Transcripts

Optimism Vs. Reality-One Recession Two Outlooks

SUSIE GHARIB: More upbeat comments today from Ben Bernanke. The Federal Reserve chairman told a gathering of bankers in Phoenix that the economy and quote all segments of the financial system are doing better thanks to bold actions by the central bank. But much of corporate America is delivering a different message and it's not good. Xerox is the latest big company to warn of tumbling profits because of the recession. The tech giant cut its forecast for first quarter profits by as much as 85 percent. So why the disconnect between big business and big Ben? Scott Gurvey reports.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: We listen to Fed chief Ben Bernanke and we hear cautious optimism. We listen to America's corporations and we hear doom and gloom. Which should we believe? It depends on your point of view. It is in the government's best interest to accentuate the positive, in part because consumer spending is a big part of the economy and sentiment is a big influence on spending. Many economists do see a flicker of light at the end of the tunnel. S&P's David Wyss says all the government stimulus can't help but have a positive effect.

DAVID WYSS, CHIEF ECONOMIST, STANDARD & POOR'S: We think that a combination of calmer financial markets and the stimulus package should bring us out of this recession some time later this year.

GURVEY: But company after company is serving up dire warnings along with their latest quarterly earnings statement. It is in their best interest to tamp down expectations so they don't disappoint. Thomson Reuters says the ratio of negative to positive forecasts for the first quarter is four to one -- twice the normal amount of negativity. But research director Ashwani Kaul sees something positive.

ASHWANI KAUL, DIR. OF RESEARCH, THOMSON REUTERS: Companies are actually able to offer guidance now, whereas three, four, five months ago, they couldn't even look into a crystal ball and tell you what's going on. So I think that kind of message, like, hey we have visibility, it's not going to be as good as we think it's going to be but we at least have some visibility and we can tell you OK, we're going to miss our earnings by X, Y and Z. At least they're able to afford the opportunity to do that, which I think is a positive sign for the markets.

GURVEY: The message for investors is that corporate guidance is one of the last indicators to turn around when a recession ends.

WYSS: That's because corporations are looking at what has happened. In many cases they're cash constrained because their profits are down during the recession because they can't borrow or it's very expensive to borrow. So they're always among the last ones to turn around in a recovery.

GURVEY: If the recovery comes at the end of the year, it would be after seven or eight quarters of declining corporate profits. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.