tv Nightly Business Report PBS August 26, 2010 6:00pm-6:30pm PST
>> tom: from worse to bad. weekly unemployment insurance claims fall, but not enough to calm worries about the economy. >> this isn't a tide that lifts all boats. this is a very selective recovery that we're seeing. >> susie: with the latest numbers on u.s. economic growth coming tomorrow and a major speech by the head of the federal reserve, we look at what it will take to fix the economy. you're watching "nightly business report" for thursday, august 26. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> tom: good evening, everybody, and thanks for watching. the number of americans making new claims for unemployment benefits fell for the first time in a month, down by 31,000. but susie, the overall number of claims is still way too high to describe the report as good news. >> susie: tom, that comes on top of some dismal reports on the state of the housing market, and a day ahead of what's expected to be a major speech by fed chairman ben bernanke in wyoming tomorrow. everyone's looking to the fed chief for answers on the economy, the stalling recovery, and the labor market.
>> tom: we have two reports tonight looking at jobs, and what bernanke can actually do about the economy. we begin with scott gurvey in new york, who spoke with the head of one of the country's biggest staffing firms. >> this one is different. it has components of the late '90s and 2001 recoveries. it's just exacerbated, and what that is is that companies are not going to hire in any type of forward way. they're not going to hire in anticipation of demand. >> reporter: jeff joerres should know. the c.e.o. of manpower says his clients are not hiring unless they have orders they cannot fill with their current workforce. that's because they are unsure of the outlook for future demand. tomorrow, the government is expected to cut its estimate of second-quarter growth to less than 1.5%. economist julia coronado says that may mean the private sector will post job losses for august. >> if you think about the economy's sustainable growth rate as being about 2.5%, if
we're growing more slowly than that, it's not enough to even keep up with population growth, and therefore, you're going to see some deterioration in the labor market. >> reporter: there is also a great imbalance in the economy. some sectors, like technology, are showing significant growth. other sectors, like those related to housing, were so overextended, some jobs may never come back. economist dan greenhaus notes that eight and a half million people lost their jobs in the recession. >> even using the most optimistic forecasts, it's going to be several years before those people who have lost their jobs can return to full-time work. and that ignores new entrants into the labor force-- immigrants, people turning 18. when you include all of these people, as they work... become of age or come to the united states, we're talking it could be the middle of the decade, if not a touch later, before we start seeing unemployment's rates that americans have become accustom to in normal times. >> reporter: still, manpower's
joerres says, for workers willing to learn new skills, there are industries with jobs to be found. >> those that have manufacturing businesses that are contributing to capital expenditures as companies try to improve their productivity and efficiency. those that have value brands, whether they be on the retail or service side. they're booming, actually; they're moving along nicely. it's just that there's this bifurcation. this isn't a tide that lifts all boats. this is a very selective recovery that we're seeing. >> reporter: many of the economists i talked to today said a 7% unemployment rate is a reasonable goal, while 5% is likely a distant memory. scott gurvey, "nightly business report," new york. >> reporter: this is darren gersh in washington. if you think those the weak jobs numbers are an unwelcome surprise, you're not alone. bank of america's ethan harris says most economists, including those at the federal reserve, did not expect the economy to lose so much steam. >> and that's causing them to
rethink policy, and to really think about something they were hoping they wouldn't have to do, which is to restart this extraordinary unconventional monetary policy. >> reporter: in the first round of unconventional policy, the federal reserve pumped up its balance sheet to $2.3 trillion, buying up mortgages and other bonds to boost the economy. economists call buying up bonds in big bunches "quantitative easing." to boost the economy further, another round of quantitative easing could mean buying another trillion dollars in bonds. that would bring down borrowing costs for business and might pull mortgage rates below 4%. but it's a big decision. roberto perli spent eight years at the fed, advising on monetary policy. he expects his former colleagues will want to see more evidence the economy is slowing before committing to a trillion-dollar bond buying program. >> this would be a very large increase in the balance sheet,
