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QUEST MEANS BUSINESS
U.K. Labor Market Extremely Tight; State of the Economy
Aired August 12, 2009 - 14:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN INTERNATIONAL ANCHOR: Young, free, and out of work: U.K. graduates find little scope for their skills. Fifteen minutes away from the U.S. interest decision. And we'll be taking a look at the market. But look what they're doing right now. And oh, my goodness, my Guinness, Diageo has stout sales in Africa.
I'm Richard Quest, it's going to be a busy hour, because I mean business.
Good evening, here in the U.K., unemployment queues are getting longer, and prices look likely to remain sluggish for the next two years and beyond. The Bank of England is taking unprecedented steps to fire up the U.K. economy and the governor of the Bank of England, Mervyn King, says it's all going to take years to sort out.
Let's look at exactly what the situation is within the United Kingdom. It really doesn't matter which way you look at it, unemployment, as in other parts of Europe, is becoming the key feature of this recession in the U.K., in the E.U., in the U.S., even in Japan where, of course, the absolute numbers are lower.
But in the U.K., out of work, 2.4 million people. That is the highest number for 14 years, and gives a jobless unemployment rate of 7.8 percent. Crucial, it went up 220,000. Now although the pace of people losing their jobs has perhaps slowed down, they are still -- the numbers is still growing. So we are not at that point by any means in the recession where we can say that recovery or that growth is leading to a fall in unemployment.
U.K. inflation is below 2 percent, expected to be -- remain that for the -- until 2012. We got the U.K. inflation report from the Bank of England. Now the significance of this particular number is that it gives the Bank of England and Mervyn King -- it gives them the ability to keep interest rates very low.
And what we heard today from the governor was that interest rates would remain way down there for the foreseeable future. You'll be aware, of course, that not only monetary policy to interest rates, but also through printing money.
This week the Bank of England's quantitative easing target is now $289 billion. So whether it is through QE or through interest rates, inflation is not a worry, it's unemployment that continues to be the big problem in the U.K.
If you're out of a job, perhaps you may be feeling despair, but perhaps there is some hope. There are one or two sets, those that are seeing the beginnings of a recovery. We don't have much official evidence to prove it.
Now the official numbers suggest one story, that if you look very closely, very closely indeed, there are signs in the street. Jim Boulden spoke to one man who survived redundancy and got back to work.
JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT (voice-over): Nayef Kahn quit Lehman Brothers just before it filed for bankruptcy. He was there that September day as London workers cleared out their desks. He then went across the street to Barclays Bank, only to be laid off in February of this year.
He was out of work three months, but had seven or eight job interviews and one came through. Now he's back at Barclays Capital, the unit of the bank that just reported profits doubled.
No surprise then, Nayef's team is actively hiring, and can be choosy given the number of people looking.
NAYEF KAHN, BUSINESS ANALYST, BARCLAYS CAPITAL: We've been interviewing candidates and it's really a case of who has potential, who can grow it, who is going to add value right away. And yes, there are a lot of candidates, and a lot of them have fantastic experience. So it's good to be on the other side of the fence for a change.
BOULDEN: U.K. job losses may have slowed in the three months through June, but still, unemployment rose to 7.8 percent, nearly 2.5 million out of work, a 14-year high. Manufacturing and the finance sector continued to shed jobs.
New graduates are having the hardest time finding work since the early 1990s. The impact is likely to be felt through the economy for at least another year.
VICKY REDWOOD, CAPITAL ECONOMICS: With unemployment still rising (INAUDIBLE) rise further (ph), that will act as a key constraint on the growth of household spending, and therefore the overall economic recovery.
And that, in turn, will ensure that inflation stays very low. And in fact that could then feed back into weaker pay growth or average earnings growth, again, keeping a lid on the amount we spend.
BOULDEN: In the U.S., job losses in finance slowed dramatically in July. Banks and insurance companies in Germany have also recently added jobs. Some parts of London, help wanted signs are popping up.
KAHN: So there are other firms that have been hiring as well, and you can tell new restaurants have opened, new cafes have opened, and that's always a good barometer.
BOULDEN: But the enthusiasm reflected in Kahn's hiring won't be reflected in the statistics for a while, not until this quarter's job data releases in October.
Jim Boulden, CNN, London.
QUEST: Now if you're struggling to get back into work, or you just got back into it after a long period of time off, we want to hear from you. You'll know that on "JobQuest," QUEST MEANS BUSINESS, we are helping you in some shape or form, because your "JobQuest" is ours.
Tell us how you are getting on with your job search. You can e-mail me directly at firstname.lastname@example.org. You can tweet me @richardquest, or you can find me on Facebook, the Facebook page is Quest Means Business.
Turning to the European markets now and stocks have managed to close the day in the black. It's the first time this week. London's FTSE added almost 1 percent. Lloyds Banking Group and the Royal Bank of Scotland were among the best performers.
The Xetra DAX in Frankfurt gained 1.25 percent. Aon led the gains there, closing up more than 5 percent. The utility company says it's seeing demand for energy stabilizing. And over in Paris, the CAC-40 ended 1.5 percent higher.
In New York, you'll need to know, we are just about 10 minutes away from when we're going to get the decision from the Federal Reserve. Up 126, the reason -- well, let's be clear, if we get a move in interest rates from the U.S. Fed today, I will eat my hat.
Now I haven't got a hat with me, but if there were to be one, I'd eat it if -- I'd bring it in tomorrow and eat it.
Nobody is expecting the Fed to move for the foreseeable future. But the fact of the languages and what's happening, that's what is giving the market a very, very nice bump at 1.75 of a percent.
