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Wednesday, September 12, 2007

Machinery Orders Fall in July

Yes, that's right, fall. This isn't the impression you would get from reading Bloomberg though:

Japan's machinery orders surged in July at three times the pace forecast by economists, easing concern the economy will contract for a second quarter.

Orders climbed a seasonally adjusted 17 percent to 1.12 trillion yen ($9.9 billion) from June, the Cabinet Office said in Tokyo today. The gain was led by demand for electronic machinery.


Well this isn't what the Japan Cabinet Office actually say. Here is chapter and verse:

"The total value of machinery orders received by 280 manufacturers operating in Japan fell by 0.6% in July from the previous month on a seasonally adjusted basis."


but as they also indicate:

"Private-sector machinery orders, excluding volatile ones for ships and those from electric power companies,rose a seasonally adjusted by 17.0% in July."
"

So domestic private demand is up, but the total is down (go check for yourself if you want).

The discrepancy is due to the fact, as Bloomberg themselves admit, that:

In a sign that demand outside Japan may be slowing, overseas orders fell 10.8 percent in July, the second monthly drop, today's report showed.


So the real story is that domestic demand picked up significantly, but not enough to offset the strong fall in exports. So the conclusions one would draw are quite different from those we find in Bloomberg. In fact if we look at the estimate the Cabinet Office make of anticipated orders during the third quarter, we will find it is -2.4%, ie they are actually expecting orders to be down over the second quarter, when, we will remember, the Japanese economy actually shrank. So basically, and cteris paribus, we can simply expect more of the same in Q3, and looking out globally, the downside risks on this not very optimistic forecast are quite significant, I think. Anyway, such as it is, here the relevant chart for seasonally adjusted machine orders.