Article:
TOKYO (Kyodo) -- Capital spending by Japanese companies in the October-December quarter fell from a year earlier for the first time in more than three years due to a slowdown in the global economy and a powerful typhoon, government data showed Monday.
Comments and Ideas:
This was not unexpected as capital spending is always up or down because of many different factors. Of course the global economy slowdown and the typhoons didn't help too, but capital spending sometimes can be very cyclical, meaning companies might not be spending every month, or even the same month in every year.
Article:
Investment by all nonfinancial sectors for purposes such as building factories and adding equipment dropped 3.5 percent to 11.63 trillion yen ($108 billion), the first decrease in 13 quarters, according to the Finance Ministry.
Capital spending by manufacturers declined 9.0 percent to 4.23 trillion yen, following a 6.4 percent rise in the previous period, with telecommunication and transport equipment makers contributing to the fall.
Comments and Ideas:
Again, this could be nothing more than companies deciding they don't need to spend besides maybe not wanting to spend. We always have to be very careful, and not think the lack of spending is related to some external factor, when maybe companies don't see the need to spend.
Also, as seen, the previous period saw an increase and again, companies might not just spend every month or every quarter, so its careful to not read anymore into it, than maybe companies deciding they don't to spend a certain month or certain quarter.
Article:
In the nonmanufacturing sector, investment edged down 0.1 percent to 7.40 trillion yen for the first decline in 13 quarters. Utilities and real estate firms, which had spent large sums of money on new power plants and office buildings a year earlier, led the decline.
Seasonally adjusted capital expenditure by all nonfinancial sectors, including spending on software, dropped 4.2 percent from the previous quarter for the second straight period of decline.
Comments and Ideas:
A couple of ideas here; First a 0.1 percent decline is not that much, even if was the first decline in 13 quarters. Again it could be nothing more than whomever, deciding not to spend or not wanting to spend, because they had already spent. Second, as we see, some has spend large sums a year earlier and this year don't see the need or feel the need to spend this year.
As here is the real key, "seasonally adjusted," meaning spending is seasonal and is not the same for season to season, month to month, or even year to year. Companies just don't see the need and or after they have spent are not going spend again until they are ready and that could be whenever they feel like it, and not on any economist's schedule.
Article:
Pretax profits at companies covered in the ministry's survey sank 4.6 percent from a year earlier to 18.58 trillion yen for the third straight quarterly decline, pulled down by automaker and construction machinery sectors.
Sales dropped 6.4 percent to 347.83 trillion yen, down for the second consecutive quarter, due to the sluggish domestic and overseas demand for cars and auto parts.
Comments and Ideas:
Pretax declines are not surprising. The decline in the automaker industry including auto parts mostly likely is related to the slowdown in global trade including the China situation. The construction machinery sector, again, could be nothing more than companies spending earlier, whenever, and don't see the need, to spend then or now. It might be external forces or it might just be they don't need to new equipment at this or that time.
Sluggish domestic demand is always a challenge and the exact reason is never clear because an economy is very complex and there are too many variables in play at any one time to identify the exact one variable only. There could many variables in play.,
Article:
Ministry officials told reporters that investment and profits in the reporting quarter were affected by the decelerating world economy and by Typhoon Hagibis, which hit wide areas of Japan in October, disrupting transport as well as production and shipments.
Kazuma Maeda, an analyst at Barclays Securities Japan Ltd., said the investment decrease in the reporting period was "driven by a prolonged slump in exports," and the outlook is bleak as investment by non-manufacturers may dwindle as a result of the new coronavirus outbreak and Japan's consumption tax increase from 8 percent to 10 percent on Oct. 1.
Comments and Ideas:
Yes investment and profits might be in the decline period of the business cycle, as an economy is never always up or always down forever. It goes through cycles and should not be a surprise or be unexpected when external variables are in play.
Again a prolonged slump in exports should not be a surprise and global trade as been trending down and of course the China situation. An lets not forget the sales tax situation for the 4th quarter which was not unexpected.
Article:
"We believe sentiment (in the nonmanufacturing sector) could be dampened by mounting uncertainty over the impact of COVID-19 on inbound tourism demand in addition to existing concerns about slower consumption in the wake of the October tax hike," Maeda said.
As for companies' pretax profits, Maeda said that earnings in the manufacturing sector "strongly indicate deceleration" and "remain weak due to sluggish exports."
Comments and Ideas:
Uncertainty is always a critical variable that is maybe more important than many variables as what is going to happen in the future might be the one variable that companies fear the most. The sales tax hike, with all things equal, and taking out the virus situation, might have been nothing more than a one or at most a two quarter worry. But with the virus situation compounding the situation and Japanese consumers not spending, except maybe online, slower consumption, at the moments seem to be given, unless consumers starting spending all of the disposable income online during this period.
Yes deceleration is possible but for how long. Eventually companies, consumers, and whomever are going to say enough is enough and try to get back to normal as we adapt to the new environment.
Article:
The Cabinet Office is scheduled to release revised gross domestic product data for the October-December quarter on March 9, taking into account the latest capital spending figures.
Preliminary GDP data showed the world's third-largest economy shrank an annualized real 6.3 percent in the three-month period, its sharpest contraction in five and a half years, due to the sales tax hike and the devastating typhoon.
Comments and Ideas:
Again the decline was not unexpected as with in 2014 when the Japanese economy decline in the Q2 of that year. But of course there are more variables in play too now. And again, all things equal, take out the typhoon and, maybe the decline was not that much of a surprise. Consumers, as usual, again with all things equal, usually adjust and get used to the extra 2 percent increase and or find substitutes to lesson the burden on their disposable income.
Article:
Maeda predicted the GDP in the quarter will be revised down, saying the upcoming data will "more clearly indicate the sluggish trend in domestic demand" with a downgrading of capital expenditure.
"We can see an increasing risk that the economy will enter a technical recession with a second consecutive quarter of contraction" to be posted in the January-March period, he said.
The ministry surveyed 31,689 companies capitalized at 10 million yen or more, of which 23,026, or 72.7 percent, responded.
Comments and Ideas:
Yes mostly likely, because of all the variables in play now, the Japanese economy might be headed for some kind of recession or slowdown. But in reality nothing more than a normal business cycle in most situations, meaning economies don't stay positive forever, there will always to a slowdown here or there due to any number of variables.
The idea of sluggish domestic demand, again all things equal and or take away the China virus situation, again might not have been significant if things were normal and the Japanese consumers were able to adjust to the sales tax hike and tourism was normal. Of course things are not normal for the present moment.
© 2020, Tom Metts, all rights reserved
© 2020, Tom Metts, all rights reserved
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