Japan Headline GDP Beats Estimates but Details a Bit Murkier

Japan released it's preliminary GDP Q3 GDP estimate last night showing an annualized growth rate of 1.9% vs estimates of 1.6%. However, a little digging into the details reveals that all the strength in the figure was due to public spending and inventory accumulation, contributing a combined 2.6%. One would have to go back to the first quarter of 2010 to find a quarter in which inventories and government spending contributed a combined 2.6% to GDP. Net trade produced a 1.6% drag, but a figure of that magnitude for the trade component is not that unusual. We worry that the boost from the weakened yen is turning out to be less than anticipated, leaving government spending to do the heavy lifting when it comes to growth. But next year government spending will become a net drag on GDP and consumption taxes are going up, leaving the consensus 1.6% estimate for 2014 looking a little rosy to us.