Transcript: Monday, January 20, 2014

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, brought to you in part by —

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TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Good evening, everyone. And welcome to a special MLK Day holiday edition of NIGHTLY BUSINESS REPORT. I`m Tyler Mathisen.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: And I`m Susie Gharib.

The first three weeks of 2014 are in the books, and tonight, we want to look at our economy in transition and how those changes may play out for the rest of this year.

MATHISEN: That is right, Susie. There is a new leader at the Federal Reserve, the first female to run the nation`s bank. There is a great unknown, health care. And, of course, a job market that looks very much different today than it did just a year ago.

GHARIB: And that`s where we begin tonight.

One of the biggest things in the American economy undergoing significant change is the labor market. The unemployment rate is coming down, but the amount of people looking for work is at a record low. Those out of work for an extended period of time now find they have no safety net.

Here`s Hampton Pearson on the new face of the job market.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Veronica Puryear is caught in the crossfire of the new economy. She is among the more than 3 million Americans out of work for more than a year, including 1.4 million who lost their unemployment benefits at the end of 2013.

That $1,200 a month has been an economic lifeline.

VERONICA PURYEAR, FORMER RESEARCH ANALYST: Not having that money is devastating. I don`t know where I`m going to get money to pay my rent, to buy food, to pay car insurance. It`s — it almost leaves me speechless just trying to articulate what it means not to have that money to fall back on.

PEARSON: What`s next for the 40-year-old Maryland resident? It`s complicated. Armed with a PhD in law enforcement, it was not that long ago the expert research assistant was earning more than $75,000 a year, owned a condo, had even been saving for retirement. But her contract jobs with nonprofits dried up when the sluggish economy meant less grant money available.

PURYEAR: I have to have a job. You cannot survive in this world without it. So I have to keep pushing myself.

PEARSON: Now, she`s working with a state run job placement program trying to reinvent herself. Counselors here say getting the thousand of job seekers to realize the overall job market is constantly changing has been their biggest challenge in recent years.

YOLANDA TULLY, MONTGOMERY WORKS DIR. OF OPERATIONS: It`s just the magnitude of this particular economy and this particular job market. We tell people that you may have four or five different careers before you retire.

PEARSON: December 2013 was the weakest month of hiring in three years. Just 74,000 jobs added to the economy versus 214,000 on average for the previous four months. The unemployment rate dropped to 6.7 percent because twice as many people, including recent college graduates, simply gave up looking for work, enough to push the labor force participation rate down to 62.8 percent, the lowest in 36 years.

JARED BERNSTEIN, CENTER ON BUDGET AND POLICY PRIORITIES: If you look over the past year, the share of the population in the labor force fell by almost a percentage point, which is actually huge at this stage in recovery.

PEARSON: The retirement of millions of baby boomers is also shrinking the labor force. The average retirement age is now just under 60, with about 25 percent of the oldest boomers retiring early because of the sluggish job market. That`s according to a recent MetLife (NYSE:MET) survey.

BERNSTEIN: Some of the folks who are leaving the labor force due to the retirement probably would have stayed in longer had the labor force been stronger.

PEARSON: Latest data from the Bureau of Labor Statistics shows more than 8.7 million jobs lost between January 2008 and February 2010.

Since then, the government says there`s been an increase of more than 7.5 million jobs.

(on camera): The bottom line, the economy is closing the jobs gap, but more than five years after the recession we`re still playing catch up.

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson in Washington.

(END VIDEOTAPE)

MATHISEN: Let`s be clear — there are jobs out there, but sometimes they may not be the kinds of jobs that many people want. Take manufacturing. The name alone conjures up images maybe of molten steel and assembly lines. And in some cases, these jobs do pay more.

But manufacturing has an image problem, one that`s hurting hiring at companies desperately seeking new workers to meet growing demand, and to replace an aging workforce.

Mary Thompson has more.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): They`re not pretty, but they pay. That`s a widely held view of manufacturing jobs, a view industry members want to change.

JENNIFER MCNELLY, THE MANUFACTURING INSTITUTE: It`s innovation and technology. It`s robotics. It`s 3D printing. I think there is a general understanding of what manufacturing is. So, we need to open up our doors and invite people in.

