tv Nightly Business Report PBS August 27, 2011 1:00am-1:30am PDT
>> susie: in a highly anticipated speech, fed chairman ben bernanke says we're still poised for long-term growth, but he fails to offer any new stimulus for the economy. >> i think its pretty clear that monetary policy has pretty much reached the end of the road. >> tom: meanwhile, a weekend of violent weather on tap for the northeast. new york city is prepping for the worst. >> we'd like to ring that bell over there.
but it's not clear that will happen. >> tom: from the markets to the impact on travel we'll have the latest. it's "nightly business report" for friday, 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 >> susie: good evening everyone. ben bernanke said today the economy needs help, but he didn't offer any new action to fix it. tom, everyone was waiting
eagerly for this speech from the federal reserve chairman in jackson hole, wyoming, but there were no silver bullets. susie, bernanke's speech was short on specifics and that's one of the reasons the major stock averages plunged initially, but by the close they were all up. ahead of bernanke's speech, investors were also hit with disappointing news showing that the u.s. economy slowed dramatically in the second quarter. gross domestic product, or g.d.p., rose only 1%, weaker than expected. for more on what bernanke said and didn't say, and investor reaction, here's erika miller. >> reporter: wall street was hoping fed chairman ben bernanke would detail new options to kickstart the recovery. instead he passed the buck. economist bob brusca says bernanke delivered a straightforward message today. it's time for congress to do its part. >> it's really at a point where you have to talk about doing something that the government is responsible for instead of the fed. the question is whether you need something on the fiscal side, whether you need a stimulus
plan, whether you need some wholesale tax reform. >> reporter: bernanke also chastised politicians for how poorly they handled the debt ceiling debate, warning, many on wall street were disappointed that bernanke did not talk about whether recession risks are rising. he also did not discuss specific policy tools the fed is considering for the future. >> he may even have some creative things in his mind that he's willing to try that he hasn't listed and he wants to keep secret for a while longer. >> reporter: but bernanke did say that policymakers would meet for two days instead of one in september, in order to have more time to discuss the pros and cons of different options. and that was enough to satisfy stock investors. but strategist scott wren says what they really want is the
same thing ben bernake wants, action out of washington. >> we need to get business and consumer confidence up in the u.s. in order for this economy to get up and running anywhere close to what the long-term trend is, and i think confidence is going to begin in this particular recovery in washington. >> reporter: bernanke may want to shift the burden of fixing the economy to congress, but if the recovery continues to lose steam, economists say the fed could be forced to act, perhaps at the september meeting. erika miller, "nightly business report," new york. >> susie: so what did people in the crowd at jackson hole think of what ben bernanke said today? a short while ago i talked to one of them, fred bergsten, the noted economist and director of the peterson institute for international economics. i began by asking him if bernanke's lack of action means bad days ahead for the u.s. economy.
>> no because i think chairman bernanke was laying the foundation for the fed to take some new action over the next few weeks or months. he clearly indicated that he thought inflation was coming under control, so that would not be a constraint on new action. he expressed great concern about continuing long-term unemployment, so he wants to do something to speed growth, get jobs created. that indicates some expansionary measures by the fed. and he stressed they will have a full two-day meeting in september. that's an effort i think to forge consensus in the federal open market committee, provide the basis for new action. so i took it as teeing things up for some new fed initiatives, assuming, of course, that the economic data between now and then suggested that the economy is still weak and needs additional help of that type. >> all right. so dr. bergsten, do you think that the fed will actually announce some new plan of action at its september meeting? >> i think there's a good chance that they will announce new actions at the september
meeting. the timing, of course, depends on the economic data. are things still soft? i think it will depend in part on what president obama and the administration propose on fiscal policy because chairman bernanke stressed the need to have forceful and efacttive fiscal policy in tandem with monetary policies. but i can see a virtuous cycle where chairman bernanke teed things up in jackson hole today, the president makes some forceful pronouncements and parolesals on labor day, and then the fed on september 20th takes some new actions. we could actually get into a virtuous circle and overcome the vicious circle we've had here in the last few weeks. >> susie: all right. well, let's first start with the fed. let's say that it does take action at that september meeting. how effective will it be? >> it depends, of course, on what the fed does. any steps it takes will be some variant of quantitative expansion, so call it qe3, whatever the details. i think the impact will be
