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Economy in Brief

Japan Core Machinery Orders Edge Higher....All Growth Is From External Demand
by Robert Brusca August 11, 2010

While Japan and Germany run trade surpluses and China's trade surplus grows, the US trade deficit erratically is creeping higher. The reason is clear. As we saw earlier in German orders, demand for German goods is led by demand from overseas. Similarly, China showed dropping imports as a catalyst for an improved trade balance. Now Japan's data reveal that its domestic orders for machinery would indicate a dead man were the plot that from an EKG. Foreign orders are, however, jumping and gyrating as they vacillate between growth rates that are strong and stronger. Japan too has tapped into the market for foreign demand showing that in the wake of the financial crisis and the clear sign that trade imbalances contributed to the formation of the crisis, nothing is being done to change that important adverse fundamental. Surplus country surpluses are getting bigger again and deficit country deficits are growing too.

Still even with the gain this month overall Japanese orders are not showing much lift. Total and core orders are still shrinking on balance over three-months and six-months. Core orders also are shrinking over twelve months.

But foreign demand is trying to contribute to growth. Foreign-sourced orders for machinery in Japan are growing over 3-mo, 6-mo and 12-mo horizons. But the good news ends there. As the period shortens the growth rate for foreign-sourced orders drops so that the highest growth rate is for 12-months and the lowest is for 3-months. In the case of Japan foreign growth is slowing down. Meanwhile back at the ranch as it were, Japan's domestic demand is remaining weak with a growth rate of about -15% over both 3-mo and 6-mo.

There is not much that is very bright in this report aside from the month's own numbers taken in isolation. Foreign orders rose by 2.4% in June and domestic orders advanced by an oddly strong 11.5%. Core machinery orders rose by 1.5% with total orders up by 9.2%. Japan has seen some good months of numbers come and go. It would be folly to think that this month was the real start of an actual turnaround. It is, however, good news taken by itself but it comes is a sea of bad news and is therefore diluted. The orders report remains one to follow but not one to bet upon.

Japan Machinery Orders
  M/M% SAAR %
SA Jun-10 May-10 Apr-10 3-Mos 6-Mos 12-Mos 12-Mo Ago
Total 9.2% -10.8% -2.2% -17.7% -2.1% 23.9% -41.2%
 Core Orders* 1.6% -9.1% 4.0% -14.8% -10.9% -2.2% -29.8%
Total Orders
Foreign Demand 2.4% 2.7% -3.7% 5.5% 23.1% 74.3% -57.9%
Domestic demand 11.5% -17.5% 4.3% -15.3% -17.5% 1.8% -28.9%
* Excl ships and electric power
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