tv Nightly Business Report PBS July 6, 2009 7:00pm-7:30pm EDT
captioning sponsored by wpbt >> susie: $787 billion, that's how much the u.s. is spending to stimulate the economy. but with unemployment nearing double digits, and the economy looking worse, more and more people are calling for a second stimulus. >> jeff: key to the economic recovery, getting americans spending. but that's tough to do when wages are stagnating or taking hits in other ways. >> susie: if you browse the web using internet explorer and a windows based p.c, you could be at risk. microsoft says there's a security problem with its software that could let hackers take over your computer. >> jeff: then, putting a new face on the lipstick effect. american cosmetics firms are hoping to do just that in china, as the global recession has women there looking for small luxuries. >> susie: i'm susie gharib >> jeff: and i'm jeff yastine.
thank you. >> susie: good evening everyone. what shape is the economy really in? that's what investors were asking today as they evaluated comments over the weekend from the obama administration, that it quote "misread" the nation's economic problems. commodity prices, like oil, gold, copper and wheat tumbled on concerns the u.s. economy is not yet recovering. today, the a.f.l.-c.i.o., the nation's largest labor group, renewed its call for another stimulus package to boost the economy. erika miller looks at the new debate about stimulus. >> reporter: many economists are clamoring for more government stimulus to help the recovery gain traction. not bob brusca. >> i think this is jumping the gun. i think it's not only jumping the gun, but it's probably something that's unnecessary. and if we think back to those thrilling days when they put that big stimulus program together, let's remember how
much they haggled. let's remember all the junk that got in it. and let's ask ourselves, why do we think it would be any different this time? >> reporter: he points out that so far, only 10% of the $787 billion stimulus package passed in february has hit the economy. what's more... brusca thinks the economy is not nearly as weak as most people believe. >> i really think we're close to the end of recession. i think we are going to cap the rise in the unemployment by the end of the year. i think we're going to have job growth occurring before the end of the year. >> reporter: but other economists-- like john albertine-- have a vastly different view of the economy. >> i think we are in a precarious situation. i think the economy is, in fact, is not only not getting better, but i think it is deteriorating. we are not seeing the banking sector lending. we are not seeing consumers spending. we are not seeing business investing. >> reporter: that's why he thinks government help is needed immediately, but not same the same type of mammoth spending plan passed earlier this year. he favors eliminating social
security taxes for people making less than $150,000 a year. he concedes that would boost the federal deficit by hundreds of billions of dollars. >> in the short run it will add to the deficit. but in the long term, i think it will help mitigate the deficit by getting this economy moving again. getting a recovery underway, and causing this to be a job creating recovery, not a jobless recovery. >> reporter: few politicians are ready to back a second stimulus plan just yet. and many analysts think it will be fall-- at the earliest-- before that changes. not soon enough for those who think it's needed right now. erika miller, nightly business report, new york >> susie: as we mentioned oil prices fell today on worries of a longer than expected recession. in new york trading, august crude futures dropped $2.68 or 4% to $64.05 a barrel. some traders say investors who bought into the market on
expectations of an economic recovery are cashing out. others say the oil market was simply overvalued. >> jeff: the weakness in oil fed into the same worries in the stock market. the dow opened on the weak side, losing 74 points in the early part of the session. the financials led the way lower; bank of america and citigroup shares finished down more than 3%. investors rotated into defensive issues like merck and procter and gamble; that helped the dow rally back from the lows, while the nasdaq continued to struggle and stocks ended the day mixed. the dow rose 44.13 to 8324.87. the nasdaq fell 9.12 to 1787.40. and the s&p 500 added two points to close at 898.72. in the bond market, the 10 year note fell 2/32nds to 96-26/32nds putting the yield at 3.51% percent.
>> pepsico is boosting its investment in russia, planning to spend a billion dollars over the next three years despite russia's recession pepsi calls the area a "attractive growth market." pepsico and pepsi bottling group will open a new $180 million factory in russia later this week. pepsi already operates seven plants there and has invested more than $3 billion in the market over the past decade. >> susie: a former computer programmer of goldman sachs has been charged with downloading sensitive computer codes. goldman found the alleged theft by monitoring employee emails. the firm has not commented specifically on the case, but both reuters and dow jones are
reporting neither goldman's clients nor its business have been hurt by the incident. >> susie: furlough. it's become a dirty word for millions of american workers these days. unpaid time off is extending many summer vacations this year as businesses try to fight the recession. but it's also a less obvious way employers are cutting wages. and as darren gersh reports, that could affect the eventual shape of the economic recovery. >> reporter: today was not a good time to renew a driver's license in michigan, or for that matter maine or connecticut. budget pressures forced those states to furlough most of their workers. in all, 25 states have implemented furloughs or are considering them. and many private sector companies have also extended "unpaid vacations." judy stoermer has seen in it happen to colleagues. >> six months, four months, two weeks, it depends on the person. it depends on the job and what they need them to do. >> reporter: labor economists like katryn kobe consider a furlough one way to cut employee pay without cutting the employee.
