacturers increasing 3.7 percent.
Looking ahead, the office estimated that core orders will expand 0.8 percent in the three months through March, from the 2.0 percent increase in the previous quarter. The orders gained 3.9 percent in November and climbed 2.6 percent in October.
Abe calls his economic policy goals the “three arrows” of bold monetary policy, growth strategies and flexible fiscal spending.
Last month, the administration endorsed a stimulus package entailing ¥10.3 trillion in central government funds in an attempt to add around 2 percentage points to real gross domestic product growth and create at least 600,000 jobs.
In January, the Cabinet also approved a record ¥92.61 trillion initial general account budget for fiscal 2013, which starts April 1.
Economists project the economy grew for the first time in three quarters during the three months through December, up an annualized real 0.6 percent, on the back of the government’s fiscal expansion, a Kyodo News survey showed last week.
The machinery order data covered orders received by 280 selected makers.
Composite index rises
Japan’s benchmark composite economic index marked its first rise in nine months in December, the government said Thursday.
The index of coincident indicators, such as industrial output, retail sales and new job offers, stood at 92.7, up 2.5 points from November, against the 2005 base of 100, the Cabinet Office said in a preliminary report. The margin of increase was the third-largest since record compiling started in January 1985.
“Production and shipments seem to be growing in a broad range of industries,” especially capital and construction goods, a Cabinet Office official said.