THOMPSON: Those who accept the invitation will find there are 600,000 jobs waiting to be filled, according to The Manufacturing Institute. The jobs becoming available as older workers retire, domestic industries like energy expand, and more and more manufacturers bring back to the U.S. because of rising labor cost in Asia.

(on camera): One challenge, getting a younger generation to buy into a career at work they typically associate with their grandparent`s situation.

And a challenge it is, a 2012 survey finding that while 87 percent believe manufacturing is important to U.S. prosperity, manufacturing jobs rank last among 18 to 24-year-olds as the ones they wanted.

To change the perception, Debra Kerrigan, dean of Dunwoody College of Technology in Minneapolis, says companies have to sell perspective employees on a different manufacturing world where factories are not sweat shops, and an employee`s input and effort is valued. She also said schools have a role to play.

DEBRA KERRIGAN, DUNWOODY COLLEGE OF TECHNOLOGY: The high schools have to bring those trades back into the school to give a great foundation to open up opportunities for students who don`t want to be four-year degree students.

THOMPSON: As for the employers, the Manufacturing Institute`s Jennifer McNeely says they need to show potential hires there`s room for advancement.

MCNELLY: Part of what`s involved in manufacturing is the opportunity to grow. Individuals in manufacturing today operate in teams. And, in fact, oftentimes, the biggest decisions happen on the front lines.

THOMPSON: All part of a manufacturing makeover needed to attract a younger workforce. For NIGHTLY BUSINESS REPORT, I`m Mary Thompson, in St. Paul, Minnesota.

(END VIDEOTAPE)

GHARIB: Joining us now to talk about these issues, Robert Johnson. He`s the former CEO of Black Entertainment Television and now chairman of RLJ Companies, an investment firm that he founded.

Also with us, Mark Zandi, chief economist of Moody`s (NYSE:MCO) Analytics.

Gentlemen, welcome to you both.

Let me begin with you, mark. You heard our report. Still a lot of Americans out of work, you know, where are they going to find jobs? And will we ever, you know, find those jobs — those lost jobs from a couple of years ago ever come back?

MARK ZANDI, MOODY`S ANALYTICS: Yes, there will be more jobs. I think housing will be a key source of jobs over the next two to three years. Home construction will pick up quite significantly. That`s construction jobs, manufacturing, trucking jobs, financial services, landscaping, cable hook up, retail, a lot of jobs and that should help alleviate some of the unemployment problems in different parts of the country.

Longer run, I would expect more job growth in high-end services — accounting, legal, media, advertising, computer data processing, management, consulting, those are very highly skilled jobs that require lots of education and they`re for the high-end.

MATHISEN: Mr. Johnson, your businesses touch a lot of corners of the American economy, from media, to automobiles, to finance. Are you hiring this year? And if so, are you able to find the kinds of employees to fill those jobs?

ROBERT JOHNSON, THE RLJ COMPANIES FOUNDER & CHAIRMAN: Well, Tyler, the way we look at hiring across all the companies that we have investments or ownership in whether it is automobiles, hotels, financial services, private equity companies that we acquire, it`s based on where we`re going to find the productivity. If we can find the productivity in more people doing the right kinds of jobs, we will hire.

But we can find productivity and more innovation and more technology, we look at it that way. And I think that`s where most of the businesses where I either served on the board or involved in, look at the particular labor market today.

We want to see more people working, but we have to have more people working in a productive manner, generating the kind of products and services that the consumer is ready to buy and also allowing us to complete with lower cost labor and more efficient services abroad.

GHARIB: We hear from people who are out of work how much they do want to work. And yet, there is one group that seems most vulnerable, according to a lot of the surveys that I`ve seen. These are the people around 50 years old or so maybe making under $50,000 a year. They`re very vulnerable. They`re very anxious about their future and their inability to find work.

I mean, what`s the prognosis for these people and if they don`t find work, what does it mean for the economy?

ZANDI: Yes, I worry a lot about this group. If you`re in your 50s or early 60s, you`ve been out of work for some time, your skill sets eroding, your marketability is eroding, to get back into the work force is going to take a big effort, a big change. You`re going to have to move, you`re going to have to go back and get new skills, reeducate.

It`s going to be very, very difficult to get this group reengaged in a labor force and back working again.

If we`re unsuccessful in getting these folks back into the workforce, working again, the economy is going to be much diminished. These folks have lots of experience, lots of talents. They want to work and the economy is going to be smaller because we can`t engage them.

