captioning sponsored by wpbt >> paul: no sign of inflation but consumers still have the blues. from the jobs picture to housing, we look at what's weighing on the american consumer. >> jeff: more nightmares for boeing's dreamliner as an italian supplier for the 787 jumbo jet hits a snag with the plane's fuselage. coming up: what the latest production delay means for investors. >> paul: tonight's market monitor guest says despite today's market losses this is still a real bull market. he's james stack, president of stack financial management and investech research. >> i'm more in tune with how much money i have to spend. >> jeff: he's made the switch from credit cards to debit cards, and he's not alone. it's a trend that's gaining steam as the recession rolls on.

>> paul: i'm paul kangas. >> jeff: and i'm jeff yastine. susie gharib is off tonight. this is "nightly business report" for friday, august 14. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you. >> jeff: good evening, everyone. call it a case of the summer blaahs. the consumer blues. or too much red ink on household balance sheets. the result: a surprising drop in early august consumer sentiment. as scott gurvey reports,

americans are still too worried about jobs to hit the mall. >> reporter: it's been said many times, happy consumers spend and unhappy consumers keep their money in their pockets. or even worse, in a bank. so the markets greeted with disappointment the news that consumer sentiment fell in the first part of august. cary leahey of decision economics notes the decline in sentiment defied expectations. >> it would make sense that since the number of people applying for unemployment insurance benefits have dropped 100,000 workers in a couple of months, that would be reflected in consumer confidence and sentiment and those numbers would start getting better. but you did not and i think it's just reflective of the fact that even though firings have gone down nobody thinks hirings are going to go up. >> reporter: president obama took some heat following today's report. critics say he was overly cautious in reacting to recent reports on growth and employment, and that discouraged consumers. at least there are few signs of inflation anywhere. the consumer price index for the year ending in july declined more than any other 12-month period in 60 years.

stable prices might be expected to drive consumers to the stores, but david wyss of s&p says jobs trump prices any time. >> it really doesn't really mean too much for the recovery. it's more of a symptom, the lack of recovery. the weak economy means corporations do not have any ability to raise prices. and the weak labor markets means labor costs aren't going up so they don't have to raise labor prices. >> reporter: there are signs some companies have ramped up production to replenish inventories. but unless consumer demand increases, those production increases will be short-lived. >> until consumers feel more confident about the economy, which probably means two things, they've got to raise their savings rates and they've got to reduce their debt loads, they're not going to be hitting the malls very hard. >> reporter: leahey says the decline in sentiment means retailers face a tough back to school shopping season and even the winter holidays may disappoint. scott gurvey, "nightly business report," new york. >> jeff: oil prices tumbled to a three week low on that weak consumer confidence reading. in new york trading, light sweet

crude for september delivery settled at $67.51 a barrel, down $3.01 or 4%. investors are worried a weak economic recovery will make for continued weakness in global oil demand. >> paul: profit takers took control of wall street in the early going today, as sellers linked no change in july consumer prices to a very sluggish economy. underscoring that was the surprise dip in early august consumer confidence. after two hours, the dow was off 163 points and the nasdaq down 39 points. a better than expected 5/10 percent rise in july industrial production helped stocks stabilize and cut the losses by the final bell. the dow closed off 76.79 at 9321.40. this week it rose twice and fell three times for a net loss of 48.67 points. the nasdaq lost 23.83 to 1985.52 today. it also rose twice and fell three times this week for a net

loss of 14.73 points. the s&p 500 fell 8.64 to 1004.09 today and for the week overall lost 6.39 points. in the bond market, the 10 year note climbed 10/32 to 100-15/32 putting the yield at 3.57%. >> paul: tough economic times have more consumers saying no to credit cards. a new study shows debit cards have become the preferred form of plastic in the u.s. surpassing credit card transactions for the first time ever. but as stephanie dhue reports, for consumers, the trend has its pluses and minuses. >> reporter: josh clark is among the increasing number of americans who are choosing debit

over credit. he made the switch three months ago, after maxing out his credit card while starting a designer jean business. >> i realized if i put something on my credit card, i'm going to be paying interest on it until i can fully repay it. >> reporter: tight credit is also encouraging more debit card use. and consumers are using it to manage their money. clark says it helps him control spending. >> i check my bank account more frequently than i check my credit card account, so i'm more in tune with how much money i have to spend. >> reporter: as debit card use surpasses credit cards that presents new challenges for both consumers and regulators. debit cards come with fewer built-in protections. consumer advocate ed mierzwinski warns in the case of a lost or stolen card number, the debit card holder can be on the hook for much more than if a credit card were used. >> the maximum amount you can lose with a credit card is only $50. with a debit card, you could lose all the money in your account if you don't comply with

