TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Not too hot, not too cold. July`s employment report may have been just right. But does it leave the Federal Reserve leeway to keep interest rates low?
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Stocks struggle. The major indexes failed to recover from yesterday`s steep losses. And the S&P
500 suffers its worst weekly drop in more than two years.
MATHISEN: And less is more. Why Procter and Gamble believes the way to bulk up sales is to slim down?
All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, the 1st of August. I can`t believe it`s August.
Good evening, everybody.
HERERA: I can`t either.
MATHISEN: I`m Tyler Mathisen.
HERERA: And I`m Sue Herera, in this evening for Susie Gharib.
Well, the recovery continues to march on, albeit slowly.
Today, we learned the economy created 209,000 jobs in July, its sixth straight month of 200,000 jobs or more and that`s something that hasn`t happened since 1997. Despite continued improvement, the number was still below expectations and the unemployment rate ticked up to 6.2 percent. And that disappointment actually alleviated one of the biggest worries on Wall Street these days, that the Federal Reserve may be forced to move faster on rates than previously thought.
Eamon Javers takes a look inside the report and what it means for both
the economy and job hunters.
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Today marked the sixth month of 200,000-plus jobs growth in the United States and we haven`t seen a month of job declines since 2010. That`s creating opportunity across the economy. The government said today employment and leisure and hospitality headed 375,000 jobs so far this year, primarily in food services and drinking places.
And here in Maryland, the state is cashing in on casino jobs. The number of workers is expected to triple to just over 9,000 jobs in the next two years. MGM Resort is building a billion-dollar casino at National Harbor, southeast of Washington, D.C. The doors won`t open for two years,
but they are already recruiting to field nearly 4,000 jobs.
CHELSEA KENDALL, JOB SEEKER: I think it`s honestly an opportunity of a lifetime to open a brand-new facility that`s going to be beautiful right down at the National Harbor. And mostly, I`m here to find out exactly what
they are looking for and what kind of opportunities they have.
JAVERS: At the White House, President Obama called it unequivocally
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: So, the good news is the economy is clearly getting stronger. Things are getting better. Our engines are revving a little bit louder, and the decisions we make right
now can sustain and keep that growth and momentum going.
JAVERS: The steady jobs bounce back has investors betting on when the Fed might scale back its so-called Quantitative Easing program, which has driven the stock market the new highs.
(on camera): So far, though, analysts are calling this the Goldilocks jobs report, not too hot and not too cold. That could be enough to keep the Fed on track and it could be good news for investors.
For NIGHTLY BUSINESS REPORT, I`m Eamon Javers in Washington.
MATHISEN: That jobs report and a number of economic reports to boot fail to lift the stock market today, leaving the S&P with its biggest weekly drop in two years. Instead, global concerns surrounding Argentina`s debt crisis overshadowed any positive data that came out today.
At the close, the Dow Industrial average finished lower by 70 points to 16,493. The NASDAQ was off 17 and S&P 500 lost a mere five points. As for the week, the blue chip Dow index fell almost 3 percent, worst weekly dive since January. The NASDAQ had its biggest weekly loss since April, and the S&P lost more than 2.5 percent.
So, let`s talk more now about the economy, today`s jobs report and what it may mean for the Fed and the markets. To do that, we welcome Chris Wolfe, chief investment officer with Merrill Lynch Private Banking and Investment Group, and Mark Zandi, chief economist at Moody`s (NYSE:MCO) Analytics.
Mark, let me begin by asking you, was this as we characterized it at the top, a kind of Goldilocks jobs report, not too hot, not too cold, just about the best you could have hoped for?
MARK ZANDI, MOODY`S ANALYTICS CHIEF ECONOMIST: Yes, it was perfect.
You know, a lot of jobs — really broad based across a lot of industries across all pay scales. At this pace of job growth, unemployment will continue to decline very rapidly, but we`re not to a point where we`re seeing any significant wage pressures.