And moreover, it`s going to be tough on us fiscally, because if these folks can`t work, they`re going to demand and need government services. They`re going to call upon Social Security earlier than they otherwise would and Medicare and Medicaid. So, it`s going to put pressure on government and our deficits and budget.

So, we have to work really hard to get that group back in, but I`ll have to say, Susie, that`s the group I worry about the most going forward.

MATHISEN: Mr. Johnson, let me turn the conversation to a topic that has become sort of front burner in recent weeks and that is one of income wealth inequality. You`re a self-made guy, but I know you think about the gap between rich and poor in the United States, which seems only to be expanding.

JOHNSON: Right.

MATHISEN: How would you go about addressing that? How worried are you about it? What would you do to fix it?

JOHNSON: Well, let me first echo what Mark said. I think when you look at the demographics of the United States and therefore the United States labor force and also the consumer group, more and more of those individuals are going to be minorities, African-Americans and Hispanics. And if we don`t provide a way to effectively introduce this group to the labor market in a way that they can accumulate decent-paying jobs and therefore wealth and home ownership and other assets, we will have some very serious, not only fiscal problems in this country, but also I think social problems.

So, to your question, my belief is that in order to change the dynamics, you`ve got to do something with the tax code to encourage businesses to invest in urban areas, to encourage businesses to put money into the hands of minority entrepreneurs because minority entrepreneurs tend to hire minority workers just because they live in the neighborhood for the most part and that`s where their particular culture is.

And so, to me, you`ve got to play around for tax code. We`ve got trillions of dollars sitting offshore. How about bringing some of that money back into the United States under a program where if a company invests in an urban area or invest with —

GHARIB: Right.

JOHNSON: — minority businesses, they get a tax deduction. The country gets the benefit. More and more people are put to work. I`ve proposed something that I borrowed from the NFL called the ROJ (ph) Rule, like the NFL`s Rooney Rule, which says if an owner in the NFL must interview an African-American coach the chance, before hiring one.

I think if we adopted that for all of corporate America, that would say that before you can fill a vacancy or fill a position, you must interview a minority candidate for a job, I think we begin to put the focus on where jobs are needed and that`s reducing the number of African-Americans and other minorities who are grossly underemployed in this country.

GHARIB: Well, it`s an ongoing debate, for sure, Mr. Johnson. Thank you so much for your thoughts. And you as well, Mark. We appreciate both of you joining us today.

Robert Johnson of the RLJ Companies and Mark Zandi of Moody`s (NYSE:MCO) Analytics.

MATHISEN: Well, jobs surely will be a big challenge for the new head of the Federal Reserve, Janet Yellin. What to expect from the new chairwoman when we come back.

But, first, how you feel about the changing jobs landscape.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I worked in a profession that has close to 40 percent unemployment a few years ago, and now, things seem to be picking up at least in that market sector.

UNIDENTIFIED MALE: I have a job right now, and I think I`m in a good position in my career. I think I`d be worried for people, you know, graduating from college or looking for jobs to find a good job.

UNIDENTIFIED MALE: The field with which I got my degree has minimized environmental studies. It`s very difficult. I`m going for my yoga teacher training. So, I like flexibility is important with people if they want to find a job, or find something that suits them.

(END VIDEO CLIP)

GHARIB: On February 1st, Janet Yellen takes the helm as chairwoman of the Federal Reserve, becoming arguably the most powerful woman in the free world. Her decisions will move markets around the globe and impact the pocketbooks of ordinary Americans. At 67, she`s the first woman to lead the Central Bank in its 100-year history.

Now, change at the top of the Fed is rare, with only two chairmen in the past 25 years and Yellen takes over at a critical time.

(BEGIN VIDEOTAPE)

JANET YELLEN, INCOMING FEDERAL RESERVE CHAIRWOMAN: Thank you, Mr. President.

GHARIB (voice-over): From the moment she was nominated —

UNIDENTIFIED FEMALE: The nomination is confirmed.

GHARIB: — Yellin took on the responsibility of guiding the U.S. economy at one of its most challenging times in history.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: She doesn`t have crystal ball, but what she does have is a keen understanding about how markets and the economy work.