As we consider all issues of unemployment, recession, we'll be back in a moment with that. But you need the news headlines this evening, Fionnuala Sweeney is at the CNN news desk.
FIONNUALA SWEENEY, CNN INTERNATIONAL ANCHOR: Richard, a desperate rescue effort is under way in Taiwan. Authorities are trying to reach hundreds still trapped in the mountains by floods and mudslides triggered by Typhoon Morakot.
The storm is now being blamed for more than 100 deaths in Taiwan. It's feared the total will rise as more bodies are recovered from the mud.
Moscow says it will take all necessary measures to find a missing Russian freighter that may have been hijacked. Several nations are now looking for the ship Arctic Sea, which was carrying timber from Finland to Algeria.
The ship, with 15 Russia crew members on board, was last seen off northern France on July 30th.
Vladimir Putin pledges continued aid for a breakaway region of Georgia. The Russian prime minister showed up Abkhazia, his first trip there since Moscow officially recognized the territory's independence after last year's war with Georgia.
He pledged to spend nearly half a billion dollars in upgrading the region's defenses and building a base there.
Fierce fighting in Afghanistan here. U.S. Marines, backed by Harrier jump jets, staging an airborne assault on the Taliban stronghold. It's part of wider push in southern Afghanistan. Hundreds of U.S. and Afghan troops have moved in to secure the region ahead of next week's presidential elections.
And those are the headlines, Richard. Back to you in the studio.
QUEST: We thank you, Fionnuala Sweeney, at the desk. You'll be back with us in just about 10 or 15 minutes from there.
We have talked about unemployment, and now you're up to date with the total scenario. More than 700,000 young people, all registered as unemployed, 46,000 of them joined the dole queue, as it is said, between April and June.
For young graduates, the labor market is looking tougher than at any time in years. Fiona Sandford is the director of career services at the London School of Economics.
Thank you, Fiona, for coming in. Look, this is your letter that -- you recognize this letter.
FIONA SANDFORD, DIRECTOR OF CAREER SERVICES, LONDON SCHOOL OF ECONOMICS: Yes.
QUEST: It's a letter that you sent out to your colleagues. You call it "very difficult times." You say it's a "perfect storm" and you say that the "crunch generation" are being affected. Tell me about it.
SANDFORD: Of course they are. It's the first time this generation have faced such a downturn. As you said, it's the most challenging labor market for a generation, if not more. On the other hand, there are jobs out there. And I think people in university career services are working very hard to source those jobs for our graduates.
QUEST: When you say your theme this term is "Riding the Recession," what do you mean by that? Because there is not a lot you can do about it, surely. If people aren't hired -- you're looking quizzically, as if there is lots you can do about it.
SANDFORD: Well, there are things we can do about it. I mean, my team, like many others in university career services, are hitting the phones, calling everybody who has ever hired an LSE graduate, to encourage them to take a graduate for a short period of time, for six to 11 months, to -- which is great value for money, for organizations, and great for the students, if they can just get some work experience.
QUEST: So really you've now moved from finding people's jobs to finding people something that might help in the future.
SANDFORD: And proper jobs too.
QUEST: Yes, I'm not dressing it up to clean the toilets. But not that there's anything wrong with that.
SANDFORD: No, no. No.
QUEST: But what I mean is, you're trying to place people in advantageous positions.
SANDFORD: So that when the upturn comes, they're in a good position. Because what always happens when the upturn comes is recruiters focus on fresh graduates. So we are very keen to make sure that this lot are in a good position. They've got good work experience, and good things to talk about when the upturn comes.
QUEST: They're doubled-scuppered, this lot, aren't they, the "crunch generation"? They won't be the lot that are ready and just out. It will be the 2-10 to 11 but will be.
QUEST: .you say?
SANFORD: I think most of us believed a real upturn in jobs will happen until 2-11.
QUEST: So the 2-09, the 2-10 in the crunch generation as you call them.
QUEST: They are likely to lose out to the newly minted grads?
SANFORD: Unless they can find something to improve their skills and that's what we're all working very hard to do.
QUEST: So, let's talk about that because people watching. You're from the LSE. It is one of the world's premier educational institutions.
QUEST: I am not just being good cheer just too polite when I say that, and I didn't go through it. But the fact is what can people do?
SANFORD: They cannot disengage. This is not the time to go to Thailand or decide you just broke a feet. I do see nothing wrong with that, but it is the time to look for a job that's going to give you some experience that you're going to be able to talk about with employers when the upturn comes.
QUEST: No Thailand, so don't take a step and gap here?
SANFORD: Not so good to take a second gap here right now.
QUEST: It's understandable.there's no work out there.
SANFORD: I know and it's frightening. It's very frightening for students, and it's very tempting to think it's all too difficult. I'll go to Thailand.
QUEST: So, you're sending out these letters to law firms or companies saying basically, "Clean the toilets and fit the burgers, but please just let me do the front door." They're getting thousands of projections perhaps saying, "No."
SANFORD: I know and they have to be resilient, and we've got a big campaign in the LSE called, "Yes you can." Guess where we got that from? Get a job in the recession which is offering our new graduates additional coaching, lots of coaching, lots of preparation with applications and interview skills, so that they can put their best foot forward.
QUEST: I'm not being disrespectful, but are you being Pollyanna?
SANFORD: No. No, it's awful. It's difficult.
QUEST: But you're suggesting Fiona that there are things that people can do, and I'm suggesting to you that it is so bad that frankly you're whistling in the wind.