Now, from a workers perspective, that`s not great. We want to see the wage growth, but from the stock market perspective, they don`t want — investors don`t want to see too much wage growth because that might induce
the Fed to start raising interest rates sooner rather than later.
HERERA: Chris, does it also kind of confirm what we`ve all suspected, which is that the economy is growing slowly and surely, and at a pace that is not going to trigger inflation in a big way? At least no time soon?
CHRIS WOLFE, MERRILL LYNCH PRIVATE BANKING & INVESTMENT GROUP: Yes, you know, a lot of — I think Goldilocks was the term that you use. I might call it the good enough market. You know, the data is good enough to not really prompt a lot of changes. I think you are highlighting one thing, though. There is a big sensitivity on the dependants on Fed action.
Two days ago, it was all about wage inflation, employment cost index, saying that they have to move sooner, the Fed has to move sooner. All of a sudden, today`s data says, no, they don`t, and we`ve kind of done these big reversals in the bond market, and in part of the stock market.
So, I think there is a lot of sensitivity around the upcoming taper that`s important for investors to consider. So, while the economy is good, I think the markets are going to start to think more about where the fundamental growth trajectory is likely to be in 2015 and 2016, and less about the Fed over the course of the next six months or so.
MATHISEN: You know, Mark, as he just pointed out, the market seemed to be concerned about the pace of labor costs growth, and that that might drive through and cause inflation at the retail level. But as you point out, don`t we really want wage growth in this country? And what is it going to take to get it?
ZANDI: Yes, and we absolutely do. I mean, workers, their wages have been growing at no more than the rate of inflation since the recession.
So, that means real wages, after inflation wages, have gone nowhere. Our living standards have gone nowhere.
So, we want to see stronger wage growth. The way to get it is more jobs. So, if we continue on the current growth path and continue to create overturn thousands of jobs per month, by this time next year, I think the job market will be tight enough that we will start to see that stronger wage growth. And it`s at that point, of course, the Federal Reserve will start to raise interest rates.
A couple of years down the road if we continue on the current growth path, odds are that we will, and then, we`ll have a really good job market.
We`ll be at full employment and then we`ll get wage gains that are consistent with productivity growth, and that`s exactly what you want to
see. That would be an economy that we would be very comfortable with.
HERERA: Chris, talk to me about the markets and how you feel about equities at this standpoint. I know you would over weight equities compared to bonds, but this was a wild week. Volatility was back in a big way. We saw some big swings in this market.
WOLFE: Yes. You know, there`s an air of complacency, depending on how you think about the different measures of volatility in markets and currencies and equities and bond markets. So I think this week was a bit of a wakeup call and things should be more normal when you focus on fundamentals. So, equity markets in particular, I think, saw a lot of that. You saw I think a lot of the anticipation that the Fed would change, take some profits, take that complacency a little bit out of the market.
But I think you also have to remember the last five years had been about a big bull market. We`ve had big growth in earnings and that just good enough comment I made earlier about the economy, also applies to equity markets. Revenue growth is just good enough. Earnings growth via operating leverage is good enough to keep I think the rally going.
And this over weight that we recommend with clients is about something simple. There is not a lot of good alternatives in the fixed income market to make a compelling case to buy a lot more bonds. Some is protection, but
not a lot more.
MATHISEN: Quick thought, Chris, should individual investors be ready for more volatility as we move through the late summer into the fall?
WOLFE: Yes, I think we`re towards an infliction point by October.
There is elections. There`s Fed policy change, and we really the infection point is moving from policy-driven markets to fundamentally driven markets.
We think that`s a 2015 event. That`s what adds volatility, as investors start to make decisions about where the fundamental stories are the
MATHISEN: All right. Chris Wolfe of Merrill Lynch, thank you. And
always to great to see you, Mark Zandi of Moody`s Analytics.
ZANDI: Thank you.
HERERA: One of the day`s standout stocks, Dow component Procter and Gamble. The company which owns brands like Pampers, Tide and Gillette reported a 38 percent rise in earnings, beating Wall Street estimates.
