It is a tale told by an idiot, full of sound and fury, signifying nothing.
- William Shakespeare, MacBeth (Act 5, Scene 3, lines 26-28)
Econintersect: The latest number from Japan, the new machinery orders for May 2014, have created an outpouring of dramatic headlines proclaiming the Japanese economic recovery is at least in doubt and, in some cases, at an end. The widely quoted headline number is a decline month-over-month of 19.5%, by far the largest one month drop on record. This followed a reading in April which was a decline of 9.1% and an increase of 19.1% for March. What hasn't been reported is the total new machinery orders (explained below) which declined by 30.5% in May from April after rising by 34.8% from March to April.
There are several levels of data reported under the heading of "Machinery Orders Received", aka "Machinery New Orders". The following is the data released by the official statistics department of the Cabinet Office, Government of Japan:
The month-to-month change in machinery orders is one of the most volatile metrics imaginable, subject to multiple large positive and negative swings each year. The data used by Trading Economics is the private-sector machinery orders, excluding very volatile data for ships and electric utilities.
The graph of the yen amount for equipment and machinery orders from YCharts puts the latest readings in better perspective. This data is for total new machinery orders, including those for ships and electric utilities, plus those from agencies, from overseas and from governments. The total of ¥2.47 trillion is in the 83rd percentile for the past five years, higher than 50 of last 60 monthly readings. And it is on a support line starting from January 2013 and rising at a rate of ¥24 billion (1.3%) per month (15% per year).
The following graph is from the official Japan Cabinet Office site and shows the five-year history for the "core" private sector machinery orders. The latest reading is on the 5% annual growth trend from the end of the Great Recession (red) while the much larger trend from January 2013 of 15% per year (which no longer is active) is shown in green.
Econintersect suggests that the proclaimations of doom and gloom for Japan are as premature as were the projections of Japan starting on a new spectacular boom for the all-time record high of ¥3.126 trillion in April. While ¥2.174 trillion is the lowest monthly total for 2014 it is higher than the last month of 2013 and, as mentioned above, is not inconsistent with the established baseline trend since the beginning of 2013 of 15% per year growth for the total machinery new orders.
The "core" trend of 15% per annum growth has been broken with the latest data point but the long-term trend of 5% growth per annum is intact.
Whether the May readings have any special significance or not will not be known at least until the June data is reported, and probably not known with any certainty until at least three more months are on the books.
In the meantime, terms like "Japocalypse" can be put back on the shelf (under a dust cover) in case they are actually needed later when the long-term wild up and down swings in new machinery orders are ended with an extended move to the downside.
For speculators this might be a good time to evaluate a short-term trade in Japanese stocks. The Japan ETF (NYSE:EWJ) closed Thursday (10 July) down 2% in a week after recovering from down 2.5% shortly after Thursday's open in New York. The ETF has been pretty much range bound between 10.60 and 12.20 for the past 12 months. It closed at 11.92 Thursday.
- UPDATE 3-Japan May orders data shock casts shadow over recovery scenario (Tetsushi Kajimoto, Reuters, 10 July 2014)
- Japocalypse Now - Machine Orders Crater 19.5%, Biggest Monthly Drop On Record (Tyler Durden, Zero Hedge, 09 July 2014)
- Orders Received for Machinery in May, 2014 (Official Statistics, Japan Cabinet Office, 10 July 2014)
- Japan Machinery Orders (Trading Economics, 11 July 2014)
- Japan Machinery Orders Received: 2.174T JPY for May 2014 (YCharts, 10 July 2014)