SANFORD: But we're not. We've evidence that we're not. We have almost as many jobs on our job support now as we have this time last year and this time the year before. They are just sorts of jobs, but they are good graduate jobs.
QUEST: Fiona, we thank you for coming. You'll come back again and talk all about this with us.
QUEST: Thank you very much indeed.
SANFORD: You're very welcome.
QUEST: Thank you. Now after the break in a moment toe to toe with Tyson. She's a true heavyweight in economic one that is. It is of course Laura Tyson. She is a top financial adviser to President Obama in the transition, former Dean of the London Business School. She was an economic adviser in the cabinet of President Clinton, and she's on our program in just a moment.
ANJALI RAO, HOST, TALK ASIA: This is what you won't hear on Chinese radio. This week on Talk Asia, a backstage heart to Beijing's vibrant and spot growing underground music scene.
UNIDENTIFIED PARTICIPANT: China has about 50 of the world's population. They probably have a fifth of the world's musical geniuses too.
RAO: Indy (ph) veteran Buyi served as our guide, join me Anjali Rao for Talk Asia in Beijing only on CNN.
UNIDENTIFIED PARTICIPANT: The Middle East at the crossroads where east meets west. Business meets opportunity. Every weekend, CNN Marketplace Middle East brings you the richest deals and deal makers, the power bruticus (ph), and groundbreakers who are changing the business game in the Middle East and around the world. Join John Defterios for CNN Marketplace Middle East every Friday only on CNN.
QUEST: The United States and Switzerland have come to terms over a lawsuit against the banking giant UBS. At stake were the names of tens of thousands of Americans allegedly avoiding on evading paying off their taxes. The US has been seeking the names stored in total amount of $15 billion in secret Swiss accounts.
Tax lawyers say thousands are avoiding prosecution by volunteering that information. In February, the Zurich based bank agreed to pay $718 million to prevent prosecution. UBS also gave data to the U.S. This long simmering case had poked the hole into the armor as a traditionally had been Switzerland's hollow bank confidentially scheme. Swiss banks fear too much transparency will turn away potential overseas clients.
We're due to have the Feds Reserve latest decision on interest rates just any moment from now.
Laura Tyson was the economic adviser to President Obama during the transition and says the U.S. economy sends in a growth fate. Now, this is fascinating because this is the argument that says the recession is technically formally over. Despite that upbeat message, she tells our Asia Business Editor Eunice Yoon, "Jobseekers will continue to face tough times."
LAURA TYSON, ECONOMIC ADVISER TO PRESIDENT OBAMA: I think it will remain difficult to find a job for awhile. I think that's right, and I think that's why it's important for policymakers to look at things like you know extension of unemployment benefits, extension of healthcare benefits for people who find themselves without a job, education benefit to get people to actually use the time in out of a job to get training and education.
EUNICE YOON, CNN ASIA BUSINESS EDITOR: The Obama administration is spending hundreds of billions of dollars essentially to reboot the economy. Why does it feel as though nothing is happening?
TYSON: If you look at the numbers, it looks just like or worst than the Great Depression. Exactly, the world's economy is tumbling. The U.S. economy is tumbling. Policymakers literally pull out all the stops. I mean, they go for a major stimulus, the largest stimulus as represented of GDP ever, a major monetary infusion through a whole set of credit facilities and quantity using up the Federal Reserve. And you know what? Six months later, it looks like the economy has begun to stabilize. That's actually quite remarkable, and I think that the problem is that you don't know where the economy would have gone without this, but I think all the trends would have suggest that it would be much, much worst.
YOON: Should the U.S. government be spending more?
TYSON: I think right now what you say is that the package that was passed is working according to schedule that right now it's really too early to say. Let's see what the economy - how the economy behaves over the next several months and be mindful of the looking at the evidence to say whether we need additional support.
YOON: Ben Bernanke's term as Federal Reserve Chief is going to end soon. Should he be allowed to keep his job?
TYSON: I don't give that kind of advice, and I don't really want to speculate about it. What I will say is that Federal Reserve has been very significant after in helping to confront this danger of another great depression. They have been very dramatic in terms of the facilities they've created, and they have helped working with the Central Banks around the world with the British Central Bank, with the European Central Bank, very good relation between the Treasury in the U.S. and the Federal Reserve.
So, I think it's been a very sound set of policy decisions.
QUEST: Okay. That is Laura Tyson, a former Dean of the London Business School and Adviser to both Presidents Clinton and Obama.
I want to show you the Dow Jones. It is now up 111 and the reason - what has happened in the last three seconds? The U.S. Federal Reserve has alerted to keep interested rates at on a historic low near zero. It's not what the Central Bank didn't do it. They're saying about the state of the US economy.
Let me just go reading straight from what I'm seeing at the moment on the wires. The Federal Reserve has basically said, "The economy is leveling out," and so the economy is leveling out. The Central Bank said it would shoot in one of its programs ending up propping up the economy, the quantitative easing of borrowing of buying bonds, corporate bonds and government bonds, CoCo bonds. So, quantitative easing is expected to come to an end in the U.S. in October and US interest rates remain unchanged and the economy is leveling out.
Let's look at the Dow Jones up 121 at 1.3 percent, bringing Maggie Lake from New York and we start to see exactly. We can get some analysis on this decision.
Maggie Lake joins me now. I think. Maggie nothing greatly surprising in terms of the interest rate decision, but I think it is a surprise they've decided to stop the bond purchases.