>> i think the furlough has always been around. it's just been known as the layoff of blue collar workers, when it's white collar workers, then it tends to be known as the furlough more directly. >> reporter: but because the government calculates wages on an hourly basis, a furloughed worker is unlikely to show up as receiving a wage cut, even though his or her annual compensation has clearly been trimmed. kobe says that means the impact of furloughs on compensation is being under-reported. >> i think it does not show up in many of the wage calculations that we have. >> reporter: and the calculations we do have are already dropping. kobe compiles the b.n.a. wage trend index which is signaling smaller wage hikes in the next six months. in fact, smaller than anything tracked by government compensation statistics in more than 30 years. >> i think it is possible it could go a ways below 2%. so i think we haven't seen that sort of slow down in wages in a
long time. >> reporter: and there are signs employers intend to keep a lock on wages for some time. watson wyatt found one in five employers surveyed plan to keep salary reductions made in this recession. and one out of four employers who have forced workers to take furloughs either don't know if they will, or don't plan to let workers eventually make up their lost pay. all this has economists like dean baker worrying about a downward spiral. >> so that means workers have less money in their pockets, they'll obviously be buying less. so that's going to reduce demand and therefore cause more firms to lay off workers, or even in some cases, go out of business. >> reporter: the one saving grace in all this is that inflation has been tame in recent months, so wages for most workers who do keep their jobs are holding steady. at least for now. darren gersh, nightly business report, washington.
>> susie: a security warning tonight from microsoft. hackers are targeting a hole in its windows xp and windows servers 2003 systems. vulnerable computers can be infected just by visiting a web site that's been hacked. if not fixed, cyber thieves can remotely take control of victims' computers. the problems are specific to microsoft's "video active x controls" on older versions of internet explorer. microsoft is working on a software patch for the security flaw. >> jeff: microsoft shares were among the nasdaq most active. we'll see them as we take a at some stocks in the news tonight.
>> susie: another headache for california as it grapples with a massive budget crisis. fitch today cut its ratings on the state's general obligation bonds by two notches. the ratings agency specifically cited california's inability to reach a budget compromise. legislators have been deadlocked for more than a month over ways to close the state's $26 billion budget gap. until a deal can be worked out, fitch says its keeping the state's ratings on watch for downgrade. >> jeff: municipal bonds were once a safe haven for investor cash. but that reputation was tarnished by the problems of muni bond insurors, the credit crisis and the impact of the recession. as we continue our series,"reviving the economy what's ahead," munis are making a comeback. a billion dollars a week, every week has poured into them since the start of the year, despite some ongoing worries. >> reporter: the murmur of voices and telephones.
the sound of municipal bonds, being bought and sold. that's what brokers at south- florida-based f.m.s. bonds are focused on. founder jimmy klotz says the phones have been ringing steadily, with a lot more interest from potential customers since last year's stock-market meltdown. >> they noticed a distinction between bonds and equities, which was that bonds continued to pay interest no matter what the market value was. and that left an impression on people that they won't soon forget. so we've seen a lot of new buyers gravitate to our market. >> reporter: that's not to say that muni bonds were untouched. late last year, prices plunged and yields soared as insurance companies and other institutions sold munis to raise cash. attracted buyers like warren buffett, who doubled the size of berkshire hathaway's muni bond portfolio to $4 billion this year. individual investors have been busy too,
adding more than $17 billion in municipal bonds to their holdings since the beginning of the year, according to recent federal reserve data. but as the budget woes of california and other government entities show, investors must choose wisely, says envision capital's marilyn cohen. >> we started seeing a mild recovery, january, february. we were rocking. things really came back. and then once the news headlines once again got bad again in california, we virtually got back to where we were in prices and yields in california. but that isn't true for other states. >> reporter: cohen says the threat of defaults in the muni market is real. the number of defaults hit a record last year. but she sees the biggest risks mostly for small, low-quality issuers of government debt. f.m.s. bonds analyst jay abrams sees a similar picture. >> cities and states will typically talk about cutting programs, talk about reducing service on train lines. they'll talk about reducing the number of times garbage gets picked up. but i never hear a discussion of maybe we should cut back on our
debt service. they know the consequence would be too great. >> reporter: the obama administration's stimulus program is also helping the market, by creating a new class of munis: "build america bonds." unlike traditional munis, the income from these bonds is taxable. but abrams says he's noticed individual investors are now buying "build america bonds" for their i.r.a. accounts. this shelters the income from taxes, while providing some stability in portfolios burned by stock market losses. >> jeff: some muni watchers see the tax-free status of municipal bonds as another long-term positive. they say if federal income tax rates climb, more investors will want to buy munis as a way to help keep some income tax- free. >> susie: tomorrow, top political economist c. fred bergsten joins us for a preview of this week's g-8 summit in italy. >> susie: the global advertising market is expected to hit bottom later this year, according to a key advertising forecaster. "zenith optimedia" cut its
global ad spending estimates for 2009 as companies continued to cut advertising spending in the first half. the firm says the second quarter saw some improvement, and predicts the ad market in the u.s. and europe will recover in 2011. >> jeff: the obama administration said today it's confident general motors will emerge from bankruptcy by the end of the month. yesterday, a federal judge gave the automaker the go ahead to sell its assets to a new company. in exchange for a $50 billion investment in g.m., the u.s. government will hold a 60% stake. the government's auto task force predicts the new g.m. could sell shares by the first half of next year.