which is what leads us to maybe believe another option would be to proceed in installments. >> reporter: some fed officials worry a big boost to the economy could set the stage for a huge jump in inflation, but economist josh bivens disagrees. he thinks prices are falling from lack of demand. what the fed needs to do now, he argues, is commit to driving inflation higher. >> so, basically, by increasing inflationary expectations, you are driving down the real inflation-adjusted interest rate people face, so they are going to be more likely to take out loans to do some spending. >> reporter: with the economy sputtering, the pressure is on fed chairman ben bernanke to make news when he speaks at a policy conference tomorrow. at the very least, harris thinks, bernanke will have to acknowledge the economic outlook has changed. >> to be credible, he needs to admit that the economy is weakening, but i think it's important that that message also come with a message that we will do something about it. >> reporter: that message may be all the more important, because
the fed may be the only game in town. most analysts see very little political appetite in congress for another expensive effort to boost the economy. darren gersh, "nightly business report," washington. >> tom: here are the stories in tonight's nbr newswheel. as we mentioned, the blue chips fell below 10,000 as worries about the slowing economy pick up. the dow fell 74 points, the nasdaq was off 22, and the s&p 500 lost eight points. trading volume pulled back ahead of tomorrow's bernanke speech. just over a billion shares trading hands on the big board, and 1.8 billion moved on the nasdaq. so much for uncle sam's foreclosure prevention plans-- one in ten americans with a mortgage is facing foreclosure. the mortgage bankers association says if you add in homes already in the foreclosure process, one in seven is in trouble. and another new low for mortgage rates, the ninth in the last ten weeks. freddie mac reports the average
rate on a 30-year fixed-rate loan is 4.36%. still ahead, should your portfolio say ni-hao to china? mike holland joins us as we continue our series of interviews on the bric economies. >> tom: hewlett packard and dell are taking the fight for cloud computing firm 3par to new heights. today began with dell announcing it increased its bid from $18 to $24.30 per share, and that 3par had accepted it. but after the closing bell tonight, hewlett-packard came back with a richer price, upping its original $24 per share offer to $27. 3par had no comment to the higher h-p price. but news of the higher bid sent 3par stock above h-p's offer of $27, signaling investors expect an even higher price to emerge. meanwhile, the recently ousted head of h-p is selling some of his holdings in the tech giant. mark hurd filed with the s.e.c. earlier this week, saying he
planned to unload 775,000 shares of restricted h-p stock worth an estimated $30 million. he has 90 days to sell all or part of that amount. hurd resigned from h-p three weeks ago after a board investigation found he filed bogus expense reports to cover up a personal relationship with a contractor. >> susie: another major recall for toyota. this one involves more than a million corolla, matrix, and pontiac vibe vehicles made for general motors. toyota says the recall will fix potential engine problems causing the cars to stall. now back in march, the auto maker said problems with the engines were not a safety issue. toyota's change of heart comes just days after federal regulators stepped up their investigation into the vehicles. toyota has now recalled about 11 million vehicles over the past 12 months.
>> susie: as stocks pull back, more investors are pulling their money out of equity funds. stock funds saw outflows of almost $3 billion in the last week. so where did the money go? the investment company institute says americans poured almost $4 billion into money market funds, and added almost $8 billion to bond funds. tom, it looks like investors are looking for safety as the blue chips fall back below 10,000. they're not interested in anything that's risky. >> tom: they would like ious from uncle sam and that has deliver than interest rate on the tenure yield down to post recession lows, since
the beginning of 200. let's get updated on tonight's market focus. the major indices failed to put together two consecutive days of buying. the selling pushed the dow industrials to close below the 10,000 mark for the first time since early july. the s&p 500 also has erased most of its july gains. here's how the day looked for the s&p index. it started out in positive territory. a weak report from the kansas city federal reserve bank on manufacturing took away from a small improvement in the weekly jobless claims, sending the index lower. since the most recent market highs earlier this month, the selling has been concentrated in financial stocks, the industrial sector, and energy-- all very sensitive to the overall direction of the economy. each of these three s&p sectors are down by at least 9% in the past three weeks. today, it was technology leading the way lower. high profile mergers such as intel and mcafee, and the fight
for 3par between hewlett-packard and dell didn't help the sector. disk drive maker sandisk fell more than 5% on heavier than usual volume. there was no corporate news today, but sandisk shares have dropped to their lowest price since april. cisco systems was the biggest percentage loser among dow components, falling more than 2%. cisco's latest sell-off began three weeks ago when its quarterly revenue came in a fraction below analyst estimates. this is a new 52-week low for c-s-c-o. intel also weighed on the dow, and also falling to a new 52-week low. the company is in the process of buying software security company mcafee, and reports tonight indicate it is close to a deal to buy the wireless business of german semiconductor maker infineon. and speaking of computer security, look at this rally in arcsight. it rocketed higher by 30% on almost 20 times its usual volume. earlier this week on our "word on the street" segment, james rogers from thestreet.com,
