Housing, labor data provide upbeat signs on US economy
Housing, labor data provide upbeat signs on US economy
Initial claims for state unemployment benefits fell 37,000 to a seasonally adjusted 335,000, the lowest level since January 2008, the Labor Department said. It was the largest weekly drop since February 2010 and ended four straight weeks of increases.
The drop might not signal a material shift in labor market conditions as claims tend to be very volatile around this time of the year. This is because of large swings in the model used by the department to iron out seasonal fluctuations.
"Having taken a pinch of salt, however, we would suggest that the trend in claims generally show no pickup in layoff activity around the turn of the year," said John Ryding, chief economist at RDQ Economics in New York.
A separate report from the Commerce Department showed housing starts jumped 12.1 percent last month to their highest level since June 2008. Permits for future home construction were also the highest in about 4-1/2 years.
While warm weather likely helped, the data was confirmation of the improving housing market tone, and gains in home building were across all four regions. Housing is no longer a drag on the economy and residential construction is expected to have contributed to growth last year for the first time since 2005.
It is expected to be the key driver this year. The reports came on the heels of data this week showing solid retail sales and manufacturing growth in December.
"This has been a great week for economic news," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.
The fairly upbeat data helped to lift US stocks to a five-year high. US Treasury debt prices fell and the dollar was marginally weaker against a basket of currencies.
But the outlook for the economy remains shaky. A third report showed factory activity in the US mid-Atlantic region contracted this month as new orders tumbled, pointing to a slowdown in manufacturing activity.
The Philadelphia Federal Reserve Bank said its business activity index fell to -5.8 from 4.6 in December. A reading below zero indicates contraction in manufacturing in eastern Pennsylvania, southern New Jersey and Delaware.
"Manufacturing has slowed but it's still growing. I'm not going to read too much into this until I see other regional surveys," said Gus Faucher, a senior economist at PNC Financial Services in Pittsburgh.
The four-week moving average for new jobless claims, a better measure of labor market trends, fell 6,750 to 359,250, suggesting some improvement in underlying labor market conditions.
The claims data covered the survey week for January's nonfarm payrolls. Job growth has been gradual, with employers adding 155,000 new positions in December. The unemployment rate held steady at 7.8 percent last month.
The claims report showed the number of people still receiving benefits under regular state programs after an initial week of aid increased 87,000 to 3.21 million in the week ended Jan. 5.
The four-week average of the so-called continuing claims was the lowest since July 2008.
Gulf companies challenged by debt and rising interest rates
- Debt restructurings on the rise, but below crisis levels
- Central Bank of the UAE has raised interest rates four times since last March
There has been an uptick in recent months in heavily-borrowed companies in the Gulf seeking to restructure their debts with lenders. Although the pressure on companies is not comparable to levels witnessed in the region following the 2008 global financial crisis, rising interest rates will eventually begin to have a greater impact, say experts.
Speaking exclusively to Arab news, Matthew Wilde, a partner at consultancy PwC in Dubai, said: “We do expect that interest rate increases will gradually start to impact companies over the next 12 months, but to date the impact of hedging and the runoff of older fixed rate deals has meant the impact is fairly muted so far.”
The Central Bank of the UAE has raised interest rates four times since the start of last year, in line with action taken by the US Federal Reserve. The Fed has signalled that it will raise interest rates at least twice more before the end of the year.
Wilde added that there had been a little more pressure on company balance sheets of late, although “this shouldn’t be overplayed”.
Nevertheless, just last week, Stanford Marine Group — majority owned by a fund managed by private equity firm Abraaj Group — was reported by the New York Times to be in talks with banks to restructure a $325 million Islamic loan. The newspaper cited a Reuters report that relied on “banking sources”.
The Dubai-based oil and gas services firm, which has struggled as a result of the downturn in the hydrocarbons market since 2014, has reportedly asked banks to consider extending the maturity of its debt and restructuring repayments, after it breached certain loan covenants.
A fund managed by Abraaj owns 51 percent of Stanford Marine, with the remaining stake held by Abu Dhabi-based investment firm Waha Capital. Abraaj declined to comment.
Dubai-based theme parks operator DXB Entertainments struck a deal last month with creditors to restructure 4.2 billion dirhams ($1.1 billion) of borrowings, with visitor numbers to attractions such as Legoland Dubai and Bollywood Parks Dubai struggling to meet visitor targets.
Earlier this month, Reuters reported that Sharjah-based Gulf General Investment Company was in talks with banks to restructure loan and credit facilities after defaulting on a payment linked to 2.1 billion dirhams of debt at the end of last year.
Dubai International Capital, according to a Bloomberg report from December, has restructured its debt for the second time, reaching an agreement with banks to roll over a loan of about $1 billion. At the height of the emirate’s boom years, DIC amassed assets worth about $13 billion, including the owner of London’s Madame Tussauds waxworks museum, as well as stakes in Sony and Daimler. The firm was later forced to sell most of these assets and reschedule $2.5 billion of debt after the global financial crisis.
Wilde told Arab News: “We have seen an increasing number of listed companies restructuring or planning to restructure their capital recently — including using tools such as capital reductions and raising capital by using quasi equity instruments such as perpetual bonds.”
This has happened across the region and PwC expected this to accelerate a little as companies “respond to legislative pressures and become more familiar with the options available to fix their problems,” said Wilde.
He added that the trend was being driven by oil prices remaining below historical highs, soft economic conditions, and continued caution in the UAE’s banking sector.
On the debt restructuring side, Wilde said there had been a “reasonably steady flow of cases of debts being restructured”.
However, the volume of firms seeking to renegotiate debt remains small compared to the level of restructurings witnessed in the aftermath of Dubai’s debt crisis.
Several big name firms in the emirate were caught out by the onset of the global financial crisis, which saw the emirate’s booming economy and real estate market go into reverse.
State-owned conglomerate Dubai World, whose companies included real-estate firm Nakheel and ports operator DP World, stunned global markets in November 2009 when it asked creditors for a six-month standstill on its obligations. Dubai World restructured around $25 billion of debt in 2011, followed by a $15 billion restructuring deal in 2015.
“We would not expect it to become (comparable to 2008-9) so barring some form of sharp external impetus such as global political instability or a protectionist trade war,” said Wilde.
Nor did he see the introduction of VAT as particularly driving this trend, but rather as just one more factor impacting some already strained sectors (e.g. some sub sectors of retail) “which were already pressured by other macro factors.”