all of the complicated rules. the credit card is protected very well, debit card is not. >> reporter: consumers can also get in over their heads with charges for overdrawing their accounts. the banking industry takes in $38 billion a year in overdraft fees. banks also profit from fees charged to merchants to process debit card transactions. >> the banks allow your debit card to work at a merchant, even when you don't have money in your account and they do that to encourage overdraft fee income, so you buy a $4 latte and it really cost you $4 plus a $35 fee, $39.00. >> reporter: the federal reserve and lawmakers are considering cracking down on overdraft fees. the financial services industry's scott talbott says the consumer plays a role in avoid fees. >> customers need to be careful to make sure they know what the balance is in their accounts and banks make it very easy to know their balance, on the telephone, the a.t.m., even an email alert sent to your phone, checking on

your blackberry, it's very easy to understand your balance. >> reporter: josh clark says he learned his lesson the hard way and now checks his balance often to avoid overdraft fees. stephanie dhue, "nightly business report," washington. >> jeff: colonial bancgroup failed tonight as published reports say the f.d.i.c. has arranged a deal to take control of the troubled bank and sell its assets. the montgomery, alabama-based colonial has 355 branches in five states with about $25 billion in assets. it would be the sixth largest bank failure in u.s. history and by far the largest bank failure this year. earlier this week, colonial said it might not be able to continue as a going concern.

>> jeff: microsoft and yahoo's joint venture may be able to give search giant google a run for its money. internet research firm com-score says in june, nearly two-thirds of all online searches in the u.s. were done using google. together micro-hoo had 28%. but, comscore says the newly combined entity could become more competitive because 75% of all users conduct at least one search a month on each service. that raises the question: whether people are using google out of habit, or because they favor the brand. paul, if it's just a habit, that leaves room for micro-hoo to target those google searchers. >> paul: jeff, google, microsoft and yahoo shares were all among the nasdaq's most active. we'll see them as we take a look at our stocks in the news tonight.

>> jeff: until the recent global slowdown, southeast asia was home to some of the world's fastest growing economies. but investment in the region's infrastructure hasn't kept up. and that could create a big roadblock to future economic growth. as rian maelzer reports, cambodia is one of the countries with a lot of potholes to fill. >> reporter: this simple two- lane road is what qualifies as a national highway in cambodia. it also qualifies as major progress. built with american aid money, it has slashed travel times between the capital and the country's only port. cambodia's infrastructure was in a pitiful state even before 25 years of war did its damage. >> it was just over a decade ago now that the khmer rouge guerrillas finally surrendered and the current prime minister hun sen cemented his hold on power.

it was only then that the task of rebuilding-- or in most cases building from scratch cambodia's infrastructure-- could begin in earnest. >> reporter: multilateral agencies and foreign governments have pumped in billions of dollars to pave roads, build bridges, bring piped water and power, and provide irrigation. this japanese-funded irrigation project outside phnom penh has boosted rice production in the area from just one harvest a year to three. commerce minister cham prasidh points out that his country already produces a large surplus of rice with only around a third of agricultural land irrigated. >> if we can go to 80% or 90% or 100%, cambodia is going to be one of the superpower for rice exports and agricultural products. and this meets our dream to make cambodia the grainary of southeast asia. >> reporter: newly paved roads

now allow farmers to get their produce to market quicker, cutting costs for them, and for consumers. business people in cities-- like american tim belcourt who owns a coastal resort here-- are also seeing the benefits of improved infrastructure. >> yeah, power outages used to be daily. you could expect it for three to four hours a day, so in a weekly basis it would be 20-30 hours. now we get two to three hours a month. so it's much better. >> reporter: still, except in the thriving tourism and garment making industries, poor infrastructure has historically been a serious impediment to foreign investment here, world bank economist stephane guimbert says. >> some others, agro business or other light manufacturing simply never came because of these constraints. so the fact that these constraints over time are being removed should help the country to diversify its base.

>> reporter: there's still plenty left to do in cambodia, though, especially in rural areas. rajat nag of the asian development bank says asia as a whole will have to make huge investments in infrastructure if it's to sustain high growth over the long term. >> asia will need about $3 trillion in the next decade-- $300 billion a year. we see positive signs. we don't have to spend time convincing governments on the importance of infrastructure. it's now a question of getting on with it. >> reporter: much as cambodia has been trying to do for the past decade on the long, and often bumpy, road toward a more prosperous future. rian maelzer, "nightly business report," cambodia. >> paul: monday, while cash for clunkers rolls on, some auto dealers are launching their own stimulus package. >> jeff: two wholesale drug buyers are suing merck. accusing the pharmaceutical giant of blocking production of a generic version of its allergy

drug singulair. the suits claim merck fraudently obtained a patent and that's preventing drug distributors from buying those cheaper versions. merck says its patent is valid and plans to defends itself against the lawsuits. there's a lot at stake... singulair sales topped $4 billion last year. >> paul: if you receive medicare benefits, plan to pay a little more for prescription drugs next year. medicare officials say on average, seniors will pay $30 a month for stand-alone drug plans. that's $2 more than this year. since premiums vary from plan to plan, the exact amount of won't be known until october, when the plans are finalized.