modest. i think the results of qe2 were modest but positive. but every bit helps when you're in a weak economic situation like now. again, the key will be the interaction with government fiscal policy, any new stimulus measures that come out of the administration and congress, and hopefully better measures by them to convincingly bring the long-term budget deficit under control. >> susie: let's talk about the fiscal side of the equation. what are the chances that we will see government policy-makers and congress come up with their own solution? >> the president and the congress i think are sobered by the market reactions to their recent legislation. it was not greeted with resounding joy by the markets or the domestic public or anybody else. so i think there's a real sense of urgency now for the administration to propose a combination of measures, some additional short-run stimulus
because the economy is very weak, but in the context of a long-term budget correction plan where firm decisions can be made now but implemented over the next several years. so i think the process will speed up, the super committee, the 2012 decisions. i think all this could easily get speeded up. and that's why chairman ber unanimous was clearly calling for today. >> so let me just ask you one last question. so now it's... president obama's turn. he's supposed to give this big speech about the economy on labor day. what can we expect him to say about fixing the economy? >> i think president will reiterate the weakness of the economy. he will propose a series of specific new measures to promote short-term stimulus and faster growth, but he will put it in the context of more tangible measures to bring down the budget deficit and debt over the longer run. that's the combination, short-run expansion, long-run consolidation. that would in turn permit the
federal reserve then to come in and reinforce with the measures later in september. >> susie: all right. well, we'll see what happens. thank you so much for coming on the program tonight. we really appreciate it, dr. bergsten. >> good to talk. >> tom: stocks battled back from earlier losses to end the day higher. the dow rose 134 points, the nasdaq added 60 and the s&p 500 was up 17. trading volume was slightly lower ahead of the weekend, 1.1 billion shares on the big board, 1.8 billion on the nasdaq. the dow snapped a four-week losing streak, gaining 4.3% this week. the nasdaq saw a nice recovery too, rising almost 6%. the s&p 500 is almost 5% higher today compared to a week ago. still ahead, our focus on fixing the economy turns to you the
consumer and how you're holding up in a slow economy. >> susie: "irene." that's what people up and down the east coast were talking about today. millions are bracing for hurricane irene and preparing for a weekend of violent weather, and even though it was a sunny day here on wall street, the new york stock exchange was busy getting ready for irene. >> reporter: the massive american flag that usually drapes the pillars outside the new york stock exchange has been removed so hurricane irene doesn't blow it away this weekend. sandbags were placed around the building this afternoon. inside the exchange, the big board staff is preparing for the storm, but hoping for the best. lou pastina, n.y.s.e.'s head of floor operations, is hopeful the exchange will open for business as usual on monday morning. >> we'd like to ring that bell over there. >> susie: a final decision will be made over the weekend. art cashin, director of floor operations, at u.b.s. is
impressed by the level of preparedness. >> it's better to be prepared than to be fooled. i'd be very happy to have a laugh on ourselves and a sigh of relief. >> susie: the new york mercantile exchange, or nymex, is just a few blocks from the n.y.s.e. it's making contingency plans in case of flooding. the all-electronic nasdaq stock market is further away and plans to open as normal next week. in an unprecedented move, new york city's mayor has ordered 300,000 residents living in low- lying coastal areas throughout the city to evacuate. he's also shutting down mass transit tomorrow afternoon. >> nature is a force more powerful than any of us. it's better to be safe than sorry. >> susie: in addition to wind and water damage, the storm could also push up prices at the gas pump. refineries located in delaware, new jersey, pennsylvania and virginia produce nearly eight
percent of u.s. gasoline and diesel fuel. equities saw steady buying after a morning dip during chairman bernanke's comments. here is what the dow jones industrial average looked like today. the dow hit its low for the day just after bernanke began his speech, but it climbed into positive territory and stayed there through the close. today's trading range was almost 400 points. the past 30 sessions shows the index remains in its most recent trading range.
