>> tom: when it comes to second- quarter earnings, the numbers look strong on paper, but a closer look shows the nation's companies are still in recovery mode. >> sales are key here. until companies get sales, they are not going to be replenishing inventory, they will not be adding to capital expenditures. >> suzanne: and they're not going to be hiring. a look at the state of corporate earnings, and the impact of the dollar's volatility on those numbers. you're watching "nightly business report" for wednesday, july 28. 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, thanks for joining us. susie gharib is off tonight, suzanne pratt joins me. wall street continued its focus on earnings today, suzanne, with disappointing results from boeing, comcast and c.v.s. caremark. >> suzanne: tom, we're just over the halfway point for second quarter results, and despite today's numbers, corporate profits are a lot stronger than they were last year at this time. >> tom: but, remember where we were a year ago. the second quarter of 2009 was a disaster, making for easy

comparisons this year. that has investors scrutinizing the quality of earnings. and, as scott gurvey reports, so far that quality leaves a lot to be desired. >> reporter: earnings up 52%. companies beating estimates. margins at record levels. what more could an investor want? but there's trouble beneath the topline numbers. economic growth depends on growth of sales. howard silverblatt of standard & poor's says that is still missing. >> sales are only growing at 3% to 4%, that's why the margins are so high. sales are key here, until companies get sales they are not going to be replenishing inventory, they will not be adding to capital expenditures, plant and equipment, and more importantly they will not be doing hiring, whether it be full or part time or just adding to hours. there are some positive signs in these earnings reports, which point to future sales. inventories are being reduced. and shipping is up, but on the key issue of visibility, management is still unsure of the economy, and even more

unsure of pending policy matters and their impact on business. health care costs, financial regulation, and tax policy all cloud the earnings picture. mike ryan of u.b.s. wealth management compares visibility today with last year, when managers generally refused to make forward-looking statements. >> certainly things have improved a lot since then, but i wouldn't argue that what we're seeing right now is companies have a real strong sense of what the business outlook will be say in six or 12 months. i think they're still a little bit cautious, and in fact what you're seeing now is that the way companies are directing analysts, the ones that seem to be most rewarded are the ones that continue to position with a very cautious outlook. >> reporter: the uncertainty is also leading many companies to hoard cash, contributing to the sluggish recovery. >> first quarter cash, for the industrials at least, was $837 billion. that was a record. that's equivalent to 72 weeks of net operating income just sitting in the bank doing nothing, earning very little. but companies are nervous about spending it, so they're holding it.

>> reporter: but silverblatt says once they begin spending, companies will have years of underinvestment to make up for. they may also reward shareholders with buy-backs, increased dividends and new m.&a. activity. scott gurvey, "nightly business report," new york. nationwide, but some places are seeing growth stall or slow down. this is according to the federal reserve's latest beige book survey of regional economies. the pace of economic recovery held pace or held steady in 12 districts, but growth slowed in atlanta and chicago. >> a new study finds the u.s. response to the financial crisis probably prevented a second grace depression. the report estimates g.d.p. today would be much lower today. the economy would have lost an additional 8.5 million jobs, and we would have deflation

instead of low inflation. joining us now are the two leading economists, alan blinder and moody's mark zan. >> thank you. >> to the fed's purchase of mortgage-backed securities. which was the most important for the economy. >> it also included the fiscal stimulus. somewhat to our surprise, we didn't know going into the work, at least according to this model, the panoplyia of financial policies, including the things you mentioned and other things were more important qon quantitatively than the stimulus, the tacks rebates of 2008 and so on. >> suzanne: makers, not all of the policies have worked as well. in particular, the loan modifications are not working necessarily. how do we fix housing, do you think? >> well, you're right. i think it's -- as you put it, if you rank the order of the different policy

responses, the mortgage foreclosure efforts have been least successful. at this point, i think we need to maintain currently low interest rates, and they need to work through the problems with the foreclosure mitigation plans, and make them work a little better. hopefully we get some jobs, and with that, i think the foreclosure prob will abate. >> suzanne: allen, do you think it is a matter of time before the housing improves -- >> i think it is both. housing prices are starting to creep up, and that's going to help, and the economy is getting better, as mark said, and that will help. the one thing i will add is as the previous administration and this one went through one version after another of trying to mitigate the foreclosure problem, most of them were half-hearted. even now we're not doing that much. in particular, only recently as the emphasis started to shift towards principle writedowns.