GHARIB: Born and bred in Brooklyn, Yellen learned early on about the workings of the economy from her parents, who told her about their struggles during the depression. Her interest in economics took her to Yale University, where she studied with the best. Her two mentors were noble prize winners. Even her husband is a Nobel laureate.

DENNIS LOCKHART, FEDERAL RESERVE BANK OF ATLANTA PRESIDENT: She`s extraordinarily well-rounded for this position.

GHARIB: Yellen served on President Clinton`s Council of Economic Advisers and for six years was president of the Federal Reserve Bank of San Francisco.

Since 2010, she`s been the second most powerful voice of the Fed after Ben Bernanke, as vice chair of the Central Bank`s board of governors.

ALAN GREENSPAN, FORMER FEDERAL RESERVE CHAIRMAN: I often found that I would go to Janet. When I didn`t know it, she did.

GHARIB: Now as chairman, Yellen faces the daunting task of unwinding the Fed`s massive economic stimulus, the controversial bond-buying program initiated by Bernanke.

YELLEN: I would agree that this program cannot continue forever.

GHARIB: But now comes the hard part, Yellen must oversee what Wall Street calls the taper. Taper too much of those bond purposes and too fast, the economy could choke. Taper too slowly, it could fuel inflation, one of Wall Street`s biggest worries.

Another challenge, Yellen`s policy moves also need to promote job growth. Hiring has picked up and the unemployment rate is coming down, but not fast enough to encourage a dramatic change in business and consumer spending.

YELLEN: My colleagues and I are acutely aware of how much workers have lost in the past five years.

GHARIB: But perhaps Yellen`s toughest task will be to clearly explain this new chapter of Fed policies to investors, lawmakers and to the American public. How well she communicates her vision could dictate the future and success of the world`s largest economy.

YELLEN: Our country has come a long way since the dark days of the financial crisis, but we have farther to go.

(END VIDEOTAPE)

GHARIB: And joining us now is Bob Brusca. He`s a chief economist of Fact and Opinion Economics.

Mr. Brusca, welcome.

How different do you think Janet Yellen`s Fed will be from Ben Bernanke`s?

BOB BRUSCA, FACT AND OPINION ECONOMICS: Well, I don`t think that her way of operating is going to seem very different to many people. Part of it is that Bernanke had this opportunity to help the economy grow. And his lessons from the Great Depression told him that he should be easy. And I think Janet is — she`s not an easy money person, but she`s going try to help the economy a little bit more. That`s her ideology.

GHARIB: She certainly has to help the economy, Bob. I mean, you know, you look back in Federal Reserve history and you look at various moments of crisis and what the Fed chief is focused on. Volcker focused on inflation. Bernanke was stabilizing the economy.

When we`re going to get a look on the tenure of Janet Yellen, what`s it going to be?

BRUSCA: Well, I think she`s going to manage the transition. We`re no longer in a period where we think the economy is slipping back in recession and we`re going to have deflation. Those risks are still there, but we`re also starting to grow. And we`re worried a little bit more about whether the size of the Fed`s balance sheet or other things will bring inflation around.

I don`t think those risks are around the table of this year. But those will be coming in the second and maybe third years of her administration, and those are things she`s going to have to deal with.

MATHISEN: How difficult a trick is it going to be for her to dial back on the stimulus that`s been in the system for several years now?

BRUSCA: Well, that`s going to depend on the economy. You know, if the economy performs well, she won`t find dialing back very difficult. But if the economy isn`t performing, then I think she`s going to find that dial as stubborn and hard to move.

GHARIB: You know, Bob, Wall Street has very strong opinions of the various Fed chiefs. How do you think Wall Street is going to respond to Janet Yellen?

BRUSCA: I think they`re going to respond well. She`s been in the Fed, at the Fed. He`s been in the public eye for so long. She`s not an unknown quantity. And I think that she`s a very good economist. She`s been a good dealer and I think that she`s going to have Wall Street warm up to her pretty quickly.

MATHISEN: And you get Janet Yellen and a Noble (NYSE:NE) Prize winner, too, right under the same roof, her husband. So, it`s an interesting thing.

How influential has he been with her?

BRUSCA: Well, I don`t know any personal details. But, clearly, they`ve worked together. They`ve written papers together. She`s a fine economist in her own right. She`s certainly lucky to have a husband with such an expertise. But I think that Janet holds her own water.

