Japan Capital Spending Grew at Slower Pace

Japanese companies increased spending at a slower pace as the nation’s record earthquake and ensuing tsunami knocked out power and shut down factories.

Capital spending excluding software rose 4.2 percent in the three months ended March 31 from a year earlier, after increasing 4.8 percent in the previous quarter, the Finance Ministry said today in Tokyo. From the previous quarter, outlays fell 0.2 percent.

The report adds to evidence of the damage the temblor has inflicted on companies, whose outlays helped propel the nation’s recovery in 2009 from the global financial crisis. Sony Corp. is forecasting profits below analysts’ estimates while Panasonic Corp. (6752) said its earnings were “extremely affected” by the March 11 disaster.

“It’s hard to expect a robust recovery in capital spending in the months ahead,” Hiroshi Shiraishi, an economist at BNP Paribas SA in Tokyo, said before the report. “There’s high uncertainty over the course of corporate earnings” as power shortages could linger and supply-chain constraints could damp corporate and household income, he said.

The median estimate of five economists surveyed by Bloomberg News was for a 0.8 percent drop. Today’s report doesn’t include some companies in the disaster area. The final figures, which include those firms, will be released on July 29, the government said.

GDP Revision

The Cabinet Office will use today’s report to revise first- quarter gross domestic product figures on June 9. The preliminary report released last month showed the economy shrank at an annual 3.7 percent pace in the first quarter. Analysts surveyed by Bloomberg News expect the slump to continue into the three months ending June, extending a contraction that began in the final three months of 2010.

Capital spending of less than 3 percent in today’s report may prompt the government to revise down the GDP figure, according to calculations made by Naoki Tsuchiyama, a market economist at Mizuho Securities Co. in Tokyo. Economists use the gauge that excludes software spending because it is a better indicator of outlays as measured by GDP.

Factory production rose less than economists forecast in April and exports had the biggest drop since October 2009, evidence that companies are still struggling to produce and ship goods to meet overseas demand. The unemployment rate also climbed in April and households cut spending.

Sony’s Struggle

Sony, Japan’s largest exporter of consumer electronics, is struggling to improve its earnings and forecasts net income of 80 billion yen ($985 million) in the year ending March 31, lower than the 115.9 billion yen average of 12 analyst estimates compiled by Bloomberg.

Panasonic Corp., the world’s largest maker of plasma televisions, said that supply-chain disruptions from the earthquake will have an “extremely severe” effect on earnings. Revenue will probably drop in the six months ending Sept. 30, President Fumio Ohtsubo said on May 20.

While the economy may shrink this quarter, it will likely return to a growth path in the following three-month period as reconstruction works kick, according to Mizuho’s Tsuchiyama.

“Since the earthquake, Japan’s economy has slumped because of supply-chain constraints, not because of a decline in demand,” Tsuchiyama said. “So companies will likely increase spending to repair damaged factories and restore output capacity to meet demand.”

Machinery orders, an indicator of future capital spending, unexpectedly increased in March, while companies said in a report this week they plan to boost industrial production in May and June.

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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