that was almost verbodeen in the early stages. was i right? i don't know. we'll see as we try to do it. >> suzanne: mark, in the report, you both predict that the recovery is going to remain intact. what about all of this talk that we're hearing of a double dip? not a possibility by your estimation? >> no. it is a possibility. i would put a one in four, one in three probability of a double dip. now, that's still less than even, and that is good news, but it is uncomfortably high. i do think it would be prudent for policy-makers to provide some additional support to the economy to ensure we don't double dip. last week the senate voted to extend the unemployment insurance benefits through the remainder of the year. i think that was a good decision. i would also advocate getting more help to state government so they don't have to cut jobs and raise taxes. i don't think we need to do a lot more, but i think we should do a bit more just to ensure that the

recovery e involve evolves in a sustaining prediction. >> my probabilities are roughly the same for the double dip. i've been quoting 20%, 25%, so it is a little lower. there is a lot of guesswork here. nobody knows what the future will bring. i would just add to what mark said. i think it is too bad that the congress didn't really go for the jobs tax credit. new jobs tax credit. it went for it in a have very small way. that could have and should have been done on a bigger scale, i think. because it is very pointed on job creation. the basic approach to fiscal stimulus is, you know, it's like the field of dreams. give me more g.d.p., and the jobs will come. and that's true. but there are also things you can do that are targeted more tightly on creating jobs. and we haven't done much of that. >> suzanne: how about some specifics? what types of things would you like to see?

>> i have advocated to things: a credit for increasing your payroll. a tax credit. so it could be, for example, a payroll tax credit. when i say i have, so have a lot of other people. and i advocated a small scale direct public employment. if we had spent, ballpark, $30 million on each -- that sounds like a lot of money, but $60 billion compared to a trillion of stimulus is not very great. we might have created another million or more jobs than we already have. and it's not too late to do things like that. >> suzanne: makers -- mark, we only have a few seconds left. will we learn that all of the stimulus, all of this money spent, was the right way to go for sure? >> well, it is not for sure. the script is still being written. while i think that all of the policy efforts were very important to bringing an end to the recession as quickly as it came to an

end, it is going to also be very important for policy-makers to exit out in a reasonably graceful way because the evaluation of housing policy efforts pan out are going to depend in part on how well that goes. >> suzanne: gentlemen, we have to leave it there. thank you for joining me this weekend. >> thank you. >> thank you. >> our guests, alan blinder and mar >> tom: here are the stories in tonight's "n.b.r. newswheel": worries about economic growth and a surprise drop in durable goods had stocks under pressure, the dow fell almost 40 points, the nasdaq lost 23, and the s&p 500 was off seven. volume pulled back a bit from yesterday's levels on both the big board and the nasdaq. demand for big ticket items slumped last month, falling 1%. economists expected a gain of that much, and saw today's report as a sign manufacturing is slowing down.

over the states finances. arnold schwarzenegger also brought back furloughs for thousands of state workers until a state budget is passed. a new executive order requires state employees taking three unpaid days off per month starting next week. and janet yellen is one step closer. the senate banking committee approved her nomination as fed vice chair. the panel also approved sarah raskin and peter diamond to be on the fed board. the nominations now go to the full senate for a vote. >> tom: still ahead, from mattel to ibm, big multinational companies can see big swings in their earnings depending on the value of the dollar. tonight's "street critique" guest explains why. he's wolfgang koester, c.e.o. of currency management firm fireapps. >> suzanne: the tickets will cost up to $30,000 each. no, we're not talking about the super bowl. it's tonight's fundraiser with president obama here in new york. there are two of them, actually. the events mark that bipartisan time of year when lawmakers put their fundraising efforts into high gear ahead of the fall elections.

