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Jobs market clouded by storms in February

Mix some of the worst winter storms on record with a weak economy and you’ll get disappointing payroll data when the government reports on February’s job market this week.

Economists say the massive snowstorms that hit the eastern half of the nation in the second week of February could depress employment by as much as 150,000. But the impact of the storms will mostly be temporary, with a large bounce back in March very likely, depending on the next storm, of course.

“The blizzard that blanketed the East Coast during the February employment survey week probably caused a sharp decline in payrolls for the month,” wrote Peter D’Antonio, an economist for Citigroup Global Market, who was the MarketWatch forecaster of the month for January.

MarketWatch consensusSee economic calendardate report Consensus previous
March 1 Personal income 0.4% 0.4%
March 1 Consumer spending 0.4% 0.2%
March 1 ISM 57.5% 58.4%
March 1 Construction spending -0.5% -1.2%
March 2 Motor vehicle sales 10.4 mln 10.8 mln
March 3 ISM services 51.0% 50.5%
March 4 Jobless claims 470,000 496,000
March 4 Productivity 6.5% 6.2%
March 4 Factory orders 2.5% 1.0%
March 5 Nonfarm payrolls -85,000 -20,000
March 5 Unemployment rate 9.8% 9.7%
March 5 Average hourly earnings 0.2% 0.3%
March 5 Consumer credit -$6.0 bln -$1.7 bln
/conga/economy-politics/calendars/preview widget.html 60971 “The underlying fundamentals are improving gradually,” D’Antonio said. “An excessive weather-driven decline will be reversed in March.”

Payrolls have declined in 24 of the past 25 months. Economists surveyed by MarketWatch are forecasting that payrolls will fall by 85,000 in February, with much of the decline due to the weather. The unemployment rate is expected to rise to 9.8% from 9.7%.

The payrolls report is supposed to measure the economy, not the weather, but it will hard to disentangle the two for the next several months. The confusing data will come just as everyone is waiting for the turning point in employment, for the economy to consistently create more jobs each month than it loses.

The best estimate by most economists is that payrolls will turn the corner over the next few months. Payrolls will probably grow, slowly, each month thereafter. Growth just isn’t strong enough to drive the unemployment rate down very quickly.

What’s more, there’s another temporary factor at work. The Census Bureau has started to ramp up hiring for its constitutionally required mandate of physically counting every person who lives in America. Those are real jobs that pay real wages that will be spent on real goods and services. But they are temporary.

“Even leaving aside the effects of inclement weather, the economy still appears to be shedding jobs,” wrote Aaron Smith and Ryan Sweet, economists for Moody’s “Although businesses have stopped cutting inventories and are beginning to invest more, they have been more hesitant to increase their hiring.”

Wicked storms
Storms, of course, are common in winter months, and so are weather-related layoffs and work stoppages, which is one reason the government provides seasonally adjusted numbers.

But these storms were something else in terms of timing, strength and location. Even Dallas received a foot of snow.

The storms struck during the survey week. Each month, the government asks businesses how many workers were on the payroll for the pay period that contains the 12th of the month. They are asked about hours worked, and how much workers were paid.

U.S. Week Ahead: Jobs Report on FridayManufacturing data, consumer-spending numbers and auto sales will be on tap next week. The big number comes at the end of the week with February’s payrolls report. MarketWatch’s Stacey Delo reports.
In the past, major storms that hit during the survey week have had a major impact on employment, only to see a reversal the next month. Economist Joe LaVorgna of Deutsche Bank figures a snow storm in the survey week lowers payrolls by an average of 90,000 compared with the trend line.

In the storm that seems most comparable, the Blizzard of 1996, payrolls fell by 19,000 in January, and then rebounded by 434,000 in February. Average hours fell by 1.2%, the fourth largest decline on record. The three largest recorded declines in hours worked were also due to severe winter storms.

However, some economists think the impact of this year’s storms will be marginal. “The job market is flat, so the storms may have caused a roughly equal drop in both hiring and firing,” wrote economists for Bank of America’s Merrill Lynch.

If history is any guide, the storms could also have a major impact on other monthly economic data, especially retail sales, industrial production, and the housing data.

Luckily, storms don’t seem to have much effect on survey-based indicators, such as the Institute for Supply Management’s surveys of manufacturing and non-manufacturing companies. The ISM is “storm proof,” said Maury Harris, U.S. economist for UBS Securities.

The ISM manufacturing index is expected to remain very strong in February, dipping from 58.4% to about 57.5%, still “pointing to solid manufacturing growth,” wrote Michael Feroli, an economist for JP Morgan Chase.

Since 1980, the ISM has been weaker than 57.5% about 89% of the time.

Within the ISM, the orders and production scales are always the most important. But economists are also watching the employment and inventory indexes. Manufacturing employment rose in January for the first time in two years after the ISM employment index hit 53.3%. The inventory index showed that the customers of manufacturing firms have very lean inventories, a positive sign for future production.

“Output continues to advance, with strength exhibited in emerging export markets,” wrote Brian Bethune and Nigel Gault of IHS Global Markets, winners of the 2009 forecaster of the year award from MarketWatch

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‘Wicked nor’easter’ slams Northeast

The Northeast got clobbered for a third time this month by a severe snowstorm disrupting air traffic and morning commutes across the region.