highlighted arc as a company analysts see as a buyout target. "the wall street journal" quoted sources as saying the company has been shopping itself around to possible buyers. after the close tonight, retailer j-crew reported a return to selling full-priced items, higher sales and margins, but there was some worrisome news. earnings per share beat the street by four cents, thanks to tighter inventory control leading to fewer discounts. the stock saw heavier than usual volume ahead of the results. but thanks to a weaker than anticipated outlook, the stock dove 7% in after-hours action. if that kind of pressure holds through tomorrow's opening bell, it would push shares down to a new yearly low. berkshire hathaway is getting a little bigger. warren buffett's wants to add wesco financial to its portfolio of companies. buffett already knows wesco well. the company is similar to berkshire, owning many different companies such as insurance, rental furniture, and metal cutting. wesco is run by berkshire's number two, charlie munger, and
berkshire already owns almost 80% of it. both classes of berkshire stock were lower while wesco rallied. several small- and mid-cap earnings hit the tape, from manufacturing to jewelry to wind turbines. gerber scientific is a sign- making equipment manufacturer. solid earnings and a confident outlook sent shares up almost 15%. signet owns kay jewelers and jared. results were better than expected and the stock jumped almost 5%. dental equipment maker patterson is almost at a new low after revenues were less than expected despite higher margins. and chinese alternative energy company a-power energy could have used a jump start. the stock fell to a new low on disappointing revenues. and that is tonight's "market focus."
>> susie: with china now the world's second biggest economy, more people are looking east to invest. all week, we've been profiling the big emerging economies knows as the "brics," or brazil, russia, india, and china. tonight, we turn to china. its economy expanded by 10.3% in the second quarter, lower than earlier this year, but still robust compared to the rest of the world. so, does it make sense to invest in china? joining us now, mike holland. besides running his investment firm, holland and company, he's been a director of the china fund since its start nearly 20 years ago, and he's also a director of the taiwan fund, both trade here at the new york stock exchange. hi, mike. >> hi, susie.
>> susie: despite this impressive clothe,-- growth, there's already talk about china's economy slowing down. i know you go back and forth to china regularly and talk to businesses there. are you seeing any signs of a slowdown? >> yes, and it's much to be desired, susie. the country's stimulus program worked really, really well. they institutesed theirs at the same time the u.s. instituted its stimulus program. theirs caused a growth in the economy that up until this most recent quarter was going about 12% a year. as you said, for a country that is now the second largest gdp in the world, this is no longer a tiny emerging country, economically. so the answer is yes, they wanted to slow down. they have had some speculation in real estate. they've been tamping that down. so the people who have been worried about a bubble popping actually at this point looks as if the authorities there have been able to slow it down without popping any bubble. >> susie: so it's still growing but it's just not going to grow in kind of a hot bubble-like way.
>> yeah, that 10% you just mentioned compares to what we may hear tomorrow, the u.s. growing is 1 to%. it's just-- . >> susie: big contrast. >> huge contrast and they have a labor shortage, not unemployment of 9.5%. so what they did was they focused on the economy, infrastructure, job creation and it worked. >> susie: do it-- if things are going to well with the chinaee-- chinese economy where is the stock market so sharply high-- the shanghai index is down something like 20% this year? >> well, because they are stocks and if you liss-- the viewers who are listening to tom and yourself earlier in the program, anything that is a stock worldwide right now is anathema. people are very negative on stocks generally because of the financial crisis and the big decline in the stock markets around the world when the crisis hit. now that happened there, their stocks went down as well because it is a global market now but the economy continued to grow which
makes the valuation, the price that people are paying now for that growth and those current earnings very, very attractive relative to other countries. >> susie: now your china fund where you are a director there, has been one of the best performers in the market. it's chn on the new york stock exchange, up something like 30% in the past year. tell us why it is doing so well? >> well, the manager, i don't manage the fund. i am just a director and we just oversea the management company and they have done a spectacular job, identifying the indigenous growth. i mentioned a second ago, the country decided to do its stimulus program different than ours by forcing people to spend money that was given to them to buy appliances. our manager bought a large appliance company called hu-yen appliance. >> susie: we have a list of some of your top holdings. we have hu-yin but we also have china health care. >> china medical. >> susie: a health-care company. >> yeah. >> susie: a consumer goods company, and an insurance company.
