Japan's Machinery Orders Make Rogue Rise in December

Japanese machinery orders rose in December by 3.6% for total orders and advanced by 4.2% for core orders, the latter gauge a treatment that excludes bulky capital projects. However, these gains follow huge drops in November that exceeded very strong gains in October. As a result, three month trends show that orders are contracting for both overall and core orders. Overall and core orders, in fact, are receding over six months and over 12 months as well. Japan's machinery orders, while up in December, are still under a great deal of negative pressure. The December gain appears to be more rogue than a new trend.

Foreign demand is choppy with increases over three months and 12 months despite a drop over six months. Japan's domestic machinery orders are still falling on all these horizons, but at least they are not steadily decelerating.

There is no sign of stability here. If there is hope, it is from orders in the foreign markets where demand has been so volatile and occasionally positive. But China is Japan's largest trade partner and it is still struggling and shifting away from its manufacturing sector. Europe is also floundering and waiting for news on more ECB stimulus. The U.S. economy has slowed but is growing. Its own orders report has been weak. The global story is, in fact, not encouraging.

All the developments I cite above, fit nicely (well, uncomfortably, from the standpoint of what it means for industrial growth and investment) into the theme of extreme global supply excesses. Globally export and import growth has been weak. The Baltic dry index, an indicator of trade volume growth, has been weak. All of this makes it clear that there will be slack demand for industrial investment for some time. We saw weakness in U.S. housing starts in a report released today and also weakness in euro area construction in another. Weakness is not just for industrial expansion but also housing and other capital projects where demand has been weak. I mention construction since construction projects are major users of various kinds of equipment that would generate industrial orders. You can turn over every single rock and look underneath it and what you will find is that there is little reason for optimism that the industrial sector and orders have anything but continuing pain in store for some time to come.