Midtown Manhattan blanketed in snow as harsh winter weather continues on eastern seaboard. Christopher Hinton/MarketWatch
Midtown Manhattan blanketed in snow early Friday as harsh winter weather continues on eastern seaboard.

The worst of the storm will hit southern New York, including the city, northern Pennsylvania and northwestern New Jersey, according to AccuWeather. Snow totals in some spots could approach the 3-foot mark.

“Travel will be extremely difficult and even impossible at times across upstate New York to the Poconos, especially where massive snow drifts, downed trees or abandoned cars will hinder cleanup effort,” AccuWeather said. “Highways could even be shut down for many hours.”

At least three people were reported killed in weather-related auto accidents this week. An 89-year-old woman died in a crash in New York’s Hudson Valley, and a woman and a boy died after their vehicle slid off an ice-covered interstate highway in Pennsylvania, the Associated Press said Wednesday. A man driving the car with the woman and child was severely injured.

Thousands of flight cancellations and extremely long flight delays were being reported for LaGuardia, J.F.K. and Newark airports, as well as for Boston and Philadelphia and the Washington, D.C.-area airports of Dulles and Reagan National, according to the travel site

Delta Air Lines (DAL 12.84, +0.18, +1.38%) , American Airlines, US Airways (LCC 7.19, +0.11, +1.55%) and JetBlue Airways (JBLU 5.28, +0.07, +1.34%) were all impacted.

“Given expectations of significant snowfall in the metropolitan region, may carriers have already begun canceling flights,” the Port Authority of New York and New Jersey said.

Airlines at LaGuardia were experiencing delays of up to two hours.

Train service in and around New York City was also experiencing delays, with the New Jersey PATH system reporting delays of up to 15 minutes.

Snow throughout the Metropolitan Transportation Authority’s service area have accumulated anywhere between three to 30 inches, with the highest amounts in the northern suburbs, the MTA said on its Web site.

Schools were closed throughout the region, and thousands of people are without power, according to media reports.

The snowstorm is being called a “wicked nor’easter” by AccuWeather, and it’s expected to hammer the Northeast throughout out the day with winds, snow and flooding.

By Friday evening, the heaviest snow and wind is expected to let up, but poor travel conditions will likely continue through the weekend.

“The storm will slowly weaken from here on out as it takes a slow and dizzying path from Long Island to northern New Jersey and then northward to southern New England by Saturday,” AccuWeather said.

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Existing-home sales fall 7.2% to 7-month low

Resales of U.S. homes and condos fell 7.2% in January to a seasonally adjusted annual rate of 5.05 million, the lowest in seven months, and raising concerns about the durability of the housing recovery, the National Association of Realtors reported Friday.

Sales of existing homes have fallen two consecutive months after rising steadily through the fall on the back of a federal subsidy for first-time home buyers. The 16.2% decline in December was the largest on record; January’s decline is the second largest since 1999, when the NAR began tracking consolidated sales of single-family homes and condos.
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Economists surveyed by MarketWatch expected sales to be relatively flat after December’s record decline. Read our complete economic calendar.

“It’s not good news,” said Lawrence Yun, chief economist for the real estate industry lobbying group. “There is rising concern about the strength of the housing recovery.”

Yun said he still hoped for a surge of sales in the spring in reaction to the renewed and expanded tax credit for buyers. “Let’s see what happens in the spring.”

“Recent data appear disappointing, fuelling doubts that most of the increases recorded in the fall borrowed strength from the future,” wrote Anna Piretti, an economist for BNP Paribas. As a result, the expanded tax credit might not be as effective.

Sales of new homes also fell sharply in January. The Commerce Department reported earlier this week that sales plunged 11.2% to a record-low 309,000 annualized units. See full story on new-home sales.

The original tax break was set to expire on Nov. 30, a deadline that likely pulled forward many sales that would have taken place this year. Just before it expired, Congress extended and expanded the subsidy. Sales must be signed by April 30, and the sale must be closed by June 30 to qualify. Sales of existing homes are reported when the sale closes, not when a contract is signed.

Sales will probably decline in the second half of the year, Yun said, but job growth would largely offset the headwinds of higher mortgage rates and the expiration of the tax credit, Yun predicted.

The sales pace in January was 11.5% higher than in January 2009.

In January, inventories of unsold homes fell 0.5% to 3.265 million, or 7.8 months of supply at the current sales pace. There are also an unknown number of homes being kept off the market by banks.

Distressed sales, such as foreclosures and short sales, accounted for 38% of sales in January, up from about 32% in December. About 26% of sales are all-cash sales, the NAR said.

The median sales price for an existing home was $164,700, unchanged from a year earlier.

Sales fell in all four regions. Sales fell 10.9% in the Northeast, 7.4% in the South, 6.9% in the Midwest, and 5.2% in the West.

Sales of single-family homes fell 6.9%, while sales of condos dropped 8.1%.

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Once detractors, medical groups say health reform a must

A decade and a half ago, industry groups like the American Medical Association opposed the Clinton administration’s version of health-care reform, and helped in ultimately defeating that effort.

Now, however, on the eve of hearing President Barack Obama’s latest iteration of what the nation’s health-picture should look like, they and numerous other medical associations are worried today’s version of health overhaul will die on the vine.

Obama’s reform blueprint is expected to be posted on the White House’s Website Monday, the Washington Post reported Sunday, ahead of Thursday’s bipartisan health-care summit.

An overhaul has never been needed more, industry groups say, adding it is essential that at least some measure of reform take place.