That sent shares up 3 percent, making it the top-performing stock on the blue chip average.
But the world`s largest consumer products maker also announced a big move, to get smaller.
Sara Eisen tells us why P&G CEO believes less is more.
SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The world`s biggest consumer products company has a growth problem. P&G saying today it`s shrinking, shedding more than half of its brands, to simplify the company and boost sales. It will focus instead on 70 to 80 consumer brands like Tide detergent, Pampers diapers, and Gillette razors.
P&G has missed estimates for sales in the last three quarters. It`s struggling across the board, from beauty to health care.
Part of it is the economy.
JON MOELLER, PROCTER & GAMBLE CFO: It feels, in my seat, a little choppy, and I would say that`s true across the globe, with some of the geopolitical events, et cetera. But against that chop, continued
opportunity for growth on both top and bottom line.
EISEN: And rivals Colgate, Kimberly-Clark (NYSE:KMB) and Unilever
(NYSE:UN) all struggle to post stronger sales during the quarter.
But many analysts say they expect more progress by now in turning around the company from CEO A.G. Lafley, who to return to the top spot a year ago in an effort to boost growth. Since then, he spun off the pet care business, cut costs, and launched new products like the Gillette Fusion pro-glide razor, which the CFO says is selling even with the higher
MOELLER: It`s actually very reasonable. It`s about $10 for the razor. We launched that around Father`s Day in June, in the month of June, the male razor category, the category in the United States was up 30 points
and we started to see cartridge shares grow, as well.
EISEN (on camera): Part of the problem, P&G is enormous, with more than 120,000 employees. It`s been a Cincinnati staple since the 1800s.
Change takes time and the investors are still waiting. The stock is down so far this year. It`s one of the worst performers on the Dow in the last
12 months and under-performing the broader consumer staples index. To do it, Lafley is going to have to focus on growing the business and not just growing profits.
For NIGHTLY BUSINESS REPORT, I`m Sara Eisen.
MATHISEN: Despite big discounts, U.S. auto sales slowed in July, most car makers reported gains below expectations but gains nonetheless.
Chrysler and Ford both saw double digit moves up with Chrysler getting some help from strong sales of its Jeep SUVs and General Motor sales were up 9 percent compared with last July. Still, only Ford was able to eke out a number that topped forecast.
Overall, annual sales slipped further from that 17-million-unit mark, which would be a multi-year high. Shares of Ford and GM were off 1 percent today.
HERERA: And some good news for drivers — gas prices are starting off the month of august at a four-year low. According to gasbuddy.com, the nation-wide average of $3.51 per gallon is a gallon is a 15 percent drop from July 4th which saw the highest prices in six years. And pump prices are expected to continue the slide into the fall because of strong refining
output and crude oil production in North America.
MATHISEN: And still ahead, our market monitor says there are three stocks that will return 20 percent over the next year. We will pry the names out of him, next.
HERERA: Argentina is officially in default. The International Swaps and Derivatives Association, which hat makes the determination, decided that a failure to pay event occurred on July 30th. The day that Argentina missed the deadline to pay its creditors. Meanwhile, a New York judge has ordered negotiations between Argentina and its investors to continue.
MATHISEN: More now on jobs and what some are calling domestic outsourcing in manufacturing companies. Advance Technology Services steps in when a client wants to step out of the business of maintaining its factory and by letting clients focus on their core business, ATS itself is growing and hiring along the way.
Mary Thompson takes a look now of where the jobs are.
MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Eleven years ago, the maker of EZGO golf carts decided it wasn`t very good at maintenance, so Textron (NYSE:TXT) Specialized Vehicles hired Advance Technology Services or ATS to repair and maintain the machines that make its carts. It`s a decision the plant manager Kerri Thompson says is paying
KERRI THOMPSON, TEXTRON SPECIALIZED VEHICLES: Over the last five years, we`ve launched 40 new vehicles to market, and we`ve expanded our engineering workforce by 138 percent. So, by allowing ATS to focus on the maintenance of our equipment, we can focus on growing our brands and our
M. THOMPSON: Since 1985, Peoria-based ATS has been sending teams of six to 60 technicians to factory floors in North America, to U.K. and
BRIAN RABE, ATS VP OF HEAVY EQUIPMENT: Plant managers today have to figure out how to do more with less and we`re part of the equation of how
they do that.