and this year, the events are expected to raise more than $3 billion, a new record. darren gersh reports. >> reporter: they used to call the august congressional break a "recess." but that sounded too much like a vacation. so when lawmakers leave town next week, they will officially be taking a summer district work period. they could just as easily call it fundraising time. >> they don't have to be in washington making laws. they've got the time to go, raise money, and raise a lot of it. >> reporter: that's david levinthal, he tracks campaign contributions for opensecrets.org. and this year, there is a lot to track. >> there's absolutely no recession in politics. while everyone is suffering, lawmakers, and candidates for that matter, are raising more money than they ever have in any midterm election cycle than ever before. >> reporter: evan tracey tracks campaign spending, which he puts at $36 million a day for the next 97 days until the election. he says there are many reasons

corporations and interest groups will make this a blow out year. >> everything from health care to the environment to energy. there is plenty of things that are motivating people to write those checks, so i don't see any party having major money problems in the fall. >> reporter: the president will be bringing in some of those checks tonight. he stopped off to talk to small businesses in new jersey on his way to two fundraisers in new york. one is hosted by the editor of "vogue," but the real campaign money in new york still comes from wall street. >> wall street is actually a donor that is almost evenly split between democrats and republicans. >> reporter: but campaign giving at wall street's leading firm is down this year. the goldman sachs political action committee has $1.4 million on hand, but the most recent figures show it cut just one $5,000 check to a federal candidate in june. analysts say politicians don't want to take money from a bank so publicly identified with wall street excess, especially in a

year when corporate wrongdoing is a popular theme in campaign ads. >> you're seeing a lot of demonizing of wall street. you're seeing, in the wake of b.p., a lot of demonizing of bp. >> reporter: some of the fundraising has sparked a congressional ethics investigation centering on eight members of the house who received donations close to, or on, the same day last december as key votes on financial regulatory reform. darren gersh, "nightly business report," washington.

>> suzanne: tom, another quite day here at the new york stock exchange. did everybody go to the beach early? it is only wednesday. >> tom: it's only wednesday, and there is plenty of earnings today and still lots more to come. let's get you updated in tonight's "market focus." only one major sector, telecommunications, was in the green on another day of fractional moves for the major indices. verizon led the way for telecom and was the biggest percentage gainer of the dow industrials, up just over 1%. this is a one-month high for the stock. sprint shares were among the most active after its earnings call. the carrier continued to lose money, but not as much as feared. for the first time in three years, it added more wireless customers than it lost, thanks mostly to its prepaid service. it was just a one penny gain for the stock, but volume was about

four times normal. sprint also saw building demand for its newest 4g smartphone. speaking of smartphones, taking a page from the apple hype machine, research in motion has scheduled what it calls a special event next week. that has investors talking. the event is scheduled for august 3. analysts think the company will unveil its newest blackberry device and a new operating system. the new software is seen as especially important as it faces more competition from apple's iphone and google's android phone software. shares of r.i.m. jumped on the anticipation. the stock has been in a very narrow, three-dollar range over the past two weeks. if the announcement next week is a new blackberry device, it would be about two months earlier than expected. the health care sector was the biggest loser of the day, driven lower by earnings and the threat of generic competition. cephalon fell by almost 9%. it has asked the food and drug administration to pull its approval of a generic competitor of its pain drug, fentora. this news came after issuing a disappointing forecast, even though it beat second quarter estimates. medical device maker hospira beat the street in the latest quarter, but sales were less than predicted. the firm's medication management

business was hurt by supply issues and a shipping hold on one model. that may help explain the stock reaction today, falling more than 7% to a five-week low. insurer wellpoint also weighed on health care, dropping almost 4% on a familiar disappointment, less-than-expected revenue. lower insurance claim costs fueled stronger earnings, but the top line was light and enrollments dropped. still, it did raise its profit forecast for the year. one more from the health care world, c.v.s. caremark. profits matched forecasts, but it lowered its outlook, blaming the weak economy. however, shares were a bright spot among health care, up 3%. the company also signed a big pharmacy benefits deal with insurer aetna. after the close tonight, internet technology firm akamai saw heavy selling pressure as the company met expectations for the quarter. while akamai's bottom line was no surprise, its revenues were better than expected, with its top line up 20%. share's didn't see much action

heading into the earnings tonight, but after hours the stock fell more than 8%. it may be a case of some profit taking, as the stock has more than doubled in the past 12 months. giants in aerospace, oil and cable t.v. had mixed but lackluster earnings. boeing was the biggest loser on the dow industrials, profits and revenue dropped from a year ago and revenues disappointed analysts. conoco-phillips stock was unchanged after a big boom to its bottom line, profits tripled. the company also has a deal to sell a chunk of its interest in russian oil company lukoil. and comcast shares rallied as it beat estimates by a penny. and that's tonight's "market focus."

>> tom: with the u.s. economic outlook calling for slow growth, many companies are looking overseas to fuel future profits. but making a buck in a foreign land doesn't necessary translate into a dollar back home. tonight's "street critique" guest is wolfgang koester. he's c.e.o. at fireapps, a firm that works with companies to manage their exposures to the ups and downs of the dollar. >> good to see you again, tom. >> tom: what do you think the currency environment is for a company doing business overseas? >> it is volatile, and quite, frankly, in the last five years have been the most volatile and most challenging for these corporations. which is a bit of a shame because of lot of the corporations, as we see through the earnings, have been doing a good job managing their companies through the economic, but they're getting impacted by what they don't neat to be getting impacted by.

>> tom: the volatility, marked by a strengthening of the dollar against the euro. here are three companies that faced this challenge. beginning with ibm, and it impacted by 2%, and u.s. steel, it turned a profit into a loss, and mattel, it reduced sales growth by 3%. so how much is at risk for shareholders? >> if you're looking at that impacting it, it is pretty negative. i think that there are companies doing a very good job making that predictable. if you don't have it ac predictable, you see -- ibm was a 4% to 5% discount on the share. this is a surprise they weren't made aware of aus the shareholders, and therefore got negative impacts. you have another companies making it very predictable, and therefore not have negative impacts on the share prices. >> tom: how do you assess a firm's interest and even ability to manage this kind of risk?

>> what you're seeing more and more, as you're reading these analysts' reports and, quite frankly, their discussions on these earnings calls, and that's a great source to look at, analysts are asking the questions to all c.e.o. and c.f.o.s, how is that impacting your organization. if the answer is not succinct, they're going to give a discount and expect surprises. >> tom: you brought along a trio, including information technology, manufacturing and industrial and business services. we mentioned how currency maybe could provide a boost here. why do these stick out to you as those that are composed to currency fluctuations? >> quite frankly, all sectors are supposed to it. what is interesting is not only does it cross a lot of sectors, but it is the size of companies. a $250 million company percentage-wise will be affected as much as a $25 million. the reason we're looking at the i.t.s and

manufacturers and business services is because they do not have natural offsets. that means they play not be producing in europe, but they're having their revenues coming in from europe. they don't have a natural offset or hedge. >> tom: a key point and a key in sight. wolfgang, we appreciate you sharing your thoughts with us. wof costa ricw >> suzanne: here's what we're watching for tomorrow. weekly jobless claims. and quarterly results from exxon mobil and royal dutch shell, along with pharmaceutical giants merck and sanofi-aventis. also, a land rush is on in michigan as natural gas producers buy up land rights. what it means for property owners hoping to strike gold with nat gas. if you're trying to buy a kindle from amazon, you're going to have to wait a while. the $189 basic e-reader is "temporarily out of stock" on amazon's website. it's unclear whether the shortage is due to a surge in demand, or supply chain

problems. while the e-reader is still available at target stores, one analyst is speculating amazon has stopped shipping the basic version of the kindle because a new one could be coming. no comment yet from amazon. today's skilling's attorney asked a federal appeals court to set bail while it considers a recent supreme court ruling. last month he won a major victory when the high court limited the reach of the federal law that prosecutors used in his corruption case. back in 2006, skilling was convicted of multiple charges, related to enron's collapse. he is currently serving a 24-year sentence.

battle for the ages, and it could soon be coming to an end. we're talking about the decades- long competition between slinky and etch a sketch for the favorite toy of all time. both toys are celebrating landmark anniversaries this year. etch a sketch is 50, while slinky's been around for 65 years. with fans of all ages, it seems neither are ready to slow down. if you want to vote, check out slinkyversusetchasketch.com. the slinky was invented by a naval engineer, tom, and is the official state toy of my home state, pennsylvania. as for the etch a sketch, its design hasn't changed a bit since its debut in 1960.

>> tom: etcha-sketch, far and away the winner because it is portable, you can take it on the plane. you can take it in the car for the boys. >> suzanne: absolutely. same in my household. the slinkys tend to get tangled up. >> tom: it is tough to put those back together. >> suzanne: yes. that's "nightly business report" for wednesday, july 28th. i'm suzanne pratt. good night, everyone. i'm tom hudson. good night everybody, we hope to see all of you again tomorrow night. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you.

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