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“Certainly, the AMA knows that if Congress doesn’t do anything, the situation is only going to get worse,” said Dr. James Rohack, president of the American Medical Association.

The AMA, American Hospital Association, American Nurses Association, American College of Physicians, American Health Care Association and even America’s Health Insurance Plans — the trade group representing health carriers — all agree on one thing: some type of reform is necessary. And they’re a little more than irked that health reform appears to be dormant since they’ve lobbied for the cause.

“We’re very frustrated at the lack of action on it in recent weeks after we’ve expended so much energy,” said Rose Gonzalez, director of government affairs at the American Nurses Association. “The decisions that nurses make at the bedside every day, they need to make on Capitol Hill. They need to make them at the White House.”

It appears the president and lawmakers are about to give it another whirl. Obama is expected to put forward some of the highlights of the Democratic House and Senate health-care bills, ahead of the Feb. 25 summit. The event is scheduled to be televised live on C-SPAN.

How in depth Obama plans to go is unclear, but the president has indicated he will have some general outline for Republicans and Democrats to consider as they try to salvage some of what both houses passed late last year.

Election threatens
It was thought the two sides would reconcile their two versions via conventional means, but that was threatened by the January election of Republican Sen. Scott Brown of Massachusetts, upsetting the filibuster-proof majority Democrats had in the Senate. Now, it appears the House may have to be willing to accept the Senate’s version of health care, provided some key issues are addressed in the Senate’s budget reconciliation process, which is not subject to filibuster.

‘…if Congress doesn’t do anything, the situation is only going to get worse.’

Dr. James Rohack, president of the American Medical Association

Whichever way the reform process leads, these medical groups generally want the same key issues addressed: bend the cost curve, cover the uninsured, boost preventive medicine measures and excise pre-existing condition provisions from insurance policies.

Both House and Senate bills try to achieve that, but to varying degrees and means.

The most glaring difference is that the House bill contains a public insurance option that largely is thought to be dead in the water due to Senate objections, though no last rites have been given to it just yet. More lawmakers are signing on to revive the public option — some angry with ever-skyrocketing rate hikes — and could seek to pass it through a budget reconciliation process.

Many of these groups have indicated support for a public option — numerous physicians’ groups, in fact, repeatedly have called for a single-payer system for all, though many have resigned themselves to the likelihood that no further government insurance option will be on the table.

“Never say never. You never know what policymakers are going to do,” said Robert Zirkelbach, spokesman for America’s Health Insurance Plans, the trade group representing health carriers.

Own agendas
Some of these groups have their own agendas, all of which have widely differing chances of being fulfilled.

The nurses’ group feels relatively comfortable that incentives to recruit more nurses and nurse teachers to the profession will remain pretty much intact, since those provisions are in both the House and Senate versions. All sides seem to agree that a projected shortage of 1 million nurses by 2020 is critical, said Michelle Artz, chief associate director of the nurses association’s government affairs office.

“I think we were really pleased at the attention both the House and Senate gave to this issue,” she said.

Others aren’t so confident. Dealing with a shortage of primary care physicians is getting some attention in the form of increased Medicare payments to those practitioners, says Robert Doherty, senior vice president of government affairs at the American College of Physicians. But he’d like to see more.

There are several disincentives to becoming a primary-care doctor, and they start making themselves evident to medical students facing $150,000 or more in debt once they leave school.

“The hours are longer, the pay is lower and the paperwork is greater,” Doherty said. And the list of patients seeking a suitable primary-care doctor is growing longer.

The current medical market rewards specialists more than general practitioners, he adds. The U.S. is trending toward one primary-care physician for every five doctors, but in countries considered to have better health offerings, there is one primary physician for every specialist.

At the American Health Care Association, an advocacy group for nursing homes and acute-care facilities, the concern there is over whether Congress is paying enough attention to long-term patients. Susan Feeney, spokeswoman for the group, says they should since nursing homes and other acute-care centers added 50,000 jobs in the last year — more than three jobs for each of the 15,691 facilities in the U.S.

Those facilities receive 80% of their funding from government-backed plans, Feeney says. One key issue is whether Medicaid is underfunding these facilities. The House bill seeks to address that with $6 billion in funding over four years but there’s no provision in the Senate bill.

Lawmakers have insisted that expanding technology on patient information is a key link to help save costs, but acute-care facilities have been left out of that discussion, Feeney says.

“It has not been in previous iterations of the bill. We are hoping it could be in new versions of the bill,” she said. “It’s something that does need to be elevated.”

Major issues
In some cases, though, groups are focusing on more macro issues. The American Hospital Association’s main concern is assuring coverage is expanded to as many patients as possible so they can take preventive measures, says Matt Fenwick, AHA spokesman. Otherwise, their entry into the health-care system usually comes through the emergency room.

“Unfortunately, it’s the most expensive point of access to health care,” Fenwick said. Hospitals have struggled to offset for uncompensated care, which totaled $36.4 billion nationwide in 2008. That usually comes on the back of the insured.

Not surprisingly, that sentiment is echoed by the insurers’ group. The group agrees that reform is needed — particularly in reducing costs — but don’t blame insurers for that, says Zirkelbach, the AHIP spokesman.

Underlying costs in hospital care, doctor services and drug prescriptions are primarily at fault, he says.

“The current bills do virtually nothing to bend the cost curve,” Zirkelbach said. “Many Americans believe the current legislation will increase the cost of their health care.”