MAGGIE LAKE, CNN CORRESPONDENT, NEW YORK: A little bit - not really Richard. I'd say it may be a relief instead of a surprise. But it was up in the air and nothing definitive.
But certainly the market -- that's what they were really paying attention to. Listen, we knew they were going to keep interest rates at rock bottom for an extended period of time. They kept that language in the statement.
But there may be a little relief, especially in the bond market. And here is why. That extraordinary measure to directly buy long-term Treasuries was creating some inflationary concerns longer out -- you know, further out on the horizon.
So the fact that the Fed is sort of saying that they're going to stop that -- on schedule, by the way. That was when it was supposed to all wrap up. And they're not going to extend it. It means, to the market, two things, that they feel that the economy is stabilizing enough that they can start to take away that particular intervention and also it gives a little bit of relief on the inflation front.
So I'd say that people were hoping that they were going to say that, yes, we're wrapping this up in October and that's exactly what they did. But remember, there's still an awful lot of Fed intervention in terms of that (INAUDIBLE). They're out there buying a mortgage-backed security, all sorts of other loans that are tied to auto loans, consumer loans, student loans.
They're still very much doing that.
LAKE: No major changes announced there. They're going to be careful about taking away some of that other intervention. But the direct Treasury bond intervention, you're right. That is going to end.
QUEST: I suppose I was surprised because of what we saw the Bank of England doing when it announced, obviously, it was continuing its quantitative -- its major quantitative easing of buying U.K. government guilt (ph). And -- that's a tautology. It's obviously guilt (ph).
I see debt -- deficit numbers also out just now. July's budget deficit, $180 billion, taking the deficit this year to $1.2 trillion.
Now, that is an extraordinary amount of money.
LAKE: Yes, it is. You know, there -- there are people that talk two sides of this trade deficit all the time. You know, some people wonder about the global economy once you start to -- even though these are huge numbers, they've been moving in, in a different direction. For years, they were much higher. Now they're moving the other way, of course, with the -- that U.S. Consumer out of the picture as the engine of growth.
What does that mean for everybody else -- all these other countries that are export-driven?
And there are other people who argue, hey, that number is still way too high. It should be even lower and the U.S. Should pursue more aggressive policies in that regard.
So, you know, depending on inside or outside the beltway who you talk to, you've always got a different opinion about that.
But just to circle back to the Fed again, Richard, you know, they were talking about, you know, some of the economy. And again, they're being very cautious. They're in a really tricky position here because they are saying that economic activity is leveling out. You hear words about stability and -- but also, at the same time, households being constrained.
The Fed does not want to take away some of the stimulus that they have in the economy too soon, even when things are looking better, because they don't want to see, all of a sudden, the economy take another turn down.
And it's a really tricky line they're walking. And a lot of economists are worried about how they're going to sort of extract themself from this situation. I'm sure you're hearing similar (INAUDIBLE) in Europe. I know it's a concern in Asia, as well.
QUEST: All right, Maggie, we're going to be talking more about this in the days ahead. But thank you for that.
Maggie Lake in New York joining me.
Just to clarify, we've just heard that the U.S. Federal Reserve has kept U.S. Interest rates at an historic low, just about near zero -- known as zero bound, de facto.
They also said the U.S. Economy is leveling out and they announced that they would stop the purchase of long-dated U.S. Government bonds, the program that was in place. And that would be stopped as planned in October.
We'll talk more about that with Peter Morici, the professor, who joins us, one of the members of our economic family. He joins us just in about five to 10 minutes from now.
Remember, they say good things really come to those who wait.
Where's the place to go if you need a pint of smooth, creamy (INAUDIBLE)?
Find out who's setting their own Guinness records (INAUDIBLE).
QUEST: And back on today's program, we're raising a glass to Guinness. It's celebrating 250 years of foaming, creamy, black stout. And while the brewing industry has started to go flat maybe in the U.K. and Ireland, fans in Nigeria are still enjoying a rather tasty Irish kibble.
Christian Purefoy joins us now to talk about this more.
And my understanding is that those who may be nibbling the Nigerian brew may be getting more than the rest of us bargained for.
CHRISTIAN PUREFOY, CNN CORRESPONDENT: Yes, well, Richard, it -- it is the 250th anniversary of Guinness Worldwide. And the factories here only opened in the 1960s. But as far as Nigerians are concerned, the Guinness brand is actually Nigerian. They don't really care about the rest of the world. Their foreign export was just slightly stronger and slightly thicker tasting.
They're -- they're very proud of it. And it's what you showed. During this economic recession, you know, the Guinness in Nigeria is doing extremely well, with an amount of growth, as you said, while elsewhere in the world, you know, it's really Guinness and breweries elsewhere are in real trouble.
And at this (INAUDIBLE), too, you can hear the generator in the background that we're having to run despite the costs of operating in Nigeria.
So people here are really proud of -- of Nigeria and what it's bringing to the country, as we found out, Richard.
PUREFOY (voice-over): Kashi Shodeinde is on the front line of private investment's struggle to gain a foothold in Nigeria -- running the gauntlet of Lagos roads to deliver his delicate cargo of bottled Guinness safely so he can afford to send his three children to school.
(on camera): So what -- what do you think of Guinness being in Nigeria?
Is it a good thing?
KASHI SHODEINDE, TRUCK DRIVER:
PUREFOY: Ah, this really is a good thing. The (INAUDIBLE) in Nigeria, Guinness number one.
PUREFOY: Nigeria now drinks more Guinness than Ireland, making it the second biggest consumer in the world after England. Brewed in Nigeria since 1962, Nigeria's thicker tasting foreign export has helped Guinness Nigeria defy the global recession with 6 percent annual growth.
