The expansion accelerated in the third quarter of 2010 as shoppers bought cars before government subsidies expired, air conditioners to stay cool in a hot summer, and cigarettes before a new tobacco tax kicked in. The result marks the fourth straight quarter of expansion.
But with these incentives no longer in place, a slowdown already appears underway as deflation and the persistently strong yen drag on growth.
The rise in Q3 growth was due entirely to stronger domestic demand, while net exports were flat on the quarter.
Q3 domestic demand rose 1.0% q/q after a revised 0.1% gain in the second quarter. Domestic demand added 0.9 percentage point to Q3 GDP, up from a 0.1 point contribution in the second quarter.
Within domestic demand, growth in private consumption, which makes up about 60% of GDP, surged 1.1% q/q in Q3, well above the 0.1% gain in Q2, contributing 0.7 percentage point to Q3 GDP (vs. no contribution in Q2).
Capital spending rose for the fourth straight quarter but growth decelerated to 0.8% in Q3 from +1.8% in Q2. Capex contributed 0.1 percentage point to Q3 GDP (vs. +0.2 point in Q2).
Inventory changes added 0.1 percentage point in Q3 after pushing down overall growth by 0.1 percentage point in the second quarter.
Housing construction rose 1.3% in the third quarter, after falling 0.8% q/q in Q2. Still, this category made no net contribution to Q3 GDP.
Net exports made no contribution to Q3 GDP after adding 0.3 percentage point in Q2.
Exports were up 2.4% on quarter, the sixth consecutive quarterly gain, slowing from +5.6% in the previous quarter, while imports rose 2.7% q/q, marking the fifth consecutive quarterly increase (also slowing from +4.0% in Q2).
From a year earlier, Q3 GDP rose 4.4%, the third straight y/y rise, after rising 2.7% in Q2.