>> susie: tonight's commentator wishes china and india continued economic success. he's justin fox, business and economics columnist at time magazine and author of "the myth of the rational market." >> only two of the worlds 15 biggest economies are likely to grow in 2009: china's and india's. meanwhile, of course, the rest of the globe is going through the worst downturn since the 1930s. this juxtaposition means that the global balance of economic power may be shifting faster than almost anyone expected. with their billion-plus populations, china and india now
seem destined to become the worlds biggest economies, ahead of the u.s., sooner rather than later. that's a scary prospect for many americans. the political ramifications, and the environmental ones, are hard to predict. but in pure economic terms, it wouldn't necessarily be bad news at all. for one thing, a country doesn't need to have the world's biggest economy to have its most vibrant, most prosperous economy. just because the u.s. is no longer all-important doesn't mean it will no longer be competitive. but the really big reason to wish china and india continued economic success is that strong growth there offers the only attractive path out of the worlds current economic predicament. after a generation of overextending themselves, american consumers are taking a time out, saving more and spending less. this is exactly what they should be doing. but u.s. consumers have for years been the global economy's driving force. to avoid a prolonged downward spiral, somebody has got to pick up some of their spending slack. it's probably not going to be japan or western europe, which have been hit even harder by the
downturn than the u.s. that leaves china, india and a few other emerging market countries such as brazil and indonesia, which also are weathering the global recession well. long may their economies grow. i'm justin fox >> jeff: recapping today's market a mixed day on wall street... the dow gained 44 points. while the nasdaq lost 9 points. to learn more about the stories in tonight's broadcast, to watch our streaming video and to take part in our daily blog, go to "nightly business report" on pbs.org. you can also email us at email@example.com. >> susie: and finally tonight, call it "the lipstick effect". it was a trend during the great depression that saw a rise in cosmetics sales, as women turned from big purchases to more affordable luxuries. with the current economic crisis hitting consumers around the globe, some american cosmetic firms are hoping for a "new" lipstick effect in china. shanon van sant reports from shanghai. >> reporter: mei gu works for mary kay cosmetics. she sells beauty products out of her home in a shanghai suburb.
mei is one of a growing sales force of 350,000 independent beauty consultants in china. she joined the company in 1995, one year after mary kay cosmetics entered the chinese market. her home features a mary kay statue, and mei recalls when she met the flamboyant texas entrepreneur on a trip to the >> ( translated ) i was not very good at english so all i can say is mary kay, i love you, i love you, i love you. >> reporter: the story of mary kay's triumph over poverty and transformation into a successful entrepreneur has inspired thousands of chinese women. the company expects china to overtake the u.s. as mary kay's largest market within five years. in 2008, mary kay china saw 50% sales growth over 2007. and despite the economic downturn, the first two months of 2009 saw a 30% increase over the year before. mary kay china's president, paul the year before. mary kay china's president, paul mak, says direct selling goes up
sales growth when fewer chinese are joining the middle class. carol shen, general manager of estee lauders china affiliate, says the economic downturn heightens chinas importance in estee lauder's global strategy. >> i just think it makes china even more important and more strategic, because i think that around the world this is a growth area. >> the company has eight brands in china, and opened this development center in 2005. >> here the company tests products like mascara and foundation specifically for the asia market. it's the company's second largest research center in asia, and their research is paying off. in fiscal year 2008, the company's sales in china grew 41% over 2007. estee lauder has counters in 32
chinese cities, and during the economic downturn carol shen says the company is shifting strategies from further expansion to penetration. >> in the next 12 to 18 months we are going to go deeper in the cities we are already present in, rather than opening in a lot more new cities. >> reporter: the company will heighten brand awareness through advertising and promotions. but carol shen says estee lauder will maintain its one brand, one world philosophy. >> we believe our products are safe, high performance, but at the same time they have aspirational qualities and we want to keep that aspirational quality and we don't believe that will change from market to market. >> reporter: inspiration may be what draws women to mary kay. the company gives national sales directors a stylish, orange suit, and top sales earners like mei gu get a pink cadillac. paul mak says the company's message of female empowerment appeals to women in china, and mary kay will continue its expansion despite the economic downturn.
>> i think as the china market continues to grow, the second and third and fourth tier cities, more and more people will be a part of it, so the geographic expansion is still our focus. >> reporter: that means more women like mei gu and pink cadillacs on the road in china. shannon van sant, nightly business report, shanghai. >> jeff: that's nightly business report for monday, july 6th. i'm jeff yastine goodnight everyone. and good night to you susie. >> susie: goodnight jeff. i'm susie gharib. we hope to see all of you again tomorrow evening. "nightly business report" is made possible by: this program was made possible by contributions to your pbs