The health-carrier trade group aligns with Republicans on several issues, but takes no position on whether insurers should be allowed to sell policies across state lines, a talking point for many conservatives. It does, however, support tort reform.

“We completely agree we need to get medical liability under control,” he said.

That’s one of several issues the AMA is pushing, along with pending Medicare payment cuts to doctors among them. Rohack, the association’s president, says there are tort reform initiatives in the House bill, but they don’t go far enough. He wonders whether a more piecemeal approach would be better.

“The AMA knew that regardless of what Congress passed, they wouldn’t get [tort reform] right,” Rohack said. “America sometimes is critiqued because they like the home runs. But you can win a game if you put a string of singles together.”

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Tale of three economies

The U.S. economy is rebounding, of that there can be no doubt. What is uncertain is how strong and how durable the recovery will prove to be.

Vital clues will be forthcoming this week from three major sectors: Manufacturing, housing and consumers. This week’s data could clear up some of the uncertainties even as more fog looms ahead.

In addition to a busy week of data releases, the calendar also features the double-barreled congressional testimony of Federal Reserve Chairman Ben Bernanke, who will reveal what he sees as the most likely path for the economy, and explain what the Fed will do about it.

MarketWatch consensusSee economic calendardate report Consensus previous
Feb. 23 Consumer confidence 56.0 55.9
Feb. 24 New-home sales 355,000 342,000
Feb. 25 Jobless claims 460,000 473,000
Feb. 25 Durable-goods orders 1.5% 1.0%
Feb. 26 GDP revision 5.9% 5.7%
Feb. 26 Chicago PMI 60.0% 61.5%
Feb. 26 Consumer sentiment 73.7 73.7
Feb. 26 Existing-home sales 5.47 mln 5.45 mln
/conga/economy-politics/calendars/preview widget.html 59294 Manufacturing
U.S. factories were hammered by the global recession, but are bouncing back. The major indicators of manufacturing show rising orders, expanding production and reduced inventories, led by demand for capital equipment from businesses here and abroad.

New orders for U.S-made durable goods probably rose by 1.5% in January after a 1% gain in December, according to the median forecast of top economists surveyed by MarketWatch. The report will be released by the Commerce Department on Thursday.

Since bottoming last March, orders for durable goods are up about 12%, reflecting not only better demand for exports, but also the need to rebuild capacity in America.

With oversupply and weak sales in many industries, businesses neglected their capital during the recession. For example, capacity in U.S. factories has declined nearly 2% in the past year, only the second time capacity has been destroyed since the end of World War II.

To remain competitive, U.S. companies are reinvesting at a rapid clip. In the fourth quarter, investments in equipment and software jumped at a 13% annual rate. Capital spending should rise at a double-digit pace again in the first quarter, according to Joseph LaVorgna, chief U.S. economist for Deutsche Bank.

“Continued improvement in capex is likely given the fact U.S. companies are generating a record amount of free cash flow while the existing capital stock is depreciating quite rapidly,” LaVorgna wrote in his weekly strategy note.

“Although private credit markets are still tight, many medium and large firms are having no problem raising funds on the public markets,” wrote Meny Grauman, an economist for CIBC World Markets. “After many quarters of underinvestment, many larger firms are in a position to spend again.”

U.S. housing markets are still struggling, four years after the peak of the housing bubble. The market is still dependent on government policies that keep mortgage rates low, slow the rate of foreclosures, and encourage sales with a direct rebate to buyers.

The tax rebate for buyers was set to expire in November, but extended at the last moment through June. Economists expect the renewed rebate to boost sales this spring, but it could be very hard to see a major impact until later.

U.S. Week Ahead: Washington, HousingVolume and volatility could pick up in the markets, sensitive to the dollar and Treasury auctions. Then there’s a GDP revision and a potential decline for the Case-Shiller index. But all eyes are on the health-care summit, hearings on Toyota and Fed chief Ben Bernanke on Capitol Hill. Stacey Delo reports.
The on-again, off-again tax rebate, the uncertainty about what will happen to mortgage rates once the Fed stops buying mortgage-backed securities, and the severe winter have disrupted the timing of the spring selling season this year.

Economists are forecasting small increases in sales of new and existing homes in January. Sales of new home are expected to rise to a seasonally adjusted annual rate of 355,000 from 342,000 in December. Sales of existing homes are expected to inch higher to a seasonally adjusted annual rate of 5.47 million from 5.45 million in December.

“It may take until spring to get a reliable reading on home sales,” cautioned Citigroup economist Peter D’Antonio in his weekly note. The tax break for buyers should have the effect of bringing forward sales that would have taken place later in the year. In addition, “housing data often are misleading in winter, because weather and seasonality distort the figures.”

Ultimately, the strength of the U.S. economy depends on the consumer sector. Here, the news is mixed. Unemployment remains extremely high, but may have peaked. Those who have jobs are working longer hours, and earning slightly fatter paychecks. Disposable incomes are rising again, and so is household wealth.

So, consumers, in the aggregate, have the ability to spend a little more, and they may have the desire to do so to buy all the things they couldn’t or wouldn’t buy last year. But consumers remain wary. They worry about their jobs, their incomes, their house, their portfolio. The future seems more uncertain than usual.

The two most widely followed gauges of consumer confidence will be released this coming week. Economists are looking for little change in either the Conference Board’s consumer confidence index or the University of Michigan’s consumer sentiment index.

