TOKYO (MNI) - Japan's core private-sector machinery orders surged a seasonally adjusted 10.5% in September from the previous month, well above the 0.5% gain posted in August, rising for the second consecutive month, the Cabinet Office said on Wednesday.

The September core figure came in much stronger than the consensus call of a 3.2% rise. July's -9.3% was the largest month-on-month drop since -12.2% in November 2008 and followed +9.7% in June this year.

The Cabinet Office said core private orders for the third quarter of 2009 fell 0.9% from the previous quarter, improving from the 4.9% drop in the second quarter.

The government forecast that core private orders should rise 1.0% in the October-December quarter of 2009 from the previous quarter, which would be the first q/q gain in seven quarters since January-March 2008.

In addiion, the Cabinet Office upgraded its assessment of machinery orders from the previous month, saying "there are signs that the downtrend is coming to an end."

"Previously we were saying the manufacturing sector was flat and the non-manufacturing sector was weak, but now we can say orders from non-manufacturers are coming back to life," a Cabinet Office official said.

"In July-September, the decline (in core orders) was close to zero. The actual October-December rise may come in stronger than our estimate of +1.0%."

For Q4 this year, the +1.3% q/q estimate for non-manufacturing orders seems to be bias-free but the +0.4% estimate for manufacturing may be too low, given that the achievement ratio for the sector in January-March 2009 was so low that it pushed down the total core order forecast figure, the official explained

Last month, when it released August figures, the Cabinet Office repeated its assessment for the fifth month in a row, saying, "the pace of the decline is moderating."

Core private-sector machinery orders, which exclude volatile demand from electric utilities and for ships, are viewed as a leading indicator of corporate capital spending.

In September the growth was led by orders from the core non-manufacturing sector.

Core orders for the non-manufacturing sector excluding shipping lines and power firms rebounded by 18.0% to Y515.4 billion after -0.6% in August, posting the first m/m rise in three months. The lowest amount of orders from non-manufacturers was Y369.0 billion recorded in May 1987.

The total non-manufacturing sector dipped 2.6% m/m in September after +10.7% in August, pulled down by a slump in orders from power companies.

Among orders from non-manufacturers, mining surged 361.9% in September (vs. -11.6% in August), telecommunications rose 45.2% (vs. -13.0%), agriculture, forestry and fishing gained 35.6% (vs. +3.5%) and construction climbed 26.5% (vs. -6.8%).

The communication sector made the highest contribution among those, pushing up the total non-manufacturing figure by 8.1 percentage points, thanks to investment in building facilities. The jump in mining was due to a large order but its contribution was low.

The key to pushing up core domestic private-sector orders is how soon non-manufacturers, including telecom carriers and transportation firms, will recover from recession because the amount of orders from non-manufacturers is much higher than that for manufacturers.

Orders from the manufacturing sector fell 0.1% from the previous month to Y234.3 billion in September (vs. +4.9% in August), posting the first drop in two months.

Among manufacturers, petroleum and coal products fell 54.1% in September (vs. -48.8% in August), nonmetallic mineral products rose 53.6% (vs. -28.6%), general machinery gained 32.5% (vs. -0.8%) and fabricated metal products rose 21.5% (vs. +24.6%)

Machinery orders from overseas fell 25.9% m/m in September, marking the first drop in three months after -15.7% in August and +21.8% in July and +43.8% in June.

Foreign orders totaled Y583.9 billion in September, up from Y463.6 billion in August. In July, they came to Y549.9 billion, which was the first time they had topped Y500 billion in seven months since December 2008, when orders from overseas came to Y750 billion.

From a year earlier, core machinery orders slumped 22.0% in September, the 15th consecutive drop.

The rate of decline decelerated from the 26.5% fall in August and the 34.8% fall in July and was slower than the record 39.5% plunge in January this year.

Month on month, the amount of core domestic private-sector orders rose to Y738.0 billion from Y668.1 billion in August and a record low of Y664.7 billion marked in July 2009.

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