M. THOMPSON: ATS vice president Brian Rabe says his firm brings tools, experience, and skilled labor a factory might have trouble securing
on its own to service its gear.
RABE: If you`re in a factory today and you have 5 percent machine down time. That down time is costing you a lot of money. If we can take and reduce that to 1 percent down time, you have all that machinery
available to be able to produce product and make profits.
M. THOMPSON: Given those added minutes of production are increasingly valuable in the competitive world of global manufacturing, demand is rising for ATS`s services.
(on camera): So, this year, ATS is hiring 500 new technicians. They will repair and maintain the equipment that`s used on assembly lines like this one, but finding those workers isn`t easy, even when you pay $21 to
$51 an hour with full benefits.
MICAH STATLER, ATS HEAD OF TRAINING PROGRAMS: Workers in these plants
don`t grow on trees, but they do in other industries.
M. THOMPSON: Micah Statler is head of training for ATS. He says once ATS finds the workers with the right mechanical, electrical and hydraulic skills, they are given additional training, tailored specifically to the needs of clients.
Jonathan Register once worked in maintenance for an ATS client, and now, he`s one of 16 ATS workers at the Textron (NYSE:TXT) plant, a team
that works better for Textron (NYSE:TXT) and for him.
JONATHAN REGISTER, ATS TECHNICIAN: It means I`ll get more support. I
got more training. I`ve got backings, you know, I got the resources.
M. THOMPSON: Resources ATS clients can hire to raise productivity and hopefully profits.
In Augusta, Georgia, I`m Mary Thompson for NIGHTLY BUSINESS REPORT.
MATHISEN: To read more about ATS and how it is helping manufacturing
companies expand capacity and cut costs, head to our Web site, NBR.com.
HERERA: Chevron (NYSE:CVX) posts a rise in earnings but a decline in production, and that`s where we begin tonight`s “Market Focus”. The oil company had better than expected quarterly profits because of asset sales, and demand for crude oil offset higher cost and a dip in production. But oil prices are falling as the dollar strengthens. That sent shares down 1
percent to $127.90.
Hilton`s results beat on the top and bottom lines, bolstered by an increase in business and leisure travel. The hotel operator also raised its full-year earnings forecast as it benefits from that increased occupancy, which means higher room rates. Shares rose just slightly today to $24.29.
And the Allergan (NYSE:AGN)-Valeant battle took a sharp turn today.
The Botox maker is suing Valeant and Bill Ackman`s hedge fund Pershing Square, alleging insider trading. Allergan (NYSE:AGN) is fighting a $51 billion hostile take over bid from Valeant and the firm, and it is also calling into question the legality of that relationship leading up to the takeover attempt. Shares of Allergan (NYSE:AGN) fell a fraction to $165.62. Valeant was slightly higher at $118.21.
MATHISEN: Shares of Mobileye soared on their first day of trading after the company priced its offering above the expected range. The Israeli developer of camera systems that help cars detect other cars and objects on the road sold more than 35 million shares at $25 a piece. The stock closed at $37, up 48 percent today alone.
The Justice Department announced today that Hewlett-Packard (NYSE:HPQ) has agreed to pay about $33 million to resolve allegations that it overcharged the U.S. Postal Service for products over an eight-year period.
Shares of HP down 1 percent, $35.19 on that news.
Harley Davidson recalling more than 3,000 of its motorcycles globally to fix an ignition switch problem that can cause the bikes to stall and the crash. The move is preventive. According to the company, no crashes or injuries have been reported. Despite that, shares were slightly higher today at $61.98.