By either measure, consumers aren’t nearly as confident about the future as they usually are, but neither are they as despondent as they were a year ago

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Home building is going nowhere

After plunging by about 75% from the lofty levels during the housing bubble, new home construction has finally stopped falling.

But, despite massive healing efforts by the government and the industry, home building hasn’t shown any real improvement since bottoming early last year.

Through November, housing starts were essentially flat for the past year at an average annual pace of about 550,000, bouncing higher in one month and drifting lower in the next.

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Economists expect little change when the government reports on December’s starts activity on Wednesday of the coming week. The housing number will be the major economic release of the week.

The consensus forecast of economists surveyed by MarketWatch calls for a 3% decline in starts to a seasonally adjusted rate of 555,000 from 574,000 in November. Read our full economic calendar and consensus forecast.

“Activity in the residential construction sector is still essentially unchanged relative to where it bottomed out in early 2009,” wrote Meny Grauman, an economist for CIBC World Markets. It is quite possible that housing starts will see the first year-over-year increase since early 2006; starts hit a pace of 556,000 in December 2008.

Weather could play a factor in this December’s figures, economists for IHS Global Insight said. The numbers are seasonally adjusted, but unusual weather can extend the building season, or shorten it. In November, starts increased nearly 9%, in part because it was the one of the warmest and driest Novembers on record.

“As a result, some homes that would have been started in December were instead started in November,” said Brian Bethune and Nigel Gault of Global Insight. December’s weather was the opposite: cold and wet.

Home building is really two markets: single-family and multifamily. Building of single-family homes has actually improved, rising by about 30% from the lows of last year. In the meantime, starts of multifamily dwellings have collapsed, dropping over 50% from November 2008 to November 2009.

The industry has slashed production of new homes to work off a massive inventory of unsold homes. As of November, the number of new homes on the market had fallen about 60% to just 235,000, the fewest since 1971. And many of those homes are simply not salable. If it wasn’t sold before, it’s taking nearly 14 months on average to sell a home once it’s completed.

The government, at the bidding of the builders, Realtors and bankers, subsidized buyers. But most of the first-time home buyers went for more-affordable existing homes, not new ones. However, repeat buyers are now eligible for the taxpayer-funded subsidy.

“The expansion of the program to include buyers who have previously owned homes could benefit the new market,” wrote Peter D’Antonio, an economist for Citigroup Global Markets.

The new-home market is still at a disadvantage because of the number of foreclosures and short-sales.

In this environment, builders aren’t eager to expand production, particularly because they don’t know how the housing market will fare once the extraordinary support from the federal government wanes after the first half of the year, when the tax credit goes away and the Fed stops propping up the secondary market for mortgages.

“Residential construction should not be a significant driver of economic output in 2010, or even 2011 for that matter,” Grauman predicted. Another reason to believe that the economy won’t boom.

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Abu Dhabi gives $10 billion to help Dubai World pay debts

Abu Dhabi has given fellow emirate Dubai $10 billion in financing that will be used to pay part of the debt held by state-owned conglomerate Dubai World and its property unit Nakheel.

The news sparked a rally in Dubai stocks, which surged over 10% Monday. European stock markets also posted gains, led by banking shares. Equity markets in Hong Kong, Shanghai and Sydney all reversed direction to finish higher following the Dubai news. See full story on Asian stock rebound. See European markets report.

Dubai announced Monday that Abu Dhabi’s government has provided $10 billion to the Dubai Financial Support Fund. Of the total, $4.1 billion will be used to repay Nakheel’s Islamic bond maturing Monday, while the rest will be used to finance Dubai World’s obligations through the end of April 2010.

“We are here today to reassure investors, financial and trade creditors, employees, and our citizens that our government will act at all times in accordance with market principles and internationally accepted business practices,” Dubai Supreme Fiscal Committee Chairman Sheikh Ahmed bin Saaed al-Maktoum said in a statement.

Financial markets around the globe have been jittery about Dubai debt exposure since late last month, when Dubai World sought to restructure $26 billion of debt. The conglomerate’s total obligations are estimated at roughly $60 billion.

Monday’s announcement is helping clear up some of the uncertainty around the restructuring of Dubai World’s debt and will likely boost investor confidence, since it demonstrates Abu Dhabi’s willingness to support its fellow emirate.
Implications for investors

“This lifeline should dispel the near-term crisis of confidence of the past two weeks and [it] greatly reduces immediate credit risks associated with Dubai World,” said Ahmet Akarli, strategist at Goldman Sachs, in a note to clients.

“It is important to note that this is only the beginning of a comprehensive financial realignment process which may involve asset sales, debt restructuring and liquidation of insolvent entities,” Akarli said. “It is clear additional aid from the UAE will be needed to smooth the restructuring process out.”

Tim Brunne, strategist at UniCredit Group in Munich, warned that the “the whole story leaves a bitter taste.”

“The reputational damage for Dubai World is enormous, as its failed timely communication of its fiscal problems will alienate investors,” Brunne said in a note.

The central bank of the United Arab Emirates, which governs monetary policy in Dubai, Abu Dhabi and other U.A.E. constituents, “is also prepared to provide support to local UAE banks,” according to Dubai’s statement.

The government of Dubai also plans to announce a “comprehensive reorganization law,” based on internationally accepted standards for transparency and creditor protection.