>> jeff: here's a look at what's happening next week: our friday market monitor guest is mark skousen, editor of "forecasts and strategies." on the economic calendar: tuesday, we'll see july's producer price index along with july housing starts. wednesday, we'll see the weekly report on crude oil and gasoline inventories. thursday, it's weekly jobless claims and the july leading indicators. friday, existing home sales for july. also, next week, quarterly results from hewlett packard, home depot, lowe's, sears and target. >> paul: my guest market monitor

this week is james stack, president of stack financial management and publisher of the investech research market letter. jim welcome back to n.b.r. still decisively bullish, yes, i think we have more potential gains ahead. we have to keep in mind by historical standards this market is way off its highs. both the dow and the s&p would have to gain over 50% from today's levels to get back to where this bear market started. >> paul: something that seems to trouble wall street quite a bit is this fading consumer sentiment we saw today. what can give that a boost? >> keep in mind, we just had a setback in sentiment. we had a big rally in consumer

sentiment and confidence coming out of the march lows. we've had a slight setback, and it hasn't followed very much in consumer expectations -- that is, looking six months down the road, so i think we're going to see consumer confidence rebound next month. >> paul: how serious a threat is inflation in light of the massive infusion of stimulus dollars? >> well, inflation will be a problem, it's not a question of if, it's a question of when. right now we don't have inflation pressures present in the economy because of the slack from the recession, but looking forward, i think the greatest risk or the one warning flag to watch will be the u.s. dollar. if the dollar drops under the lows of last year, that will be a warning flag that the fed is going to have to push rates up faster, that we're going to have inflation pressures and nothing kills a bull market faster. >> paul: what investment strategy are you recommending to your subscribers at this point? >> well, we are up to a 97% invest to location. that's our highest allocation

since 2003, the first year of the last bull market and we're still following a safety-first strategy. we're focusing on sectors that we feel are going to participate but without taking risks in the financial sector -- in other words, i don't think we completely through the wash-out in the real estate sector so we're not buying the banks, we are looking at stocks in terms of valuation not momentum. i want my stocks selling at low price-to-earnings and low price cash levels and we're keeping our eyes open. i'm not blindly bullish, i'm objectively bullish and we're watching for those warning flags even though we don't see them right now. >> paul: briefly, what are your favorite sectors? >> well, the sectors that normally lead a bull market will be consumer discretionary stocks, and we have one recommendation in that area tonight. also, technology stocks. the financials, also, but at the same time i don't want to play around in the banking sector to see which ones are going to still run into problems from here on out. >> paul: in march, you gave our

viewers three stock picks. let's see how they've done since then. abbott labs down 4.8%. are you still with it? >> abbott labs has really been held back because of the health care fears about the legislation and how it might impact the company, but that company is selling at the lowest valuation -- the cheapest level in over 20 years, so yes, we are holding that one. >> paul: v.f. corp has done well, up over 12%. are you still with that? >> yeah, we're still holding v.f. corp, north base, lee, wrangler, they manufacture those. >> paul: one other recommendation which is nicely on the plus side, walgreen up 20%. are you staying with it? >> yeah, walgreen's is going to benefit as we come out of this recession. >> paul: how about some new recommendations, jim? >> on the consumer discretionary side, nike, you don't think of it as such buttats a global stock. >> paul: n.k.e. on the big

board. >> a lot of that's coming from asian growth. we also like charles schwab & company. it's going to benefit from the wash-out in the banking sector, it's not just a discount brokerage firm, it's providing more banking services -- in fact, we use schwab institutional as a custodial firm for our trading accounts. >> paul: one more. >> pepsico. people think of pepsico as stodgy but it's a double-digit growth company selling at its lowest price-to-cash flow in 20 years, it pays an attractive 3% dividend and it's increased that dividend every year for 37 years. >> paul: do you own the stocks mentioned or have any other disclosures to make? >> absolutely, paul, we own all of them. i wouldn't recommend them if we didn't like them and we also use schwab institutional as our custodial firm as i mentioned. >> paul: they would benefit nicely from a big bull market as well, would they not? >> they're all in sectors that should be among the leaders in this bull market. >> paul: very good. unfortunately, our time is up,

but jim, as always, thanks for being with us. >> it's my pleasure, paul. >> paul: my guest, jim stack of investech research. >> jeff: recapping today's market action, stocks tumble on fresh worries about the consumer. the dow dropped 76 points, and the nasdaq fell 23 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 nbr@pbs.org. >> jeff: and finally tonight, the tax man cometh. the first case since the i.r.s. settled with swiss bank u.b.s. has netted a guilty plea. prosecutors say john mccarthy put a million dollars into a swiss u.b.s. account in 2003 to avoid paying taxes here. he's going to plead guilty next month. mccarthy faces up to five years in prison and up to $250,000 in fines. in a settlement with the justice department wednesday, u.b.s. agreed to release mccarthy's name and the names of 52,000 other americans with swiss

accounts. so you can be sure, this won't be the last tax evasion claim to be made by the i.r.s. >> paul: the difference between legal avoidance and tax evasion. >> don't hire u.b.s. to make that decision. >> paul: apparently not. >> jeff: that's "nightly business report" for friday, august 14. i'm jeff yastine. goodnight everyone, and have a great weekend, you too paul. >> paul: and you as well jeff. 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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