MATHISEN: I`m sure she does. Bob Brusca, thank you very much.

Bob is chief economist of Fact and Opinion Economics.

GHARIB: Coming up next, the changing face of health care is here. How will it continue to evolve? That`s next.

But first, how do you feel about the changes in the health care system?

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I actually really like the health care law. I think that it`s a step for America to join the 30 or so nations that all have universal health care.

UNIDENTIFIED MALE: From a medicine perspective, it`s not. I can`t imagine what it`s like when you have to go to a hospital and have to have something done. So, you know, I don`t know what can fix it.

But I do think that not enough money is, you know, kind of going towards social programs, to help people and lower —

(VIDEO GAP)

UNIDENTIFIED FEMALE: — prior to Obamacare and now, I can. So, I think it`s just tremendous.

(END VIDEO CLIP)

GHARIB: The U.S. health care system is heading into one of its most monumental years since the 1960s. This year, Americans will get their first look at how the Affordable Care Act changes the way they get treated by physicians, hospitals, insurance companies and others in our huge health care system.

Now, one of the leaders in this changing market place is the Cleveland Clinic. President Obama has called it a role model of health care delivery.

Joining us now, we`re happy to have Dr. Toby Cosgrove. He`s the CEO of —

(VIDEO GAP)

MATHISEN: — used to be.

DR. TOBY COSGROVE, CLEVELAND CLINIC CEO: Well, I think one of the things we`ve seen recently the rate of inflation of health care go down over the last several years. And now, the high deductibles are now 33 percent of insurance policies. That`s one of the things that count for the decreasing of inflation in health care.

So, I think that remains to be seen. There certainly is going to be more of an emphasis on individual taking responsibility for the financial aspects of their health care.

GHARIB: So, we are at sort of inflection point about health care with the Affordable Care Act. Obviously, the Cleveland Clinic has a successful business model.

What kinds of steps are you taking to prepare for all the changes? I mean, are you hiring more or you`re letting people go? Are you cutting — you talk about costs, are you cutting cost? Are you thinking about acquisitions?

COSGROVE: Actually, we know that we have to have a more efficient delivery system. And we`re taken cost out and we`ve taken in the past two years, $180 million out of our purchasing. And we need to take another $330 million this year out of our cost of delivering care for our organization in the outgoing years.

We`re also looking at efficiency of health care by bringing hospitals together so we can share resources and have collaboration so everybody doesn`t have to have their own data center and everybody doesn`t have to have a huge back off to support them. I think that will all help us drive the efficiency of the health care system.

MATHISEN: If you were the health care czar, Toby, and you would make one change that you think would be the best change in the way we receive and you deliver the health care to us, what would it be? Would it be a single payer system? Would it be paying doctors just a salary and getting away from fee for service? What is it?

COSGROVE: Well, I think there`s lots of things we have to emphasize. If you look at what causes premature death in the United States, 40 percent of it is related to behaviors — smoking, lack of exercise, and obesity. And if we`re going to reduce the cost of health care across the United States and have a healthier population that`s living longer, we have to address those things. And I think we can do that by raising the understanding of those problems across the entire country. I hope we`ll see that come in the future years.

GHARIB: All right. That`s an interesting answer. Thank you so much, Toby. Nice for you to come and share this conversation with us.

COSGROVE: A pleasure.

GHARIB: Dr. Toby Cosgrove, CEO of the Cleveland Clinic.

MATHISEN: And finally tonight, as you know, today is the Martin Luther King holiday. The federal holiday that honors the slain civil rights leader. Last week, Dr. King would have been 85.

King campaigned to end segregation and fought for racial and economic equality across the United States. His “I Have a Dream” speech which called for an end to racism in the United States is widely regarded as one of the most stirring pieces of oratory in American history. It most surely provided a defining moment in the American civil rights movement.

King was assassinated in Memphis, Tennessee, on April 4th, 1968, at the age of 39.

This holiday was created back in 1983 when then-President Ronald Reagan signed into it law. Only other two other people have national holidays in the United States honoring them, George Washington and Christopher Columbus.

And that`s going to do it for this special edition of NIGHTLY BUSINESS REPORT. I`m Tyler Mathisen. Thanks for watching.

GHARIB: And, I`m Susie Gharib, have a great evening, everyone. And Tyler and I will be back here. See you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2014 CNBC, Inc.

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