As was mentioned here yesterday, and got further elaborated on by Bloomberg today, Japanese capital expenditure, CapEx, or investments by companies that have a rather direct link to increased sales, grew by 5.5% YoY in the third quarter of 2014, on expectations for 1.8% increases and with a prior value of 3.3% growth in the first quarter. Overall, it represented 9.4 trillion yen (around US$80 billion) of investments.
Manufacturing, machine tools producers, and IT equipment producers really stepped up, at 11, 15 and 26 percent respectively, while non-manufacturers represented the major below-average pace block of companies at added 2.7% investments (still far above the 1.8% average projection!). As could be estimated from the construction data released on Friday, real estate spending is in good shape (up 56%!), as is – surprisingly enough – retailing and wholesaling spending at 11%.
Overtime pay however was up 0.4% YoY in October, with a revised September YoY growth of 1.9% according to Market News International. Other interesting data was that bonuses were up 6%, full-time employment up 1.5% YoY in a strong increasing trend, and part-time workers up 1.7% but in a downwards trend. Together with strong employment data overall, it seems like more people are getting hired full-time, something that Abe Shinzo has acknowledged needs to happen to a much greater extent. In real terms, wages are still down significantly, at -2.8% YoY.
The chances are that this will change, though. Corporate profits were up 7.6% off sales/revenue increasing by 2.9% in the quarter on YoY terms, while the USD/JPY average rate had increased by about 4% in that period YoY. Thanks to not all business activity being conducted in or off the foreign markets (it’s very roughly 25% of the economy on an annualized basis) and there being a trade deficit, it can be said that Japan looks like it has gained better structural profitability in the last reported quarter. Exporting companies might still see a gain due to the lower input prices (yay for commodities being down) and the 10-15% drop in the yen after Kuroda and the BOJ decided to pump more money into the economy. Chances are that December bonuses will be up significantly YoY, which should really help the velocity of money if people see their pay check increasing in real terms and there won’t be a tax hike next year to drive optical inflation, meaning that there won’t be that big of a need to hold back on spending , either for consumers or business.
Looking at the broader picture then, does Abenomics look more like a success or a failure in the light of this data?