RENEE MONTAGNE, host:
This is Morning Edition from NPR News. Good morning, I'm Renee Montagne.
STEVE INSKEEP, host:
And I'm Steve Inskeep. Some of the factors that caused a stock market panic may be starting to ease. Now there's just the problem of all the constant flows of real bad economic news. The latest news came from major corporations which reported disappointing earnings. That news sent U.S. stock markets to five-year lows. And then overnight, all the major Asian stock markets fell. South Korea's market lost eight percent of its value in a day. Over the course of this year, the Hong Kong index has lost half its value. NPR's Jim Zarroli explains what's happening.
JIM ZARROLI: The credit markets are thawing out, and oil prices have come down a lot. Those are the kinds of things that are good for economic growth, and they ought to make stock investors pretty happy. And yet the mood on Wall Street remains glum. Michael Holland, who chairs an investment firm, says the markets are starting to realize how much damage has been done to the economy by the long credit crunch.
Mr. MICHAEL HOLLAND (Chairman, Holland & Co.): Investors are left with the reality that we have a growing global slowdown, i.e. recession in parts of the world that is looming for companies and their earnings.
ZARROLI: And that's being driven home by the disappointing earnings reports being released this week. Some companies, like McDonald's, did well. But companies as diverse as Boeing, Merck, and DuPont have all said their profits fell short of expectations. Mike Tarsala is managing analyst for a Reuters squawk box. He points to what's happened at Yahoo which announced this week it's laying off 1,500 people.
Mr. MIKE TARSALA (Analyst, Thomson Reuters): People would have been shocked a year ago to have one of the stalwarts of Silicon Valley come out and say they were cutting jobs. I mean, that's not a place where you cut jobs. I mean, that's a place where you use all the stock options at your disposal to lavish employees to keep them.
ZARROLI: The bad news from corporations is taking a toll on consumers, and they're cutting back on spending, says Mike Holland.
Mr. HOLLAND: When we've had the financial crisis that we've had and the headlines have been so scarifying, you simply have people looking at their bank statements, their 401(k)s, the price of their houses. They become less inclined to make whatever that expenditure is.
ZARROLI: As consumers grow more worried about their finances, they are also changing the way they shop. Wal-Mart said yesterday that the chain's customers are much more concerned about their financial security than they were. Again Mike Tarsala.
Mr. TARSALA: And one of the more disturbing things they said about the economy is that they're seeing a spike in sales of baby formula tied to paychecks, and what that's telling you is you're seeing an increasing number of households that are living paycheck to paycheck.
ZARROLI: All that has stoked fears that the United States and the world as a whole is in for a recession that will be longer and deeper than people once expected. That sent stock prices down sharply this week. Mike Tarsala says during earnings season, companies typically provide their shareholders with guidance about how they expect the company to do in the future. But Tarsala says the situation is so murky right now that a lot of them are refusing to do so.
Mr. TARSALA: The CEOs are very cautious about what they're saying. They don't know what's coming. They're very focused on cutting costs wherever they possibly can and shoring up their balance sheets. They're preparing for a storm.
ZARROLI: One result of the slowdown is that companies are increasingly holding onto large amounts of cash. They are so afraid to spend it that they are letting money pile up on their balance sheets. That means once the economy really begins to recover, they'll have capital they can use to hire people or invest in new projects. It also could touch off a new round of corporate mergers. But that won't occur until investors start to feel more confident about the economy, and there is no sign that will happen anytime soon. Jim Zarroli, NPR News, New York.
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