“This law will be available should Dubai World and its subsidiaries be unable to achieve an acceptable restructuring of its remaining obligations,” the statement said.

Also, Dubai’s government expressed commitment to its obligations as well as confidence in its economic model and the long-term health of its economy.

Separately, Nakheel confirmed Monday it will honor all obligations related to its sukuk using funds that will be provided by the Dubai Financial Support Fund.

“In accordance with the terms of the sukuk, the repayment will occur within the next 14 days,” Nakheel said in a statement posted on Nasdaq Dubai.
Dubai stocks rally

The benchmark DFM index rallied 10.4% to end at 1,871 points on the Dubai Financial Market.

Shares of real-estate developer Emaar Properties soared 15%, while those of contracting firm Drake & Scull International gained 14.5%. Aramex, a company that offers freight, express and logistics services, rose 14.7%.

Shares of discount airline AirArabia ended up 14.6%. Dubai Financial Market rose 14.8% and Dubai Islamic Bank gained 14.6%.

Shares of DP World (DPWRF 0.40, -0.04, -9.09%) , a marine terminal operator that’s a unit of Dubai World, rose 14.2% on Nasdaq Dubai.

In Abu Dhabi, the benchmark stock index gained 7.9% to 2,820 points. Real estate and energy shares posted the biggest gains.

First Gulf Bank and Sorouh Real Estate both surged 10%.

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The five biggest myths about health reform

As the clock ticks toward what could be final congressional approval of the most sweeping health-reform legislation in more than 40 years, a little perspective is in order.

The health-care system is complex, yet Americans’ experiences with it are deeply personal, making it a prime candidate for distortions and emotional manipulation. While people hold different views about what the nation should do about its coverage, cost and quality problems, facts and nuance often get lost in the political rhetoric of the debate. Health-care reform: See our complete coverage.
Fate of health bill uncertain

The public option may be off the table but the fate of the health-care bill is still far from certain. Its future appears to lie in the hands of a few key senators. The News Hub discusses who they are and what their agendas are with WSJ’s Peter Landers. Plus, Facebook rolls out privacy changes and the Christmas tree gets a makeover.

Here’s how three experts who follow health-care policy weighed in on five of the biggest myths and half-truths about the proposed overhaul.
Assertion: It would lead to a government takeover of health care

That’s hardly what the reform effort is designed to do, said Henry Aaron, senior fellow at the Brookings Institution in Washington.

“Here’s a plan, the primary purpose of which is to extend private health insurance, and it’s called a government takeover. It’s just bizarre. It’s false,” he said. “Even the tiny glimmer of possible validity in that argument, which a public option would provide, is not going to be part of any final bill.”

The only place government-sponsored insurance would be extended is by increasing eligibility for Medicaid, and even that proposal has limited reach, he said.

“What they’re talking about is health insurance for roughly 200 million people who either get it through work or buy it individually through private companies. Those numbers would increase, not decrease.”

It’s true that public programs have been keeping the ranks of the uninsured from growing even more during the recession than they would have without those safety nets. Medicaid and the state children’s health insurance program have been picking up some of the people who lost private, employer-sponsored health insurance when they lost their jobs over the last few years.

But the gap is still wide: About 29% of people had some form of government health insurance in 2008 compared with 58.5% of Americans who had private, job-based coverage, according to the U.S. Census Bureau. About 15%, or 46 million Americans, had no coverage.

“The distinction between who’s delivering health care and who’s paying for health care is routinely confused and distorted,” said Stephen Zuckerman, a health economist at the Urban Institute’s Health Policy Center in Washington. Medicare, for example, is a government-financed program, but private doctors make the clinical decisions and deliver the care.

“Government-run health care is like the Veterans Administration, where the government owns the hospital, employs the physicians and finances the care,” Zuckerman said.

Len Nichols, health economist and director of the health policy program at the New America Foundation, agreed. “Government-run health care would be if the government employed the providers and they were all paid a salary and you had no choice but to be treated by them.”

The bottom line: “More care is going to be financed by government, but more care is not going to be provided by government,” Zuckerman said.
Assertion: An overhaul would lead to rationing, where more people face denials or delays in health care

“This is the big red herring of the current debate,” Aaron said. “The United States is so far from having an institutional framework from which rationing could occur that it’s not a discussion that has much relevance to the reality of our current system or of the system that would emerge if the bill would pass.”

Americans don’t support what he called hard rationing, when a person has the money to be treated but is prevented from getting care.

“The American public is quite accepting of rationing in the softer sense, that if you can’t afford it you can’t have it,” he said. “Pushing back that frontier is part of the objective of [the legislation.] The main thrust is to reduce rationing in terms of price rationing.”

Employers and private insurance companies ration care all the time by deciding what’s included in benefits packages and at what level of employee cost-sharing.

“While not everyone gets everything, there’s a very high volume of care that’s provided in the U.S., and there’s very little in the bill that would likely change that,” Zuckerman said. “Rationing is one of the more inflammatory words that gets used that has no basis beyond what currently happens.”

Still, if the bill succeeds in providing millions more people access to health insurance, an increase in demand for medical services may affect some who already have coverage, depending on local market conditions, Aaron said.

“There is a possibility in some specialties and in some areas that the increase in demand could strain supply and therefore make it somewhat more difficult for those who have no problem getting a physician appointment or hospital bed to do so,” he said.

