Japan's 3Q Revised GDP Disappoints but a Big Rise in October Machinery Orders Points to Better Times Ahead

The annual rate of growth in Japan's third quarter GDP was revised down from 2.2% to 1.4%. Private consumption expenditure declined at an annual rate of 0.27%. The chief factor in the downward revision was the decline in the rate of increase in business spending on plant and equipment that fell from 16.51% in the second quarter to 1.87% in the third. The bright spot in the picture was exports, which increased 12.40%, compared with a 5.47% increase in the second quarter. Imports, however, were up as well, so that the annual rate of increase in the net export of goods and service was 22.70% compared with 42.65% in the second quarter.

Machinery orders ("Private, excluding ships and electric power", the favored measure) were up 17.43% from September to October. Such orders are now the highest they have been since April of 2001. The improvement in orders, the increase in foreign demand implicit in the rise of exports and increased business confidence recently reported by the Ministry of Finance suggest that the slowdown in capital spending in the third quarter may be reversed in the current quarter.