Return to Transcripts main page

CNN Live At Daybreak

Worries of Deflation

Aired May 16, 2003 - 06:14   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


CAROL COSTELLO, CNN ANCHOR: Time for a little business buzz right now. Stocks snapped a two-day losing streak, so will the trend continue for at least one more day?
To Susan Lisovicz live in New York.

Good morning -- Susan.

SUSAN LISOVICZ, CNN FINANCIAL NEWS CORRESPONDENT: Good morning, Carol, happy Friday to you.

You know everybody's talking about how resilient the market is about how it can rally in the face of negative news, right now futures pointing to a slightly higher open. That could change in about two hours when we get a reading on consumer prices as well as the consumer sentiment index.

Yesterday, for instance, we had a sharp fall in wholesale prices due to cost declining for energy, cars, clothing and business equipment. This fuels worries of deflation, something that the Fed has talked about. But despite those deflation fears, stocks bounced back after two days of losses as investors focused on some positive corporate news, especially from the technology arena. The Dow gained three quarters on the day of a percent and the Nasdaq rose 1 percent.

Today, keep an eye on shares of Dell. It reported after yesterday's closing bell, a 31 percent jump in quarterly profits, which was in line with expectations. And the Nasdaq is up 16 percent year to date -- Carol.

COSTELLO: Wow, that's good news. Question for you, though.

LISOVICZ: Yes.

COSTELLO: If prices are falling, why is deflation bad?

LISOVICZ: I know, it seems contradictory, right. I mean don't we, as consumers, like prices that are lower? Yes, but you really don't want deflation. Because when you see deflation, companies can't raise prices. In fact, sometimes they have to lower prices, which hurts their corporate profits. When it hurts their corporate profits, they don't hire workers, they don't give the workers that they have raises. That, in turn, hurts consumer spending and consumer spending fuels two-thirds of economic activity in the United States. That's why we don't want deflation and that's something that's plagued Japan, the world's second largest economy, for a decade or so.

COSTELLO: Yes, and it got pretty bad in Japan. I hope we don't see that here. Susan,...

LISOVICZ: Exactly, the Fed could, you know, and that's why we're interested in what the Fed will do next month. There's talk about a 13th rate cut.

COSTELLO: Wow, well that would be something else. Susan...

LISOVICZ: Try to get the market -- get the economy going.

Sorry, Carol, I keep jumping in on you.

COSTELLO: You're excited about business news this morning, aren't you?

LISOVICZ: I am.

COSTELLO: We'll get back to you in the next half hour.

LISOVICZ: Sure.

COSTELLO: Thanks, Susan.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM AT www.fdch.com






Aired May 16, 2003 - 06:14   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CAROL COSTELLO, CNN ANCHOR: Time for a little business buzz right now. Stocks snapped a two-day losing streak, so will the trend continue for at least one more day?
To Susan Lisovicz live in New York.

Good morning -- Susan.

SUSAN LISOVICZ, CNN FINANCIAL NEWS CORRESPONDENT: Good morning, Carol, happy Friday to you.

You know everybody's talking about how resilient the market is about how it can rally in the face of negative news, right now futures pointing to a slightly higher open. That could change in about two hours when we get a reading on consumer prices as well as the consumer sentiment index.

Yesterday, for instance, we had a sharp fall in wholesale prices due to cost declining for energy, cars, clothing and business equipment. This fuels worries of deflation, something that the Fed has talked about. But despite those deflation fears, stocks bounced back after two days of losses as investors focused on some positive corporate news, especially from the technology arena. The Dow gained three quarters on the day of a percent and the Nasdaq rose 1 percent.

Today, keep an eye on shares of Dell. It reported after yesterday's closing bell, a 31 percent jump in quarterly profits, which was in line with expectations. And the Nasdaq is up 16 percent year to date -- Carol.

COSTELLO: Wow, that's good news. Question for you, though.

LISOVICZ: Yes.

COSTELLO: If prices are falling, why is deflation bad?

LISOVICZ: I know, it seems contradictory, right. I mean don't we, as consumers, like prices that are lower? Yes, but you really don't want deflation. Because when you see deflation, companies can't raise prices. In fact, sometimes they have to lower prices, which hurts their corporate profits. When it hurts their corporate profits, they don't hire workers, they don't give the workers that they have raises. That, in turn, hurts consumer spending and consumer spending fuels two-thirds of economic activity in the United States. That's why we don't want deflation and that's something that's plagued Japan, the world's second largest economy, for a decade or so.

COSTELLO: Yes, and it got pretty bad in Japan. I hope we don't see that here. Susan,...

LISOVICZ: Exactly, the Fed could, you know, and that's why we're interested in what the Fed will do next month. There's talk about a 13th rate cut.

COSTELLO: Wow, well that would be something else. Susan...

LISOVICZ: Try to get the market -- get the economy going.

Sorry, Carol, I keep jumping in on you.

COSTELLO: You're excited about business news this morning, aren't you?

LISOVICZ: I am.

COSTELLO: We'll get back to you in the next half hour.

LISOVICZ: Sure.

COSTELLO: Thanks, Susan.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM AT www.fdch.com