Such a problem would be “relatively easy to solve,” Aaron said. Opening new clinics and authorizing more health-care workers to carry out routine procedures could help ease the pinch. “It’s the sort of thing we know how to do real quick and reliably.”
Assertion: The bills do nothing to address out-of-control cost growth

“The single biggest myth is that no one is thinking about cost-growth containment,” Nichols said. “In fact, most of us think about little else.”

Lawmakers don’t talk about it as much as they’re working on it, he said, “because frankly the rationing rhetoric has been so effective. The people who on the one hand historically have been in favor of fiscal rectitude who are now screaming rationing are making it very difficult to have an adult conversation about cost-growth containment.”

The political challenge is to address the estimated one-third of medical spending that’s wasted every year on care that doesn’t improve people’s health.

The bills call for the federal government, through Medicare, to send a signal and change payment incentives so that patients receive high-value care the first time, Nichols said. It’s not a one-size-fits-all approach and is designed to account for regional diversity, he said, noting the proposed pilot projects and payment reforms make a serious attempt to correct “mispriced procedures.”

Zuckerman was more guarded about whether the bills have enough teeth to rein in costs.

“In the short run, cost-containment elements are not strong, but there are pieces in the legislation that could play out over time to contain costs,” he said. “It doesn’t look like the cost containment [elements] of the bill are as strong as they could be, but to say they’re nonexistent is an overstatement.”
Assertion: If you like your health insurance you can keep it

President Obama touted this idea early and often as he campaigned to overhaul the system, but can he deliver on that promise?

Many experts speculate that it would work out that way but caution that it’s not guaranteed, especially since the two bills assess the potential problem differently. While people wouldn’t be forced to change what they have, employers may decide for them if they wager they’d be better served to drop coverage and let their workers shop for policies in the new insurance marketplaces the bills envision.

“There are penalties for employers that don’t provide coverage so there is this pay-or-play notion, but depending on the penalties it still might be financially beneficial to employers not to play,” Zuckerman said. “In the House bill the penalties are much more severe on employers than they are in the Senate bill.”

“The idea of having penalties is to prevent employers from dropping coverage,” he said, noting that the voluntary system is dynamic and not fully predictable. “You can imagine over time that the penalties could end up looking reasonable relative to the cost of coverage.”

Still, employers may choose to change or drop coverage in the next few years with or without health reform, Zuckerman said.

Obama’s pledge likely doesn’t qualify as a myth, Aaron said. “In practice, the vast majority of people covered by private insurance will end up keeping their private insurance and won’t notice any material change.”
Assertion: The bills are too big, and changes should be tackled one by one instead of all at the same time

It’s been 15 years since the U.S. came even remotely close to passing comprehensive health reform. While this year’s attempt is ambitious, people who decry the scope of the bills underestimate how many moving parts need to work in unison to achieve the desired results, Nichols said.

“It’s got to be done as a package,” he said.

For example, health insurers would be newly required to accept all comers regardless of their preexisting conditions in exchange for a new requirement that individuals have coverage or face financial penalties.

Addressing cost control without extending health insurance at the same time wouldn’t work either, Nichols said. “You cannot get to serious cost containment without the salve of coverage.”

“The status quo is not sustainable,” he added. “The people who argue that having somebody pay a dollar more or lose their extra glasses in their Medicare Advantage plan is somehow equivalent to leaving 50 million uninsured and doing nothing to contain the cost growth that’s eating our economy alive, that’s just folly. That’s what opponents are trying to get Americans to accept yet one more time.”

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Retail sales sparkle in November

U.S. retail sales rose an encouraging 1.3% in November, marking the third increase in the past four months, according to Commerce Department data released Friday.

Excluding the 1.6% rise in auto sales, sales rose 1.2%, the fastest since January.

Economists surveyed by MarketWatch expected total sales to rise 0.5% and sales excluding autos to rise 0.4%.

This was a surprisingly strong report, and suggests that U.S. consumers are slowly regaining their spending mojo,” said Millan Mulraine, an economics strategist at TD Securities, in a note to clients.

It was the strongest sales report since August’s 2.4% increase. The gains were widespread, as only clothing and furniture sales dropped in the month. The figures are seasonally adjusted but are not adjusted for inflation.

Gasoline sales added some fuel to November sales, rising 6.0%, the biggest gain since June.

Excluding gasoline stations, sales rose 0.8%. Excluding both autos and gas, sales rose 0.6%.

It is hard to say what the November sales data imply for the critical holiday shopping season. Retailers are hoping to avoid a second consecutive year of sales declines, but many reports are pointing to a lackluster season.

In the past year, retail sales are up 1.9%, the first year-over-year gain since August 2008.

The strong report adds to the perception that the U.S. economy is exiting the recession in good shape. Economists caution that the economy still faces significant headwinds from the credit crunch and high unemployment rate.

Auto sales jumped 1.6%, a sign that consumers are continuing to buy cars despite the end of the government’s cash-for-clunkers program. Sales at electronics stores rose 2.8%, the biggest increase since January. Sales at building-materials stores increased 1.5%, the largest rise since April 2008.

Sales of essentials were brisk, in part because of higher food and gas prices. Gas-station sales rose 6.0%. Food and beverage store sales rose 1.0%, the biggest gain since January. Sales at restaurants and bars increased 0.5%, the biggest gain since February.

Sales at drug stores and personal-care stores rose 0.3%.