boeing shares led the dow industrials, moving up almost 3%. today's rally takes boeing to its highest price in three weeks. the market rewarded boeing for getting it's 787 dreamliner jet cleared for takeoff. the federal aviation administration certified the plane for commercial passenger service. the program is almost three years behind schedule, but boeing is due to deliver its first plane to japan's all- nippon airways next month. the tech sector saw the best gains today, led by j.d.s. uniphase, video game maker electronic arts and f5 networks, each up more than 5%. despite the sour mood of consumers, high-end jewelry retailer tiffany isn't feeling it. the company raised its earnings forecast today. shares responded nicely, up 9% on strong volume. international sales have been strong, out-pacing the rising price of gold and helped out by the falling u.s. dollar. even though the stock is about
$15 off its high last month, shares still are up more than 60% from a year ago. speaking of gold, the yellow metal has rallied for two straight sessions-- up another 2% today. of course, this comes after gold dropped more than $100 an ounce on wednesday. this is the past 30 sessions for gold. gold wasn't alone in the commodity rally. grains also popped. a private survey predicts american corn and soybean farmers will harvest fewer bushels per acre than previously expected due to flooding and the heat wave this summer. worries about a smaller harvest pushed corn and soybean prices higher. and that's tonight's "market focus."
>> tom: federal reserve chairman ben bernanke's optimism about the u.s. economy has not rubbed off on consumers lately. the thompson-reuters university of michigan expense index out today plunged again in the month of august. this has now fallen off to its lowest point since late 2008 during the worst of the financial crisis. consumers polled said they felt worse about their finance, didn't expect to get pay raises and thought unemployment would keep climbing. as we continue our series, how the fix the economy, diane estabrook talks with some consumers who say the sour economy is turning them into mindsers.
misers. >> reporter: at this chicago target store, heidi pfetcher is checking off the items on her daughter's school supply list. her lesson plan for this year? stick to a budget. >> we're really watching our money and watching our pennies and here buying school supplies and getting ready for the school year. >> reporter: throughout this store we found a lot of penny- pinching consumers. and who can blame them? gasoline prices are still taking a huge bite out of household budgets. and speaking of houses, home prices continue to slide, making consumers feel even poorer. and then there's that nagging problem of high unemployment. even if you have a job, you may be wored about keeping it. just ask chicago public school teacher jim maccione. he worries that state and municipal belt tightening could do away with his. >> it's a little disconcerting as far as making plans to remodel the house, or fix the car. any long term commitment we're kind of afraid to do. >> reporter: barbara gleeson is retired, so she doesn't have to worry about a job, but she does worry about her social security.
>> i have to be careful. it wasn't a lot of money in the first place, but i have to be careful because we really haven't had a raise in three years. >> reporter: this high anxiety among consumers is a big reason the u.s. economy just can't seem to get out of first gear. consumer spending fuels about 70% of the economy. and at the moment, there doesn't appear to be an elixir to get americans to spend more, says mesirow financial's deputy chief economist adolpho laurenti. >> we need stabalization in housing. we need more consistency in job creation. we probably need a pickup in the stock market to make people more comfortable about. it will probably need for us to get a couple of those factors right, but probably just one will not make it. >> reporter: laurenti thinks it could take a few more years before consumers feel like going on a buying binge again.