(on camera): All the ingredients in these bottles are produced locally, giving Nigerian Guinness a particular flavor, that for one special ingredient, Guinness extracts given to any original Guinness brewed anywhere in the world. But it's a secret that we can't show you on TV.
(voice-over): But there's no secret to the reason behind the brewer's financial success here.
TUNDE SAVAGE, CHAIRMAN, GUINNESS NIGERIA: So many investors are here to find out how have we been able to do it and they have seen what we do. (INAUDIBLE) here is that you have to be very transparent in what you do.
PUREFOY: Regarded as a frontier market, Nigeria is ranked 118th out of 187 in the World Bank's "Doing Business 2009" rankings. Infrastructure, irregular power and erratic government policies often mean foreign investors shy away from Nigeria's untapped market of 150 million people.
DOYIN SALAMI, ECONOMIST, LAGOS BUSINESS SCHOOL: Without these kinds of solutions, then Nigeria remains a -- an information (INAUDIBLE) and therefore does itself no advantage in terms of trying to attract foreign investment (INAUDIBLE).
PUREFOY: Guinness controls 20 percent of Nigeria's beer market. But music to any investor's ears, Nigerians don't all enjoy the same thing.
UNIDENTIFIED MALE: It is true ash. What do you mean by something is true ash? That there is true ash.
UNIDENTIFIED MALE: We thought something about the (INAUDIBLE), I'll check it out. The taste and the quality, you know, is what I would talk about.
PUREFOY (on camera): And is it good?
UNIDENTIFIED MALE: It's real good for a (INAUDIBLE).
PUREFOY (voice-over): Nigeria may make you sweat for your money, but the profits can be something to celebrate.
Christian Purefoy, CNN, Benin.
(END VIDEO TAPE)
PUREFOY: Richard, so well, we met the chairman, Mr. Tunde Savage. He showed us a letter -- the original letter when this actually was opened here. Just briefly, it says: "May this eventually prove to be as beneficial" -- the factory -- "as beneficial to Nigeria as the original brewery founded in Dublin by my ancestor in the year 1759.
It certainly has proved to be so. The next time you're in Nigeria, we'll have to get a beer -- or a Guinness.
And one thing Christian didn't mention is that actually the Nigerian brew is considerably more powerful, I'm told, and more alcoholic than the other stuff -- so I'm told.
We're going to the head of the class after the break here on QUEST MEANS BUSINESS. Professor extraordinaire, Peter Morici, joins us live in Washington on what the U.S. Fed said a moment or two ago.
This is QUEST MEANS BUSINESS, very glad you're with us.
QUEST: Good evening. I'm Richard Quest. This is QUEST MEANS BUSINESS. This is CNN. The U.S. Fed has kept interest rates unchanged. They are at rock bottom levels. They said they are going to stop the purchase of long-dated bonds in October, as forecast, they also said the U.S. economy is leveling out.
We need analysis on that, Professor Peter Morici is the man to turn to. He joins us from -- is the international business at the University of Maryland.
And, Peter, so we -- look, the interest rate decision we knew it would have been a miracle and a surprise and I promise to eat my hat if they had actually moved on rates. But what do you make of the decision to stop bond purchases and we're leveling out?
PETER MORICI, UNIVERSITY OF MARYLAND: Well, it means the Fed really doesn't anticipate a fourth-quarter recovery, that it does see the economy leveling out, maybe even a little sooner than the fourth quarter. But it doesn't need to any longer pull down long-term interest rates through the end of the year.
That's good news from the point of view if they're right. If they're right it means they feel that mortgage rates can start to creep up a bit. And the housing market will remain strong, solidifying, recovering, and so forth.
So I take this as a very positive statement.
QUEST: But the problem is, at a time when you might have wanted a bit more insurance to solidify any recovery, nascent recovery that's there, to be signaling this at this point, is it wise, Peter?
MORICI: I would not have done it. You know, all of the econometric analysis of the post-war period says you've got to take away the punch bowl just before the party really gets going. This is no ordinary recession.
But you know, they believe all of that stuff over there. They believe that they can see the future by looking at the past. And so they have made this decision on the basis of behavior in previous recessions.
I would have -- I would not have made that statement. I would have left my options more open.
QUEST: All right. Now let's talk about the -- what it means when we talk about leveling out. On this program yesterday, Alan Blinder, the former vice chair of the Fed, said that he probably thought that actually growth may have already returned to the U.S. economy.
There is a view that actually, you know, technically, technically, growth has returned.
MORICI: You've hit the right word, technically. We've had such an incredible inventory run-down that we may be starting to get an inventory build in the third quarter. Unfortunately an inventory build does not mean that people are taking more goods and services off the shelf, less the car rebate program -- the car purchase program, which is a bit artificial.
The bottom line is consumers aren't spending, exports really aren't up enough to power a strong recovery. So it would only be a technical recovery, and not sustainable. We have to have a new source of demand. Consumers aren't going to go back to spending everything they earned and then some.
QUEST: You see, there are two areas that have been completely left out in all of this. The first is the continuing de-leveraging of -- never mind business, de-leveraging of consumers. Still weighed down by either mortgage debt, credit card debt, individual loans.
And the second is the toxic assets. No amount of cheap money is going to deal with that.
MORICI: Well, cheap money helps the banks make money so they can start to put aside some money for the toxic assets. But we've seen what happens at Goldman Sachs. They've made some money so they're putting aside money for bonuses.