Sales at nonstore retailers, such as catalogs and online stores, increased 1.2%, possibly in response to higher gas prices.

Sales at general merchandise stores rose 0.8%.

Sales at sporting-goods, book and hobby stores rose 0.3%.

Furniture-store sales dropped 0.7%, while sales at clothing stores fell 0.7%, the largest decline since June. Miscellaneous store sales dropped 1.8%

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U.S. futures brace for losses on Dubai debt fallout

U.S. stock-market futures were trading sharply lower on Friday as debt problems for Dubai World spread concern across markets worldwide, and as traders nervously waited to see how a shortened Wall Street session would unfold after the Thanksgiving holiday.

Futures on the Dow Jones Industrial Average (INDU 10,464, +30.69, +0.29%) were last down 211 points, or 2%, to 10,244 after earlier falling by as much as 327 points. Futures had pared some losses, but appeared to be moving south again as the U.S. market open drew nearer.

Futures for the S&P 500 were down 28.5 points, or 2.6%, to 1,080.40, while futures for the Nasdaq 100 fell 42.5 points, or 2.4%, to 1,751.75.
Yen Surges Against Dollar As Investors Retreat

The Yen’s surprising strength is prompting Japanese officials to consider intervening in currency markets. A strong yen can exacerbate deflation, a major worry in Japan. Hong Kong bureau chief Peter Stein talks to WSJ’s Alex Frangos about it.

Late Wednesday, Dubai World, the city-state’s largest corporate entity, asked creditors for a six-month stay on repayment of $60 billion in debts. Asia and Europe markets sold off Thursday on the news, while the U.S. markets were closed for a holiday.

The selling resumed on Friday in Asia, with the Hang Seng Index down 4.8% and the Nikkei 225 Average down 3.2%, their worst percentage fall since March. Markets were struggling to figure out what kind of exposure banks had to Dubai debt.

Shares of heavyweights Standard Chartered Bank and HSBC (HBC 57.77, -4.30, -6.93%) fell more than 7% in Asian trading. The banks rank as the top two lenders respectively in the United Arab Emirates.

European shares pulled back from early lows to close out the trading week, as investors started to buy up shares battered in the previous session. Some banks such as Royal Bank of Scotland Group (RBS 11.19, -0.84, -6.98%) were up, gaining 2.3% on news it had signed a previously announced asset-insurance deal with the U.K. government.

“I think that people are using [the Dubai drop] as a buying opportunity,” said Heino Ruland, strategist at Ruland Research in Eppstein, Germany.

But U.S. markets are still expected to take a hit from the Dubai news, at least initially.

“The indications are that we are going to see some profit-taking, but I also think it’s too early to say whether this is just profit-taking or whether you will go back to crisis mode,” said Lars Christensen, chief analyst at Danske Bank in Copenhagen.

“Investors have been taken by surprise by all of this, which to some extent surprises me because the problems in Dubai are well-known,” said Christensen. “This comes at a time when investors are quite nervous about valuations in general, whether we’re talking equities or currencies or fixed income.”

Dubai’s woes are providing “that shock that makes investors further reduce risk. One has to see this not only in terms of the Dubai situation, but in terms of market pricing and the fact we’re nearing the end of the year,” he said.

Oil, gold and other commodities fell sharply on Friday. Crude-oil futures were recently down 4% to $73.90 a barrel, while gold futures dropped 2.4% to $1,159.60 an ounce.

The dollar continued to climb against its major rivals, except for the Japanese yen, as lower-yielding currencies benefited from safe-haven flows amid spreading fears of the financial fallout of Dubai’s debt problems.

The dollar index, which measures the greenback against a trade-weighted basket of six major currencies, was at 75.319, up 0.7% on the day.

Yields on 10-year Treasury notes fell by 7 basis points, or 0.07 of a percentage point, to 3.21%.
Black Friday focus

Retail will also be in focus on Friday, which marks the biggest shopping day of the year — Black Friday, the day that many retailers are supposed to turn profitable.

But Wall Street trading also tends to be notoriously thin the day after Thanksgiving, and a lack of volume could also worsen any downward moves. Volume during the past four weeks, going back to the start of the month, has been below the 2009 average, with volume last week nearly 25% below average, said Dan Greenhaus, chief economic strategist at New York-based Miller Tabak & Co.

Stephen Pope, chief global equity strategist with Cantor Fitzgerald in London, said investors need to keep Dubai’s problems in focus. “Let’s be clear because many are getting this wrong. Dubai World is not the government of Dubai. It is a private company that is government owned.”

“The region is not collapsing, and after Eid Al Adha (the Muslim holiday) finishes [on Sunday, Nov. 29] expect more light to be shed on what is being done in the region,” he said in a note to investors.

He and others were critical of the timing of the announcement and the manner in which it was done. Dubai World made the announcement after the close of markets there on Wednesday — just as Wall Street was headed off for its Thanksgiving break. Markets in Dubai will reopen on Monday.

Pope said the timing was “irresponsible. I see it finishing Dubai as a financial hub.”

“The handling of the Dubai World restructuring has been an exercise in poor communication,” added London-based Gavin Nolan, vice president for credit research at Markit, in a note to investors. “An unnecessary information vacuum has been created, with investors unsure of their positions.”

Dubai’s “spreads now have a considerable risk premium attached, and its mishandling of the episode will cost it dear when it next returns to the international capital markets.”

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