Absent Inventory "Bounce" Is Reason For Japanese GDP Miss

The world's second biggest economy just posted a dramatic miss in GDP expectations, and demonstrated how tendentious "developed" governments can be when fudging numbers in volatile economic times. And the biggest reason for the divergence: the mythical inventory bounce, which based on preliminary estimates was supposed to generate a 4.8% GDP. Alas, inventories never "bounced" leading to a disappointing 1.3% reading. Is the US next in line for major GDP disappointment? Or do we have mid-term elections to thank for continued GDP fudging for at least the next 12 months?

Goldman highlights the divergence:

The sharp cut to inventories (contribution cut to +0.4 pp from +1.4 pp) was a factor behind the divergence versus the market consensus. Private capital expenditures were also revised down markedly, going from +6.6? growth in the preliminary estimate to a double-digit negative of -10.6%. Large cuts were also made to the public sector, with government consumption swinging into negative territory at  0.5% from +1.5%, and the decline in public investment widening to -6.3% from -4.9%.

A breakdown of the revised Jul.-Sep. GDP components shows that private residential investment (-28.1%; contribution of -1.0 pp) and capex (-10.6%; -1.5 pp) continue to be drags on private-sector demand but exports (+28.6%; +3.5 pp) and firm individual consumption (+3.8%; +2.3 ppt), driven mainly by purchases of consumer durables, underpinned the economy. The contribution from public demand moved into negative territory at -0.4 pp.

And the firm concludes with a very gloomy outlook on the land of the rising sun:

We expect GDP growth to approach zero from Oct.-Dec.: We think GDP growth from the Oct.- Dec. quarter through mid-2010 is likely to slow to nearly zero due to a fallback in consumption, which government stimulus revved up through the Jul.-Sep. quarter, and the partial suspension of the FY2009 supplementary budget. We expect this span through June 2010 when the DPJ-led administration is to begin distributing childcare allowances to be a soft patch without public policy support. If the yen stays at the current level of strength over this span, that would squeeze profits at exporters in manufacturing industries and create further substantial downside risks to the economy in terms of employment and wage reductions.

Certainly not good news to an economy which is gripped in deflation for a second decade running (and is a advance look of the troubles facing the US itself). And is this the first case of major downward revisions by economists and analysts? Will this optimism killer spill over into all corporate sectors? It is unlikely, as Wall Street's very survival (read bonuses) depends on perpetuating the hope myth for as long as possible. Even if numbers continue missing, analysts will merely extend and pretend, saying that once Amazon stops selling 2 kindles to every high school drop out in 2010, the company has an exponential and practically guaranteed growth pattern well into 2039.

h/t Hedged In