and on tuesday the conference board will be releasing its consumer confidence index. tom, it will be interesting to see what it has to say. >> tom: housing at the core of the rotten confidence we've seen for weeks. now earlier effort, diane, to address house having really come up short. what's left? >> well, one idea i've been hearing a lot of talk about is principle reduction or a principle writedown, which would certainly help some people who are under water on their mortgages. the other issue that i've been hearing a lot about is short sales. i talked to a realtor the other day who said he is seeing banks take anywhere from six to seven months to close on those deals, and often the perspective buyer will just get frustrated and walk away. >> >> tom: the other big blow to confidence is the debt debate and the subsequent downgrade of america's credit rating. how do the experts contend that we begin to repair that kind of confidence? >> well, actually, a lot of the consumers that i talked to at the target store the other day
said they would feel a whole lot better if there would be some sort of cooperation between the white house and congress, and perhaps if we saw that, that might make them feel better and go out and spend again. >> tom: consumers are still 71% of this economy, and they've been growing this year, so is this a case of consumers saying they're wow rid but they -- worried but they don spend? >> the last retail figures we saw were in july before the whole debt showdown in washington and the stock market gyrations some that may have something to do with the fact that we're seeing them spending. and now all of a sudden they're saying they're nervous, but it's human nature to say one thing and do something else. >> tom: it certainly is, but we do want to say thank you to you, our midwest bureau chief diane estabrook. >> susie: looking ahead, hurricane irene will be on our radar next week. we'll be watching for its impact on the markets, business and travel. also on the calendar next week? we'll see the july reports on personal income, pending home
sales and construction spending. and jack ablin is our friday "market monitor" guest. he's chief investment officer at harris private bank. spain is moving to shore up its balance sheet. lawmakers will vote early next month to amend the nation's constitution to include a low- deficit mandate. that mandate would keep spain's debt from exceeding 40% of g.d.p. but there are some exceptions, if the economy enters recession. >> tom: meanwhile, one of europe's strongest economies is cutting its growth outlook. sweden slashed its growth estimate by more than half, from 3.8% to 1.3%. the country also said it sees unemployment rising next year, with 2012's jobless rate hitting 7.8%. sweden's finance minister blamed the country's dependence on exports.
david, welcome to "nightly business report." nice to see you. >> hey, nice to be with you for sure after a difficult week. >> tom: it's been a very difficult week, difficult month. so what gives you the confidence that not only the economy will strengthen in the latter half of this year, but i imagine the stock market along with it? >> well, the stock market will anticipate the economy getting stronger. i think we're already seeing a little bit of that. but we've got some things in the works. people are ignoring the supply chain shock from japan. the worst of it hits in q2. we've just seen that in the gdp reports. we think it starts to improve in q3, but by q4 of this year, we're going to be doing better. our guess is, and it's an educated guess, is that we're between 2% and 3% real growth in the fourth quarter of this year. and it's an improving situation. >> now we know that the nerve is likely on hold in terms of interest rates. congress, though, returns.
this could be a matter of some volatility, returns to the debt talks. could that shape your outlook for the rest of the year? >> it could. congress introduces uncertainty. they make markets more volatile. democrats, republicans, house and senate. they are not helping. they are hurting. bernanke was very clear on that today, and he was right. so we've got low interest rates the rest of this year next, year. the fed policies pretty much script it. they told you what it was on august 9th. he affirm it today by adding nothing new. there's nothing new for him to do. it's the congress that is the risky side to this equation. >> so despite that risk, you like financials, perhaps the most beaten-down sector. >> iically we'll begin with the subsector, which is commercial real estate. the reality fund icf the ticker similar symbol, big drop along with the rest of the market this month. what fuels it higher? >> well, we think the financials
as a group were beaten down. in the case of the financials generally, beaten up for four years. at this stage in time, what's new? what's going to derail them now? and we saw that validated by warren buffett in his bank of america deal. so our view is this is a washed-out sector. it's time to be nibbling at it, raising rates, do it broadly. >> tom: and you're doing that with real estate and with banks, and the banks idea is regional banks, kre is the ticker symbol for this exchange-traded fund, what gives you confidence that the bottom is in for the regional banks? >> well, the valuation of banks, regional and the big banks, there are questions. this is not a clear-cut situation. it is a problematic situation. and so you say to yourself, if they are beaten down for four years, if the auditors have taken the notes, if they've built in reserves for bad loans, all the things that have been going on for a year, writeoffs,
capital, we know the story. then you have to say, can i start to believe these numbers, because there isn't an auditor in their right mind who would fudge a number today. they'd get murdered. so you can begin to think of these things as maybe over reserved, not underreserved. >> think all the worries are priced in. do you or your clients have positions in these etfs, david? >> yes, we do. >> tom: david, we'll leave it there. our friday market monitor guest david kotok with cumberland advisers. >> thank you. thank you. >> tom: that's "nightly business report" for friday, august 26. i'm tom hudson. good night everyone and have a great weekend. you too, susie. >> susie: tom, i'm going to be trying the steer clear of irene and stay dry. thanks for watching, everyone. tom an i hope to see all of you again next week. "nightly business report" is made possible by: