in the housing market light a fire under stocks. home sales head higher for a third straight month, helping to push the blue chips above 9,000 to a new high for the year. >> suzanne: but a late day earnings disappointment from microsoft could derail the rally tomorrow. the software giant misses the mark as sales drop sharply. >> paul: ford motor is driving ahead with its turnaround plan, cutting debt and boosting market share. but c.e.o. alan mulally tells us his american rivals won't have a leg up just because they're getting a helping hand from uncle sam. >> i like to go shopping. >> suzanne: meet olivia. she's one of millions of kids hitting stores in search of new duds and school supplies. that has retailers discounting like never before to cash in on the back to school bonanza. >> paul: i'm paul kangas. >> suzanne: and i'm suzanne pratt. susie gharib is off tonight. this is "nightly business report" for thursday, july 23. "nightly business report" is made possible by:

this program was made possible by contributions to your pbs station from viewers like you. thank you.

>> suzanne: good evening, everyone. microsoft turned in ugly numbers after the bell today. disappointing wall street and raising big questions about the stock market rally. the software giant earned 34 cents a share in its fiscal fourth quarter, two pennies shy of estimates, and off sharply from a year ago. but the revenue numbers were the most disappointing, coming in a $13.1 billion for the quarter. that's more than a billion short of expectations. joining us now is scott gurvey, our new york bureau chief and resident tech expert. scott, you've been on the microsoft conference call. what happened to the revenue numbers? >> the call is actually still going on. there's no denying that the revenue just simply falls off for microsoft in this quarter and for the year. a few things to be noted, they did defer some of the revenue from an upgrade program for windows 7. that actually amounts to the 2 cents they're talking about, but again, the revenue numbers -- and this is for the entire year because it's at the end of the fiscal year, are just

bad across the board. we made up a little chart here to show you what the bottom line was. windows, the windows operating system which is called the client business down 13%. they did have an increase in servers and tools but the on-line business down. office, that's the office product, that's flat. and the entertainment and devices, that's the zooms and the xboxs, down 6%. now, on the conference call, the cfo explains that basically microsoft is a function -- microsoft's revenues are a function on what is going on in the economy. pc sales, as we know, have been going down. people aren't upgrading computers or replacing computers. because of that, the revenue suffered across the board. >> suzanne: what about guidance? is microsoft giving a clue as to what their expect statio station -- expectations are for the rest of the year? >> cfo chris lytle is slightly optimistic than he was when he met us a quarter ago but he sees for the next two quarters, the rest the calendar year, he sees

things being pretty much flat. he looks to some sort of an improvement after the 1st of the year. microsoft has two important products coming up. they have the window 7 operating system which ships in the fourth quarter of this year, fourth calendar quarter and they have office 2010, the new office suite, that'll ship in the first half of next year. he says he sees in the first half of next year a slight improvement in pc shipments and that really is still the key for microsoft as it is for so many other people in this business. will the increase of pc sales occur? if it does, microsoft has a rosy prospect. if it does not, the revenue remains flat. >> suzanne: late today, we got word the yahoo! board is looking to do a research deal with microsoft. any clue as to what they might be talking about? >> that question didn't come up yet. reporters don't get to ask questions during these calls. these are for the wall street analysts. it hadn't come up yet. my take on this stuff, you know,

microsoft say tech company in computer software but i think yahoo! is kind an advertising company. google is an advertising compa company. amazon was reported today as a retailer. it's the same story as we've seen all across these earnings reports. if the economy is sluggish, revenue is going to be down. everything as mr. lytle even said is dependent upon the macro economic situation for the country. >> suzanne: we have to leave it there. thank you for joining us, scott. new york bureau chief scott gurvey. >> paul: ahead of those microsoft results, stocks rallied sharply, thanks to a three-peat for existing home sales. june sales of previously owned homes rose 3.6%, their third straight monthly advance. and for the first time in months, it's not just foreclosures that are selling. as we continue our "reviving the economy" coverage, stephanie dhue reports, stabilization may have finally come to the housing market. >> reporter: lower home prices,

low interest rates, and the first-time homebuyer tax credit were the spark for buyers. and they weren't just buying distressed properties. only a third were foreclosures or short sales, where nearly half were at the beginning of the year. national association of realtors economist lawrence yun says that's a positive sign. >> i think this is part of the consumer is regaining confidence about the housing market, many perceiving that the bottom has been reached or that it will soon be reached and therefore buyers are coming back to the market. >> reporter: while there are still a lot of for sale signs out there, the glut of homes is drying up. >> i'd like to see it down to seven months supply and at that level we will see broad, national price stabilization. >> reporter: while the pace of home sales has picked up, prices remain under pressure. the national median price was almost $182,000 last month, 15% lower than a year ago. economist mark zandi thinks stable prices are still a ways

off. >> it's clear that the housing market is past its worst, that housing demand is improving, that construction has hit bottom, the last thing we need to see is an end to the price declines and i think we're still six to nine months away from that. job losses, tight credit and higher mortgage rates could push that timeframe further out. zandi expects another wave of foreclosures and short sales later this year and into early next. >> that remains the most significant threat to the housing market if the foreclosure crisis does not soon abate, then prices will continue to decline and the market and the rest of economy will be at risk. >> reporter: once the market does indeed stabilize, economists caution not to expect too much. they see prices remaining flat for the next couple of years. stephanie dhue, "nightly business report," washington. >> paul: wall street opened with a rollicking rally amid a flurry of better than expected results from at&t, 3m, hershey and ebay to name a few. adding to bullish enthusiasm was that surprise jump in june

existing home sales. an hour into trading the dow posted a 119 point gain at the 9,000 level with the nasdaq up 27 points. that move above dow 9,000 triggered a lot of buy orders which catapulted the blue chips just over 200 points until some late selling trimmed the closing gain. the dow still ended up 188.03 at 9,069.29, an eight month high. the nasdaq jumped 47.22 to 1,973.60, its twelfth straight gain. the s&p 500 rallied 22.22 to 976.29. in the bond market, the 10 year note fell 31/32 to 95-19/32 putting the yield at 3.67%.

>> suzanne: shares of ford motor shifted into overdrive today, gaining almost 10% as the automaker posted better-than- expected second quarter results. excluding special items ford lost just 21 cents a share. wall street had expected a far bigger loss, more than double that amount. diane eastabrook spoke with ford c.e.o. alan mulally today and began by asking him if increased production this quarter suggests stronger sales for the remainder of the year. >> yes, it does and two main reasons, diane, one is that we believe that economic activity in the united states will start to increase in the third quarter and the fourth quarter but in addition to that, ford is continuing to also increase its

market share based on the strength of our new product so based both of those perimeters, we have given guidance so we're going to increase our production. >> you talked about improving market share in the second quarter, who did you grab market share from? >> well, it's very interesting. it's really from everybody, from our competitors here in the united states and also from our japanese competitors. i think, again, it's a real testament to the strength of our new product family. >> talk a little bit about your products. you're bringing out a number of products over the next 18 months. what do you really think are going to be the big sellers? what do you think is going to resonate with consumers? >> we're starting to see that already. the fiesta -- our smaller vehicle -- is off to a phenomenal start in europe and in china and comes into the united states next year. and the people that are reviewing that vehicle now think it's going to be a real winner in the united states and, of course, we move up to the focus

size which has already established as a popular car. then the fusion which is 41 miles to the gallon, 8 miles to the gallon better than a toyota camry and then, of course, the new taurus which is named by many already as the car of the year. plus you add to that, you know, the traditional products that everybody has loved from ford, the new mustang, the new escape, the edge, the flex, the explorer the expedition, the f-series, of course, the number one vehicle in the united states for 34 years, but that real sleeper, i think, will be the new transit connect, our van, our package van which is a phenomenal package with significantly improved fuel mileage and capability. . >> one of the things i found interesting in your report, you talked about the average transaction price that ford was up over the rest of the indust industry. is that because you were offering fewer incentives? does that say anything at all about the market here in the united states?

>> exactly, diane. and it's absolutely right that not only has our market share been going up but also our concessions have been less. and the reason is that the consumers are really valuing the packages that we're providing. i think it's the combination of being best in class and quality. i think you saw that announcement today. you know, worldwide, best in fuel efficiency. the best in safety and the best value. so the consumers are really voting with the purchase decisions that they value the ford products. >> you've been looking for some months now for a buyer for volvo. where are you in that search? might we see something in this quarter or the next quarter? >> we do have volvo held for sale. they're doing a great job not only on their product line but also on their cost, quality and productivity. we're progressing with the potential buyers. >> ok. you are still competing with a couple of companies that have

government ownership. they've restructured in bankruptcy. you still have a little bit of debt out there. do you think that puts you at a competitive disadvantage at all with general motors and chrysler? >> no, i don't think so, diane, because, you know, clearly, we're very supportive of the u.s. government helping chrysler and g.m. temporarily which they've done. they clearly don't want to be in the car business longer term. and so we have our captive finance company, ford motor credit. we have a great product line. we see no indications in the marketplace that we're at a disadvantage so i think the most important thing we do is to stay absolutely focused on our product plan, our productivity and also over time as we've been doing, continually improving our balance sheet and you might have noted that, you know, we went to the equity markets and raised $1.6 billion in the second quarter. we also reduced our debt by 10.1 billion dollars. so, you know, we have a really strong plan andas we get back to

profitability, we'll continue to improve our balance sheet. >> mr. mulally, thank you so much for joining me. >> you're welcome, diane. thank you. >> suzanne: my guest has been ford ceo alan mulally. >> suzanne: leading senate democrats are putting the breaks on health care reform saying they will not vote on a bill before the august recess. senate majority leader harry reid says a vote in his chamber won't come until the fall. it's a blow to president obama who wanted the house and senate to pass bills in the next week and get a final measure to his desk by the end of the year. speaking in cleveland today, the president acknowledged the senate won't make his deadline. but he says that's okay and wants lawmakers to keep moving forward despite the delay.

>> paul: now let's take a look at some stocks in the news tonight.

>> paul: and those are the stocks. >> suzanne: it's the middle of summer. but stores are already pulling out all the stops to boost their back to school sales. it is considered a major test for consumer spending, and an early predictor for the holiday season. as erika miller explains, the recession has changed the rules for back to school shopping. >> oh, this one! actually, this one! this one!" >> reporter: while most kids are focused on vacation, or camp, five-year-old olivia anton is ready to shop. >> and look mom, i got these! >> reporter: she has come to old navy looking for cool clothes. her mother christina wants them to be practical and a good value as well. >> these are two for 28. >> reporter: like many families, the antons plan to spend less this back to school season than last. the average american family expects to shell out about $550 for back to school needs. that's about $50 less than last

year. but, christina believes she's getting more bang for her buck. you got a lot of items today, how much did you spend in total? >> $184. we really did well. i mean, we did all of our back to school shopping and we have everything that we need. >> reporter: the back to school shopping season is being watched closely-- to see just how tough it is to get consumers to spend. many retailers are hoping low prices will encourage parents to buy more than just bare necessities. many stores started promotions earlier than usual, including staples. the company's president mike miles says the weak economy is forcing unprecedented discounts. >> we've reduced prices on more products this year than we have in prior years. so every year at back to school, we reduce prices at some of the key school supplies. this year we've reduced prices on 250 of those key school supplies. >> reporter: staples is not the only store practically giving away merchandise to lure customers. analyst brian sozzie of wall street strategies thinks the

drastic markdowns will carry through to the holiday season. >> the consumer has become trained. they're almost like pavlovian dogs. they want the discounts. and they're not going to buy the merchandise if they don't get the discounts. but that doesn't necessarily mean profit margins will suffer, thanks to cost cuts. >> aeropostale has actually worked their supply chain pretty hard. so, they're getting some great deals on their fabrics, their dyes, etc. >> reporter: but for now, retailers are counting on their secret ally in the fight for back to school sales: kids. it's often tough for parents to say no, especially when it comes to a new party dress. >> when i saw the blue dress i was really, really... i was really excited, because i saw that one online and i liked it and i told my mom i hope it's there. >> reporter: she got the matching shoes too. erika miller, "nightly business report," new york >> paul: tomorrow, our friday market monitor guest is frank cochrane, president of investment timing consultants.

>> suzanne: federal agents have broken up a huge money laundering and crime ring, arresting dozens of new jersey politicians and religious leaders. among the accused: the mayors of hoboken, secaucus, and ridgefield. the feds say the bust ends a ten year probe of bribery and influence peddling. that had become ingrained in the state's political culture. >> paul: a management shakeup at general motors. leaving the firm are its g.m. north american president and global manufacturing head. a new board is also in the works with some directors named by g.m.'s largest shareholders. the u.s. and canadian governments. the moves are part of a larger plan to make g.m. profitable again, as a smaller, more efficient automaker.

>> suzanne: an independent federal reserve versus a central bank that is more transparent. tonight's "two ways to play" has two takes on the issue. here's kevin depew of "minyanville" and "minyanville's" kevin depew. >> federal reserve chairman ben bernanke was on capitol hill earlier this week, mainly to discuss the economy, but also to stop a misguided legislative proposal from texas representative ron paul to audit the central bank.

here's the thing, the fed isn't some secretive, nefarious organization. it's already audited. its balance sheet is published every week. and market watchers pore over the minutes of every fed meeting. so what bernanke rightly opposes is congressional medaling in monetary policy. it is critical for the fed to maintain its independence, far away from politicians. >> in order to understand why the federal reserve is so opposed to transparency, you have to go back and consider what gives the fed its power in the first place. if someone offers to give you a weird piece of paper for your watch, you'd probably laugh. but if hundreds of millions people are somehow convinced to accept that weird paper, well, then it's game on. the authority of the federal reserve basically exists because it exists, and any threat to it undermines the weird circular logic keeping the confidence game afloat. it would be like that time when you were a kid and you first figured out how to load a pez dispenser. it ruined everything. >> paul: recapping today's market action: the dow closes above 9,000 with a gain of 188 points. the nasdaq adds another 47.

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 nbr@pbs.org. >> suzanne: that's "nightly business report" for thursday, july 23. i'm suzanne pratt. goodnight everyone and good night to you, paul. >> paul: goodnight, suzanne. i'm paul kangas wishing all of you the best of good buys. "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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