Machines Are on the March Again

(Bloomberg Opinion) -- U.S. bellwether Caterpillar Inc. cast a pall over the machinery and factory automation world last month with a comment that its first-quarter profit would be the “high watermark” for the year. That’s thrown the likes of Fanuc Corp. and Komatsu Ltd. into a tizzy.

However, data out of Japan on Thursday show there’s still plenty of demand for robots and industrial equipment. Machinery orders dropped on the month in March but showed a rise from a year earlier, while machine-tool orders jumped 22 percent on an annual basis, according to preliminary April data. 

Machinery orders are forecast to grow at the fastest rate in five years in the current quarter. Much of the demand is being driven by small and medium-sized companies, and China.

Sure, demand could fall off. But that will take a while. Japan’s Tankan survey shows that firms are facing the most severe shortages of production capacity since the 1990s. 

What does this mean for investors? Factory automation and machinery giants will have to spend to stay ahead. Those forecasting rising costs amid a gloomy future should take a second look. Globally, capital expenditure budgets are well below their 20-year average and reinvestment rates also remain low. In Japan, companies’ spending plans are the strongest since 2012. Penalizing machinery makers for loosening their belts is probably unwarranted, at least for now.

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