Plus: Chinese Manufacturing Expands, Initial U.S. Jobless Claims Drop, Steel Consumption Forecast to Decline 15 Percent and MORE.

Chrysler Files for Bankruptcy
Chrysler LLC, the third-largest American automobile manufacturer, is seeking bankruptcy protection and enters an alliance with the Italian automaker Fiat, a move taken after some of the company’s key creditors rejected a sweetened cash offer, the White House announced Thursday. A deal was reached with Fiat, giving the Italian company a beginning 20 percent stake in Chrysler that would rise to 35 percent as milestones are reached, MarketWatch reports.

Officials spoke of the case as a “surgical” bankruptcy process, quick and controlled. The aim is for Chrysler to emerge from bankruptcy protection within 30 to 60 days by selling the automaker’s principal assets to a new company,” according to Agence France-Presse.

Seeking to dispel any notion that the filing meant Chrysler had one foot in the grave, President Barack Obama said, “No one should be confused about what a bankruptcy process means. This is not a sign of weakness but rather one more step on a clearly charted path to Chrysler’s revival.”

The president insisted the troubled automaker could emerge as a stronger company through a partnership with Fiat. Obama said he hopes the bankruptcy proceeding will be quick and efficient, and that the Fiat deal “will give Chrysler a chance not only to survive, but to thrive in a global auto industry.”

Chrysler said most of its plants will be “temporarily” idled until the transaction is complete but workers would continue to be paid, dealerships would remain open and warranties would be honored.

“With Thursday’s filing, Chrysler became the first major American automaker to seek bankruptcy protection since Studebaker did so in 1933,” the New York Times notes.

Analysts warn that scores of auto suppliers could follow Chrysler into bankruptcy as massive production cuts wipe out revenues to an already stressed and highly integrated industry.

Across the U.S. auto industry, sales remained bleak last month, as light-vehicle sales fell 34.4 percent in April compared with the same month last year, according to the Detroit Free Press. That was the 18th consecutive month of declines. For the year, U.S. new-vehicle sales are now off 37.4 percent.

Steep Decline in GDP
The United States economy contracted dramatically again in the first quarter of the year as business investment declined at a record rate, the U.S. Department of Commerce reported last week. Real gross domestic product (GDP) fell at a 6.1 percent annualized rate in the first quarter, close to the 6.3 percent decline in the fourth quarter of 2008. The two-quarter contraction was the worst in more than 50 years. “Since 1947, the economy had never contracted by more than 5 percent for two consecutive quarters,” MarketWatch says.

With a 0.5 percent drop in the third quarter of 2008, it’s the first time the economy has contracted for three consecutive quarters since 1975. In the past four quarters, the economy has fallen 2.6 percent, the biggest year-over-year decline since 1982.

Despite the steep decline, the report may have hinted that the worst of the declines may be over. “There were some major positives” in the report, said an economist at Moody’s Economy.com, who argued that the data “points to an end to the recession by late 2009.”

“Analysts pointed out that GDP was dragged down by massive declines in inventory stockpiling, which could mean businesses will need to ramp up production over the rest of 2009,” AFP reports.

Chinese Manufacturing Expands for Second Consecutive Month
“China’s manufacturing expanded for a second month, adding to signs of a recovery in the world’s third-biggest economy,” Bloomberg News says.

The Purchasing Manager’s Index “rose to a seasonally adjusted 53.5 in April from 52.4 in March.” A reading above 50 indicates an expansion.

“The worst is already behind China,” an economist at Nomura Holdings Inc. in Hong Kong said. “Domestic strength should outweigh the tougher external environment.”

“While exports plunged in the first quarter, including a record 25.7 percent decline in February, the nation’s trade declined at a slower pace in the first 20 days of this month,” according to Commerce Minister Chen Deming.

German Finance Minister Predicts Deeper Economic Contraction
“Peer Steinbrück, the German finance minister, said that with more than 40 percent of its GDP generated by exports, Germany would suffer a severe contraction this year from ‘the worst recession since the Second World War,’” according to the New York Times last week.

But Steinbrück said that “the German economy was still well placed to weather the storm because of structural changes and investments in its infrastructure.” He suggested that “other countries would be less able to deal with the fallout from the financial crisis, and that would sharpen disparities among the 16 nations that use the euro.”

Three months ago, the German government “was forecasting that GDP would contract by 2.25 percent in 2009. But since then, Berlin has suffered from plummeting demand for its products as its foreign customers rein in spending.”

New Jobless Claims Drop
The number of initial claims filed for unemployment insurance decreased by 14,000 in the week ending April 25 compared with the previous week, according to the U.S. Department of Labor on Thursday. The number of new unemployment claims, at 631,000, was down from the 645,000 claims filed in the week ending April 18.

However, the overall number of unemployed workers in the U.S. continues to increase — from 6.27 million in the week ending April 18 compared with 6.13 million the previous week. The 133,000 increase sets a record for the 13th straight week.

“Unemployment in the U.S. probably climbed in April to a 25-year high, showing the labor market will be one of the last areas to emerge from the worst recession in at least 50 years,” Bloomberg News reports economists as having said this week. “The jobless rate jumped to 8.9 percent last month from 8.5 percent in March and employers cut at least 600,000 workers from payrolls for a fifth straight time,” according to the median estimate in a Bloomberg News survey ahead of the monthly Labor Department report to come this Friday. “Other figures may show service industries shrank at a slower pace.”

Short-Range Forecast for Global Steel Consumption
The World Steel Association (worldsteel) is forecasting that global steel consumption will decline 14.9 percent in 2009, or more than 1 billion metric tons. This would follow a 1.4 percent decline in consumption in 2008 from 2007, ending last year at almost 1.2 billion metric tons.

According to the international trade association’s short-range outlook, the U.S. is expected to show the largest decline in steel demand in the “post-war period” within the North American Free Trade Agreement (NAFTA) region; in 2009, apparent steel use is expected to fall by 36.6 percent. Europe will be the most affected region outside NAFTA.

ArcelorMittal, the world’s biggest steelmaker, last week reported a net loss of $1.063 billion in the first quarter as demand from industry collapsed. The company accounts for 10 percent of world steel output. “The main reason for the decline continues to be the extreme weakness in demand for steel products in the first quarter of 2009 as a result of the global economic crisis, along with a steep fall in prices,” AFP reports the firm as having said.

However, worldsteel (formerly the International Iron and Steel Institute) foresees steel demand building later this year and resulting in a “mild recovery” in 2010.

“Improvement in steel consumption for the second half of 2009 will depend on the effects of government stimulation packages, the continued stabilization of financial systems and a return of some consumer confidence,” Daniel Novegil, Chairman of the worldsteel Economics Committee said in a statement.