There is a real problem out there, though, that the real -- the commercial real estate loans really didn't go sour until this late spring and summer. You know, that's when the -- we started to have basically retailers close and then they foreclosed on their leases and so forth.
And so that has created -- that is still in front of us.
QUEST: Right. Now, Peter, you know how this works, you've been here before. The traffic lights are up and electrified. So red, amber, or green, which do you think, bearing in mind leveling out, what the Fed says, should it be red, amber, or green in our studio traffic lights?
MORICI: Amber. We're really at a point of transition we're not certain that we are in a recovery yet. I don't agree with Mr. Blinder that GDP is now growing again. My feeling is we just don't know.
QUEST: Peter Morici, very good to see you. Come back again soon. You're always welcome on this program. Peter Morici joining us from Maryland.
To the New York Stock Exchange, Stephanie Elam is there. We've had the results, Stephanie, we need to know how the market is reacting. It was up about 120-odd points a few moments ago. Give us a bit more.
STEPHANIE ELAM, CNN CORRESPONDENT: Yes, that's true, Mr. Quest. In fact, I figured you might ask me those questions so I actually wrote down the numbers right before we got the report from the Fed. And the Dow at the time was up 132, the Nasdaq was up 32, and the S&P 500 was up 13.
At this point, the Dow is up 102. The Nasdaq is up 27. And the S&P is up 10. So we had a bit of a pullback, but as you remember, on other Fed days, after the report comes out, you see a bigger move usually than this.
So it seems that a lot of this may have been expected. This is in- line with what people were talking about. No one expected -- I think you said you were going to eat your hat if there was a change, is that correct?
QUEST: Yes, I said it if they were going to change -- if they actually moved on rates, I was going to eat my hat.
ELAM: Yes. Yes, I think you were pretty safe on that one, that you weren't going to have to digest that for dinner. And it's pretty much what everyone has expected.
But at the same time, if you take a look at what's going on with other indicators we've gotten throughout the economy of late, we've got median home prices going up 4 percent, the second quarter versus the first quarter, we've got existing home sales looking better, we've got new home sales looking better as well.
We've even got that issue of GDP contracting 1 percent in the last quarter, not growth, but definitely a much smaller contraction than what we've seen before. But still marking four quarters of that.
All of those factoring in and showing that perhaps things are looking better. The Dow, as a matter of fact, is up about 1,000 points since the last time the Fed met and decided to keep things steady.
So things are -- there is some optimism out there, but then if you look at the jobs situation, there is a lot of people who are still feeling the pain.
QUEST: And we've been talking a lot about that today. You'd have paid good money to see me eating my, wouldn't you?
ELAM: Oh, I would've actually had them give me a live feed here into the stock exchange booth just to see that.
QUEST: Next time, don't hold your breath, Stephanie Elam...
QUEST: . at the New York Stock Exchange. We thank you for that.
You're up to date. You now know how the markets are trading. It's a very busy day, as you can see, whether it be on economics or jobs or whatever. Fionnuala Sweeney is at the CNN news desk to bring us up to date on other stories.
SWEENEY: Richard, explosive allegations in Brazil. A TV host there is now under investigation, accused of organizing several killings to boost ratings for his crime show. Wallace Souza, a former police officer who is a state lawmaker, strongly denies the accusations. He says he has been set up by his political opponents and there is no evidence to support the claims.
Souza hasn't been charged, but the show itself ended last year.
Hillary Clinton says oil-rich Nigeria could become a target for al Qaeda. The U.S. secretary of state said the terror group has a presence in North Africa, and warned it would seek a foothold wherever it could. Clinton said it's up to Nigerians to prevent that.
Her comments came on the fifth stop of her seven-nation tour of Africa.
Amazing evidence of a cosmic collision, NASA says it has found evidence of two planets slamming into each other. This animation shows what has happened when they hit while orbiting a star 100 light years away.
The smaller one vaporized on impact, leaving a molten core and clouds of glass shards circling the star. Astronomers believe a similar ancient accident led to the formation of our moon.
And astronomers, as well as amateur stargazers are looking to the heavens for a spectacular light show in space. The streaks of light across the Bulgarian sky are part of the annual Perseid meteor shower. It's really just debris left behind by a comet colliding with the Earth's atmosphere. Every August, people get their telescopes out to catch what some call mistakenly shooting stars.
And those are the headlines, Richard. Back to you in the studio.
QUEST: And I'm going to be asking later in the program about whether or not what time -- what's the best time to see it. I got up in the middle of the night to have a look and couldn't see anything.
All right. Fionnuala Sweeney, many thanks indeed.
SWEENEY: Thank you.
QUEST: Come back tomorrow.
Young, gifted, but jobless. U.K. undergraduates are facing a tough and bleak future. We talked about it earlier in the program. More of them are failing to find unemployment. One recent graduate looks for a way in when we come back after the break.
QUEST: Welcome back. And U.K. graduates, as we reported earlier in this program, are facing a stressful summer, looking for their first jobs. The number of people out of work in the U.K. has risen to a 14-year high.
And most disturbingly, a lot of those out-of-work are in the 18-to-24- year-old category. Laura Fernandez (ph) has been a graduate -- and what we call a newly-minted graduate, for all of two months. She has a degree from the University of Kent. She has already sent out 190 resumes, CVs, and cover letters to prospective employers. And Laura joins me now.
Laura, first of all, what is your degree in?
LAURA FERNANDEZ, RECENT GRADUATE: My degree is in psychology.
FERNANDEZ: I graduated in June and I got a 2:1. It's from the University of Kent. And the reason why I actually picked psychology is because I thought it was quite an open degree.