what is it about these stocks and these sectors that are so attractive? >> the largest growth of the middle class in the history of the world. i think you also may have wu-part their retailer that sounds like wal-mart no surprise. those four companies make up nearly 20% of the fund. and these are all of a single thought and that is that the growth of the middle class there, the country is trying to promote has been successfully promoting, are increasing their buying power dramatically. and they are raising their living standard so all of these have been beneficiaries of that. they also, one other thing, they also did a very smart thing by buying taiwan shares when they were much cheaper before a great deal of good political stuff was happening between the mainland china and taiwan economy. >> susie: i want to switch gears from china back to the u.s. because you are one of our federal reserve experts. as we reported on the program benzodiazepine ang is going to give a critical speech tomorrow. i was just wondering what
are you expecting from that. do you think he's going to inspire confidence that he can fix the economy? >> i expect that the expectations susie are too high. as tom said at the beginning of the program this is a very highly anticipated speech by the markets. i think that benn bernanke has enormous pressure to do something he probably can't do and that is provide a magic bullet tomorrow in his speech. i think if anything he's probably being given an unfair test here because if he says something that the markets don't like they could do down a lot but if he doesn't say something with the magic bullet, they could still go down a lot. >> susie: very good insights, thank so much for your thoughts about china and also about the fed. >> thank you. >> susie: and by the way, mike, any disclosures to make on the china fund? >> i own it. i own shares and have for a long time. >> susie: okay, great, thank you. we've been speaking with mike holland of holland & co.. >> tom: tomorrow, we finish our week-long look at emerging markets with our "market
monitor." jeff everett from everkey global partners says developing markets are growing much faster, and their companies are more profitable than familiar u.s. firms. also tomorrow, we'll get an update on second quarter g.d.p. as we mentioned earlier, it's expected to show the american economy grew at a much slower pace than first reported. >> susie: american airlines has been slapped with the largest fine in history for alleged maintenance violations. the federal aviation administration wants the carrier to pay $24 million for not keeping the wiring on its md-80 aircraft up to code. the safety lapse happened two years ago, and the f.a.a. says it could have led to fires and fuel-tank explosions. american grounded its entire fleet of md-80s back then, a move that led to the cancellation of thousands of flights. >> tom: research in motion is researching new ways to balance the security needs of blackberry devices in india with customers' privacy. the company faces a possible ban on its blackberry service in india next week unless it resolves the country's concerns.
compete, with "generation next" in the workplace. here's alfred edmond, jr., editor in chief at blackenterprise.com. >> okay, everybody, you can relax. for nearly a decade, we've been warned of the rise of generation next-- also know as "generation y" or the "millennials"-- and how they were going to terrorize the baby boomers and generation xers who preceded them, and change everything we hold sacred about how work and business should be done. well, generation next-- generally, those born from the late '70s to the early 2000s-- has been part of our business reality for a while now. and what do you know? they're not the disruptive, mind-bending threat we thought they'd be. sure, they're different. for example, they are more comfortable with media, communication and digital technology than any group of workers before them. but instead of fulfilling dire prophesies of shaking up the workforce, they've demonstrated an ability to energize organizations with their tech savvy, new ideas, and constant hunger for fresh challenges, the
perfect set of attributes for a rapidly changing economy full of both peril and promise. at "black enterprise," we've harnessed this valuable human capital through our "be next" initiative, with huge benefits for our entire organization. the millennials are not an invading force set to change all we hold dear. they are the fresh troops we need to restore our confidence in our ability to spark new innovations and conquer new markets. if you're smart, no matter your age, you will engage and collaborate, not compete, with generation next. i'm alfred edmond, jr. >> we're going to need some of that invasion to turn around the economy. >> with the generation nearing the workforce unlike any generation in 70 years, at least. >> susie: that's "nightly business report" for thursday, august 26. i'm susie gharib. good night, everyone, and good night to you, too, tom. >> tom: good night, susie. i'm tom hudson good night, everybody. we hope to see all of you again tomorrow night. "nightly business report" is made possible by:
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