Core private-sector machinery orders plunged a seasonally adjusted 16.7 percent in July from the previous month, their biggest fall in 19 years, the government said Monday, but it downplayed the decline as a reaction to a surge in June.
The fall is the biggest since the government began compiling data in April 1987, the Cabinet Office said. The figure was weaker than the average market forecast of a 5.3 percent drop.
Core machinery orders for the month totaled 1.009 trillion yen. In June, orders were up 8.5 percent from the previous month.
A Cabinet Office official said the government left its assessment, that “core machinery orders are on an increasing trend,” unchanged.
“Although core machinery orders fell sharply in July, the movement is seen as a reaction to a surge in June, and the core orders tend to fluctuate month by month,” the official said.
Taking the large setback in July into account, however, core machinery orders would need to jump by 19.0 percent in both August and September to meet the government’s forecast of a 4.9 percent gain in the July-September quarter vs. April to June.
If core orders remain flat in August and September they will be down 12.7 percent in the third quarter, the official said.
“It means we need really high growth in the remaining two months of the July-September quarter, but it is not a completely impossible scenario as machinery orders have often marked double-digit rises in the past,” the official said.
The figure represents an unadjusted 1.2 percent drop from a year earlier, the first year-on-year decline in four months.
Though a bit surprised by the sharp fall in the July figure, many private-sector economists remained upbeat, saying core orders and capital spending will remain firm.
“Core orders from nonmanufacturers, particularly, were weaker than we expected, due mainly to a fall in orders related to mobile phones,” said Takuji Aida, chief economist at Barclays Capital Japan Ltd.
But because production of electronic parts and devices for mobile phones is rising, machinery orders in the telecommunications industry will pick up soon, Aida said.
“We cannot conclude that the uptrend in capital investment has changed from machinery orders alone, since they are a volatile economic indicator,” he said, adding other key data, including the Bank of Japan’s “tankan” quarterly survey of business sentiment, due out Oct. 2, will have to be monitored to assess the prospects for capital investment.
Orders from manufacturers skidded 18.7 percent in July compared with a year ago to 475.7 billion yen, the Cabinet Office said.
Orders from electric machinery makers dropped 26.6 percent following an increase of orders for semiconductor manufacturing equipment in June.
Orders from the steel industry plummeted 74.8 percent, while those from the pulp and paper industry tumbled 75.3 percent.
Machinery orders from nonmanufacturers shrank 15.8 percent to 532.4 billion yen.
Orders from the telecom industry declined 26.7 percent and those from the construction industry dropped 21.9 percent.
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