Japan Capital Spending Down For Ninth Straight Quarter

Japanese capital spending continued to decline in the second quarter despite the Japanese economy having emerged from a recession, the Ministry of Finance announced Friday. The Ministry also revealed that capital investments were at their lowest level since the June quarter of 2002. Also, total sales dropped year-on-year in the second quarter, while ordinary profits fell at a slower pace during the same period.

Overall capital spending in Japanese industries decreased 21.7% in the second quarter compared to the 25.3% drop in the previous quarter. Economists were looking for a more severe 23% fall. Excluding spending in the software industry, capital spending decreased 22.2% annually. On a quarterly basis, spending was down 4.5% in the second quarter. Capital investments were down across almost all of the major industrial sectors.

Analyzing by separate industry groups, spending in the manufacturing sector plunged 32% year-on-year in the second quarter, faster than the 21.2% fall witnessed in the last quarter, and accounted for about 37% of the total spending. Of this, the information & communication electronics equipment industry recorded the biggest annual fall, down 51.9%. It was followed by electrical machinery, equipment & supplies, which slipped 42.8%, and transportation equipment, down 41.4%.

Spending by the non-manufacturing sector slid 14.2% on year in the second quarter. The fall was mainly driven by the goods rental & leasing industry, which slid 61.8% in the second quarter. Other notable decreases include the services industry, in which spending dropped 55.1%, and production, transmission & distribution of electricity, down 9.8%. The fall across the board was slightly offset by the real estate industry, where investments rose 25.3%, and wholesale & retail trade, up 4.2%.

Spending by total number of corporations with capital over 1 billion yen decreased 17.3% year-on-year in the second quarter, and amounted to 5.5 trillion in comparison to 8.4 trillion spent by the same category of corporations in the previous quarter.

Total sales were down 17% year-on-year in the second quarter compared to the 20.4% fall in the previous quarter. Sales in the manufacturing sector, accounting for about 28% of the total sales, dropped 26.8%, while the non-manufacturing sector sales decreased 12.4%. Sales of petroleum & coal products decreased 44.7%, and transportation equipment sales were down 38.3%. Iron & steel and fabricated metal products recorded sales declines of 37.4% each.

Ordinary profits plummeted 53% annually in the second quarter compared to the 69% fall in the first quarter. Profits plunged across most of the industry groups, with the construction industry recording the largest fall at a rate of 215.5%. Other industries that recorded declining profits were information & communication electronics equipment, iron & steel, and electrical machinery, equipment & supplies, down 189.5%, 147.3%, and 117%, respectively.

The ratio of ordinary profits to sales was up 2.4% in the second quarter compared to the 1.4% rise in the first quarter.