Plus: Economic Indicators Point to Slower U.S. Contraction, China Manufacturing Gains on Slowly Improving U.S. Sector, and Total RFID Revenue Expected to Exceed $5.6 Billion in 2009.

Slower Contraction in Q2 2009
“The U.S. economy came out of its tailspin in the second quarter and may be poised to resume growing, even as new signs of economic strain showed up in Europe,” the Wall Street Journal reported over the weekend (subscription required).

According to new data from the U.S. Department of Commerce, the nation’s economy contracted at a much slower pace in the second quarter. Real gross domestic product (GDP) fell at a 1 percent annualized rate in the second quarter, its slowest pace in a year and “well below the average 5.9 percent decline over the last six months,” MarketWatch notes.

The Commerce Department said the slippage in GDP for the April-to-June period came “after the economy was in a free fall, tumbling at a 6.4 percent pace in the first three months of the year, worse than the earlier estimate of 5.5 percent,” according to the Associated Press. “That made the first quarter the worst for the economy in nearly three decades.”

“Economists, who were expecting GDP to be down at about a 1.5 percent rate in the second quarter, were largely heartened by the data,” the Chicago Tribune says.

The Commerce Dept. report “reflected much smaller decreases in business investments, a smaller drop in inventories and exports, as well as an upturn in government expenditures as the federal stimulus measures took hold,” the Tribune notes. “Businesses also have cut their inventories to low levels, suggesting that they would increase production later this year.”

“But consumer spending, which makes up about 70 percent of overall economic activity, has continued to fall as fearful Americans save more,” the New York Times reports.

“The GDP news comes on the heels of a number of reports suggesting that the long-troubled housing market decline is bottoming and that manufacturing is also stabilizing,” though the labor market “remains troubled, and with the unemployment rate expected to keep rising until at least the end of the year, many people will not feel a recovery,” the Chicago paper makes clear.

“[M]any companies, while still hurting, are seeing signs of a bottom and growing cautiously optimistic about an uptick by year’s end,” the Wall Street Journal says in a separate report. “A number of major companies reported second-quarter earnings noticeably less grim than the prior two quarters… . Thursday saw a slew of companies across industry sectors cap the quarter with upbeat results or moderated losses, from Motorola Inc. to Goodyear Tire & Rubber Co.” In addition, “a number of CEOs in the past three weeks have reported signs that economic conditions are stabilizing” and “more companies than usual have beaten earnings targets, something that generally happens at the bottom of a recession.”

U.S. Manufacturing Slowly Improving
While the overall economy grew for the third consecutive month, economic activity in the manufacturing sector failed to grow in July for the 18th consecutive month, according to the Institute for Supply Management (ISM) today.

Nonetheless, the ISM index rose from 44.8 percent in June to 48.9 percent in July — the strongest showing since September.

“More importantly, the production index increased to 57.9 in July from June’s 52.5 percent,” according to Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI. “The solid increase in July’s production reflects reopening of auto plants that were closed during GM’s bankruptcy, which results in associated increases in auto parts production. The ‘cash-for-clunkers’ program appears to be more popular than most analysts projected, which indicates that the long, deep recession has created pent up demand for motor vehicles,” Meckstroth wrote in analysis of ISM’s findings.

“The employment and inventories indexes are still contracting, but the rate is slowing and they are moving in the right direction,” Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee, said in a statement. “It is also worth noting that the new export orders index shows growth following nine consecutive months of decline, suggesting that the global economy is recovering.”

The ISM index has been improving slowly since hitting a low of 32.9 percent in December. The index was last above 50 percent in January 2008. Readings below 50 indicate contraction.

China Gaining on U.S. as Largest Manufacturer
“China is on its way to surpassing the U.S. as the world’s largest manufacturer far sooner than expected,” the Wall Street Journal reports today (subscription required). “In 2007, the latest year for which data are available, the U.S. accounted for 20 percent of global manufacturing; China was 12 percent.”

“The gap, though, is closing rapidly,” the Journal continues.

According to economic-forecasting firm IHS/Global Insight, “China will produce more in terms of real value-added by 2015.”

“As recently as two years ago, Global Insight’s estimate was that China would surpass the U.S. as the world’s top manufacturer by 2020,” the Journal reports. “Last year, it pulled the date forward to 2016 or 2017.”

John Engler, president of the National Association of Manufacturers, says he doesn’t expect China to surpass the U.S. before 2020. “It may or may not continue to grow so rapidly,” Engler told the Journal. “The importance of the China challenge to the U.S. depends on how we respond to it.”

China’s manufacturing expanded in July, a state-sanctioned index showed Saturday. The China Federation of Logistics and Purchasing said its purchasing managers index rose 0.1 points from June to 53.3. On a 100-point scale, numbers above 50 represent expansion. “It was the fifth month in a row that the index has expanded,” the Associated Press reports. “Stimulus spending and an investment boom financed by a surge in lending by Chinese state banks helped to boost second-quarter economic growth to 7.9 percent from a year earlier, up from 6.1 percent the previous quarter.”

Delphi Approved to Exit Bankruptcy
Delphi Corp., the former auto-parts arm of General Motors Co., said last Thursday a judge approved its plan to exit bankruptcy protection and that it expects to emerge during the current calendar quarter, “clearing the way for the auto-parts supplier to end its four-year stay in bankruptcy,” the Wall Street Journal reports (subscription required).

The company, spun off from GM in 1999 and in bankruptcy protection since October 2005, said its plan to emerge from Chapter 11 supervision was approved by the U.S. Bankruptcy Court for the Southern District of New York.

“Delphi is now on track to leave bankruptcy as early as Aug. 31, or as late as Sept. 30, as a private company owned by its lenders, who are trading $3.4 billion they were owed in Delphi’s bankruptcy for the company’s assets,” the Detroit Free Press reports.

“We expect closing to occur during the current calendar quarter,” Delphi said in a statement. “We expect to emerge as a well-capitalized, strong and resilient company, with a clear focus on remaining a premier global supplier to the world’s OEMs [original equipment manufacturers], the aftermarket and our medical industry customers.”

RFID Represents ‘Bright Spot of Growth’
“Despite the downward turn in the global economy, total revenue earned from radio frequency identification (RFID) transponders, readers, software and services is expected to exceed $5.6 billion in 2009,” according to the latest market data from ABI Research, a market intelligence company specializing in global connectivity. “That’s an increase of $240 million, or 4.25 percent, over 2008 revenue,” Logistics Management says of ABI Research’s findings.

“The RFID market continues to be worthy of cautious optimism in the near to mid-term, particularly in the closely watched passive UHF segment,” the research firm said in a March statement. “We do not anticipate near-term market contraction based on economic conditions; however, anticipated growth rates may not be as robust as in previous years.”

In its RFID Annual Market Overview, ABI Research forecasts annual growth to remain steady over the next five years, with the total market experiencing an 11 percent compound annual growth rate through 2014. “Analysts expect the market to reach more than $9.2 billion in 2014, or approximately $7.62 billion with consumer automobile applications excluded,” Logistics Management notes.

“While RFID in manufacturing and the supply chain no longer makes the kinds of headlines it did just a few years ago, these spaces continue to be bright spots of growth, ABI Research Director Michael Liard tells Logistics Management in a report this week.

As covered by IMT last week, a report from consultancy firm IDTechEx this month says the global RFID market has grown by 5 percent in 2009, reaching $5.56 billion worldwide, with orders for RFID products rising by 10 percent in some sectors.