QUEST: But of course, you decided what degree you were going to do how many years ago?
FERNANDEZ: Four years ago?
QUEST: Right. Now four years ago, let's -- well, we'll deal with what is happening now in a minute, but four years ago, did you think you'd have any difficulty finding a job at the end of your degree?
FERNANDEZ: No. I didn't It wasn't even in my realm of thought. I thought it was going to be really easy to find a job since I'd be a graduate. But it has been really, really hard.
QUEST: When did you start looking?
FERNANDEZ: I've been looking since about May. I've been actively seeking (INAUDIBLE) I have my degree, so I've had to coincide (ph) it, I've sent in the excess of about 190 CVs and cover letters around. And I haven't really had any leads.
QUEST: What are you getting back? Are you just getting a "thank you but no thank you"? Well, first of all, are you even getting replies?
FERNANDEZ: Well, a lot of them don't actually reply to you. But out of 190 that I've sent around here, I've had one interview, and I've got three interviews tomorrow. That's out of 190.
QUEST: All right. Now some viewers may simply say, well, maybe she's just not very good.
QUEST: But I also should say she did get 2:1, so -- which is a high class degree -- I got a 2:1 as well, only you weren't born when I got my 2:1. But you did get a 2:1.
Is this -- is what is happening to you being replicated with your friends and your colleagues and other people at university?
FERNANDEZ: Yes. Everyone pretty much was in the same boat. I've got friend named Koblique (ph), and his degree is in law, and he applied to 80 law companies, and only one of them got back to him. That's with a high 2:1 in his degree.
QUEST: What are you going to do? When does the money run out, first of all?
FERNANDEZ: Well, it's quite hard, actually, look for a job, because you're losing money by the time you're looking.
QUEST: When does your money run out? When does it become desperate? When do you start to think, I've got to maybe start washing dishes or flipping burgers or doing something like that?
FERNANDEZ: Probably around about now.
FERNANDEZ: Yes. It's really hard. Initially I had a contingency plan to go to temping agencies up until September, because graduate schools (ph) open in September. But it has been so hard even to get a temporary job.
QUEST: And just so we're -- have you taken on much debt during your student years?
FERNANDEZ: Yes. Thousands.
QUEST: How much debt have you got?
FERNANDEZ: Probably about in the excess of about 20,000 pounds.
QUEST: How much?
FERNANDEZ: In the excess of about 20,000 pounds.
QUEST: So over $30,000?
QUEST: Over $32,000. So you've got -- forgive me, I'm trying not to make it sound as grim as it is. But you've got lots of debt, no job, no job prospects.
FERNANDEZ: Pretty much.
QUEST: What are you going to do?
FERNANDEZ: Just carry on, really. Send around CVs and just carry on. All I can do.
QUEST: So it's hard to do.
QUEST: Laura, many thanks, indeed, for coming in. We appreciate it. Do me a favor, let me know the moment you get a job.
QUEST: I really want to know.
FERNANDEZ: I will do, hope it will be soon.
QUEST: Thank you very much. Thank you very much.
FERNANDEZ: Thank you.
QUEST: All right. You're up to date with all of the various issues of economics and news. Now Guillermo is at the world weather center now.
Guillermo, last night we were talking about these meteors, which I went out and had a look at and couldn't see a jolly thing anywhere.
QUEST: I'm told, though -- no, no, no, don't you laugh. I'm told that tonight.
GUILLERMO ARDUINO, CNN INTERNATIONAL METEOROLOGIST: Yes.
QUEST: . is even better. But what I don't know is whether it should be at the beginning of the evening of the end of the night.
ARDUINO: No. I think it's not -- I think tonight is not going to be good weather-wise, because you don't need clouds. But Thursday night it seems that things are going to be better. And then Friday we have some rain and then the weekend gets better.
So probably Thursday night remember, what you're going to be able to see is a good spectacle, somebody in California was saying, oh, it lasted for two seconds and I was told it was going to be long and nice and colorful.
Well, bad luck for you, but you know, the good thing is that we have many opportunities to see it. So get ready, go there. The peak is tonight. But weather-wise tomorrow night will be better.
And look at the weather, I think that this is the last 12 hours. It's going to thin out. You see the precipitation will thin out. We will have some sunny intervals during the day. Then the rain comes back, especially Midlands and Scotland.
But England here and into the south of England, is going to be much better. That's why I think it's your chance.
If you're wondering what's going on in Asia, especially after what we saw with Morakot, this typhoon in Taiwan, well, remnants of it moving into northern Japan right now. Nothing significant, just some clouds. But it has been raining like crazy in southern Japan.
In Hong Kong, in the meantime, is where we may see some delays at airports and in Taipei, windy and rainy conditions. And the rain is going to shift now. I think it's going to move into northern Taiwan, which is very good indeed, because the problems are in the south.
We look at Hong Kong here, coastal parts of China, with plenty of thunder, winds, rain, actually taking place in Guangdong and into Hong Kong. Delays everywhere, Kuala Lumpur, maybe with some rain showers. That's about it.
In Europe, apart from Britain that I talked about, the rain continues in Germany, but the action is taking place in the east. The south continues to be OK. Temperature-wise, 32 in Madrid, the heat continues in the south. You see all of the warm weather.
Cooler in general. That's the trend for the north. So watch now Germany, Scandinavia, the Baltics, Poland, the Low Countries, we will see some rain in London, and then easing a little bit.
