Mixed economic data, fall in US trade deficit and the real cost of offshoring

Economic data yesterday were somewhat mixed.

Japan saw machinery orders rise 2.2 percent in April but this was less than the consensus forecast of 4.5 percent.

German industrial production fell 2.3 percent in April, the biggest fall in seven years. German exports rose 0.9 percent in April, less than an expected gain of 1.5 percent, while imports rose 0.8 percent.

In the UK, manufacturing production was up 0.3 percent in April, as was industrial production, but over three months, manufacturing output fell by 0.4 percent and industrial output fell by 0.2 percent. Nevertheless, the National Institute of Economic and Social Research thinks that UK GDP rose by 0.8 percent in the three months to May, the fastest rate of growth in almost a year.

The US economy is proving to be a drag for global growth at the moment. The US trade deficit fell by 6.2 percent in April. Exports were up by 0.2 percent but imports fell by 1.9 percent.

Somewhat related to this piece of news is this article, "The Real Cost Of Offshoring", by Michael Mandel at BusinessWeek (via Economist's View). Essentially, the article says that because of the way statistics treat offshoring, productivity in manufacturing has been overstated in recent years.

While this in itself does not seem to me to be a particularly profound insight, what may be of some immediate relevance in the light of recent developments in bond markets is his point that "the nation's long-term sustainable growth rate may be lower than thought, and the Fed may have less leeway to cut rates".

Assuming, of course, that the Fed recognises this phenomenon.