Japan's capital spending slowed in July-September quarter following natural disasters

Companies’ capital spending slowed in the July-September quarter following a string of natural disasters that weighed on economic activity, government data showed Monday.

Investment by all nonfinancial sectors for purposes such as building factories and adding equipment and software rose 4.5 percent from a year earlier to ¥11.28 trillion, easing from a 12.8 percent rise the previous quarter.

Still, the data released by the Finance Ministry showed that companies raised capital spending for an eighth consecutive quarter amid moves to boost production capacity by chemical and semiconductor firms and increased investment in commercial facility development projects.

Quarter on quarter, capital spending excluding on software fell by 4.0 percent, the first decline in five quarters.

“Natural disasters as well as uncertainty surrounding heightened trade tensions may have contributed” to the weak capital expenditure figures, said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities Inc.

“Capital expenditure will continue to grow given the continuing labor shortage and companies’ ambitious investment plans, but the pace will be moderate.”

The data will be factored into a revision of gross domestic product figures for the third quarter of 2018, which the Cabinet Office is scheduled to release Dec. 10.

Preliminary GDP data showed the world’s third-largest economy shrank an annualized real 1.2 percent in the quarter as a powerful typhoon that temporarily shut down Osaka’s main airport and an earthquake that caused a massive blackout in Hokkaido disrupted distribution channels and dented consumption.

Maruyama said he expects GDP to be downgraded to an annualized real 3.2 percent contraction.

Pretax profits at companies covered in the ministry’s survey rose 2.2 percent from the previous year to ¥18.28 trillion, while sales climbed 6.0 percent to ¥358.88 trillion, showing corporate profits continued to be robust in July-September.

Manufacturers of production machinery were among the biggest winners, while the retail and service industries saw earnings drop due to the disasters.

The ministry surveyed 32,020 companies capitalized at ¥10 million or more, of which 23,409, or 73.1 percent, responded.

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