Remember, tonight, I don't think it's going to be that great, but tomorrow night will be better. And then Copenhagen with some winds and rain showers, Zurich the same thing.
And we do have more of QUEST MEANS BUSINESS after the break. After a few moments, it's coming back.
QUEST: Today on QUEST MEANS BUSINESS, we've heard from policymakers about the state of the U.S. Economy.
So how do ordinary U.S. Citizens feel about their economy, particularly President Obama's plans for a major health care overhaul?
Health care has bedeviled the U.S. Policy for decades.
Ali Velshi is away from Washington. He's on the road in this make or break month for U.S. Health care reform.
Ali joins me now from the CNN Express in Missouri -- Ali, where about exactly are you?
ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: We've just crossed over the Mississippi River. We're going west. So are in the state of Missouri. We've started in Atlanta. We've been driving -- we went through Kentucky, through Tennessee, through Illinois, now Missouri. We're headed for Iowa.
And what we're doing is we're getting away from the town hall meetings that you've talked about that so many people in the world have seen, giving people the impression that (AUDIO GAP) Americans are at each other's throats over health care.
The reality is the conversations we've run into about this health care proposal, which has inflamed spirits across America, is, in fact, a lot more civil.
Last night, we pulled into Paducah, Kentucky, just on the border of Illinois and -- and Kentucky. And we had an impromptu town hall meeting of our own. We just gathered people around. They didn't know we were showing up.
Here's some of what we heard last night.
(BEGIN VIDEO CLIP)
VELSHI: We're here in Paducah, Kentucky. We are hearing different things from people wherever we're going, but I haven't found too many people around here who are opposed to reforming health care.
UNIDENTIFIED MALE: I -- I'm for the idea, but I don't think that Congress and the president has done a good job of disseminating information. I'm just hearing a lot of (INAUDIBLE) and not a lot of meat and potatoes.
VELSHI: What about you?
UNIDENTIFIED FEMALE: I think right now we have a lack of choice. I mean health care is expensive. I mean the average costs of the coverage I found, more often than not, are more expensive than the actual care. I would think any choice -- any viable choice would be better than what we've got now.
VELSHI: What do you think?
UNIDENTIFIED MALE: My understanding, there is about 48 million people that's not covered. Those people need to be covered.
UNIDENTIFIED FEMALE: Well, my husband and I are two of that 47 million plus that aren't -- don't have health care. And I'm not talking insurance. I mean, of course we don't have insurance. But I want health care. My husband has diabetes and he just had a bout with cancer.
What insurance company is going to cover us?
There -- there aren't any. If I get sick today, where do you think I'm going?
I'm going to the emergency room.
And what is that costing?
That's costing us, the taxpayers.
So is this going to cost my bottom line if they have to tax me more in order to get health care?
Tax me. Tax me, tax me, tax me. I am willing to pay.
VELSHI: Let's talk about the 46, 47, 50, whatever million you want to use number of people who are not insured in this country.
What's your thought on that?
UNIDENTIFIED MALE: I would really love to drive a Hummer. They're cool cars. I can't afford one, so I don't drive one. I drive what I can afford.
UNIDENTIFIED FEMALE: Oh my god.
UNIDENTIFIED MALE: We...
UNIDENTIFIED FEMALE: I -- I can't believe you're saying that people don't deserve health care if they can't afford it.
UNIDENTIFIED MALE: Where did I say that, Heather (ph)?
UNIDENTIFIED FEMALE: That's what I hear you saying.
UNIDENTIFIED MALE: Then you're not listening, Heather.
UNIDENTIFIED FEMALE: Yes. I am...
VELSHI: Although you did say that you would like to buy a Hummer and you can't buy a Hummer because you can't afford it. So you're saying if you can't afford health -- if you can't afford the Hummer, you don't drive it.
If you can't afford health care, you shouldn't get it?
UNIDENTIFIED MALE: No. No, no, no. I'm saying you have the basic stuff. You get a catastrophic illness, you're in a car crash, an accident, something like that happens, of course you get coverage for that.
(END VIDEO TAPE)
VELSHI: And, Richard, as you can see, there is disagreement, no question about that, but a great deal of civility. That's what we're encountering across America on our tour. We're here until the end of the week. We're going to that most American of institutions -- and you're going to be jealous. I'm going to the state fair -- Richard.
QUEST: Ah, yes. And you will manage to eat some unhealthy food there, well, you never -- that will be a first.
Ali Velshi, who's live on the road.
And we thank you for that and for joining us.
Hopefully, we'll speak to you tomorrow.
Ali Velshi joining us, actually, live. You can tell the bus tour is moving. I forgot to tell you that when we joined him at the moment -- joined using the technology we have.
Finally tonight, Profitable Moment. And tonight, U.K. unemployment numbers. It made depressing reading, not just because the number is still rising, but because so many of those out of work are graduates and youngsters. They can't find jobs.
Now, this isn't likely to change any time soon. It's going to be a long, slow slog back. The Federal Reserve recognized this. It left interest rates low. It's indicated that will be the way for some time.
The Bank of England said the same thing in its inflation report. Inflation is not a problem. Growth and unemployment are the concerns.
Last night on this program, we heard that growth had probably returned -- or at least was very close to doing so. Growth does not mean that everyone is feeling the benefit. The jobs will continue to go for months to come. It's Economics 101 -- also, a lesson from the hard knocks of real life.
And that's QUEST MEANS BUSINESS for tonight.
I'm Richard Quest in London at the International Desk, back just in a moment.
Whatever you're up to in the hours ahead, I hope it's profitable.
I'll see you tomorrow.