16 January 2001, 11:20  Japan Nov. Machine Orders Fall, More Signs of Slowing

Tokyo, Jan. 16 (Bloomberg) -- Japanese companies ordered less machinery in November,signaling capital spending, one of the main drivers of economic growth last year, may slow. Private orders, excluding shipbuilders and electric utilities, dropped 2.9 percent, seasonallyadjusted, in November from October, the Cabinet Office said. Economists expected a 0.1percent increase after a 8.3 percent increase in October. From a year ago, orders rose 22percent. Machinery orders point to capital spending in about six months time, and signs of a drop-offsuggest the economy is losing steam. Machinery orders rose for a record five quarters throughthe three months ended Sept. 30, helping fuel economic growth last year. ``While the economic recovery is coming to a halt, with capex slowing, we expect theadjustment-period to be mild,'' said Shuji Shirota, a senior economist at Societe Generale(North Pacific) Ltd. With consumers not spending enough to boost total demand, and the government spendingless on public works, much of the prospects for Japan's economy to grow rest on businessinvestment holding up. Capital spending was the sole source of growth in the third quarter last year, when theeconomy expanded 0.2 percent, the same pace as the second quarter. The economy returnedto growth in the first three months of 1999 after shrinking the previous two quarters.
Breakdown
Among the largest industries, orders by electric machinery makers fell 4.2 percent inNovember from October. Among non- manufacturers, telecommunications companiesincreased orders by 10.9 percent. ``The upward momentum of business investment, which had been dependent upon IT-relatedmanufacturing investment, is now clearly showing signs of slowing down,'' said Takehiro Sato,an economist at Morgan Stanley Dean Witter Japan Ltd. Orders for chip-making machinery rose 11.1 percent in November from a year earlier, thesmallest gain since March 1999. Orders had been increasing by triple-digits until March thisyear. Overseas orders, which make up about three-fifths of the total, dropped 2.8 percent inNovember, the first decline since March 1999. United Microelectronics Corp., Taiwan's largest semiconductor foundry, will cut its capitalspending almost one-third to $2 billion this year, the Nihon Keizai newspaper said today,citing Chief Executive Officer Peter Chang.
Government Assessment
The Cabinet Office kept its assessment of orders unchanged from last month, saying that``overall, a rising trend continues.'' Still, orders need to rise 18.7 percent in December to reachthe Cabinet Office's forecast of a 7.6 percent increase in the three months ended Dec 31. A slowing U.S. economy and the 27 percent drop in Japan's main Nikkei 225 stock index lastyear, has made it difficult to forecast the outlook for machinery orders. ``Capital spending should hold up through this fiscal year, given some fluctuations,'' saidYoshihiko Senoo, a division chief at the Cabinet Office's statistics bureau. ``We want to leaveit at that.'' Senoo said it's becoming clear that information technology- related industries are pulling mostof the weight. Even then, the Cabinet Office acknowledged that orders from electric machinerymakers are cooling, and this needs to be watched closely. Figures for machinery orders exclude those from shipping companies and electric utilitiesbecause their capital spending can often skew the total figures.

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