And Berkshire Hathaway (NYSE:BRK.A) posted late earnings and second quarter profit. They said it soared more than 40 percent, thanks in part to improved results in it non-insurance businesses. Its results topped earnings and revenue estimates. Shares slightly higher at the close today
at a mere $189,279 and no cents.
HERERA: Tonight`s market monitor is calling the recent sell off a short-lived retreat and he says dollar cost averaging over the next two months, may not be a bad idea.
Joining us is Gene Peroni, portfolio manager with Advisors Asset Management.
Good to see you again, Gene.
EUGENE PERONI, ADVISORS ASSET MANAGEMENT PORTFOLIO MANAGER: Great to
be here, Sue. Thank you.
HERERA: You know, the thing that strikes me is the severity of the selloff, the volatility that went along with it and the fact that we took out some very key technical levels. How much damage has been done this week?
PERONI: There is some, no doubt. There was a lot of hair trigger selling. You can see it when stocks breached widely watched technical support levels and I think that really just had to do with a lot of anxiety. There was a lot of anticipation about a big correction.
So, we did see some panic selling, some irrational selling by the end of the week, and I think that was depicted in the volatility index moving
up as it did.
MATHISEN: Let`s get names on your buy list here at these prices, Gene, led by Celgene (NASDAQ:CELG). Tell me about that one and what the
PERONI: Well, Tyler, it`s a stock in the health group that I consider a core holding. It`s in a biotechnology. Of course, it`s a large cap name there. What impresses me about this stock is it`s a long-term performance history. That is, we did go through a good correction in biotechnology stocks in the March-April period. This has been one of those biotechs that has not only bounded but moved subsequently to new record high territory.
So, I think that kind of durability and the longer term trend, the short term elasticity does indicate that this stock has further to go and the upside, I like the health care group and certainly, the biotechs here
HERERA: And you like Polaris, which competes with Harley Davidson.
It makes recreational vehicles and things like that.
Why do you like it, Gene? I know it`s had good results lately.
PERONI: It has. The earnings in the latest quarter were the best quarterly showing in sometime. Not only that, but the outlook by the company is also very strong.
You know, so if you put a chart, over lay the charts of Harley Davidson HOG against Polaris, you`ll see short term, Harley Davidson stock has been trending lower. The stock has been trending higher.
Now, one of their divisions, Indian Motorcycles, the old original Indian, seems to be gaining market share but they have other recreational equipment both for the consumer and for commercial use, also.
So, this is a very strong company, again, good long-term history in
terms of performance, doing great in this market environment.
MATHISEN: I saw one of those Indian cycles down at the Jersey Shore, and they are beautiful.
Let`s move to your final pick tonight, and that is Western Digital (NYSE:WDC). What`s your price target and why are you in favor of it?
PERONI: Well, I think Western Digital (NYSE:WDC) can move to the $120-plus area over the next 12 months. Again, when we choose the stock for our portfolios, we`re looking to assure that there are other similarly attractive stocks representing that same sub-category. So, when we look at the data storage area, there are other attractive stocks but in our view, Western Digital (NYSE:WDC) is the leader in this space, in data, audio and video.
So we think this is a real growth area. Here again, another one of these stocks that`s been trending higher and is just below its record high here, just a few points below it despite the kind of week that we suffered
HERERA: Right. Gene, any disclosures for us on the three picks that you gave us?
PERONI: Well, all of these stocks are held in the managed accounts and also in a number of unit investment trusts that I supervise. I don`t
hold stocks directly but indirectly through the UITs.
HERERA: Right. All right. Gene, thank you so much. Have a great
weekend. Good to see you again.
PERONI: Thank you, Sue. Thank you very much.
HERERA: Gene Peroni with Advisors Asset Management.
Coming up, something that Tyler and I know a lot about, the big business of kids` parties and how one woman took her love of games and arts and crafts and turned it into a very successful career.
MATHISEN: And now, a bright idea that`s turned into a career for a young woman who became a bit of a legend in the San Francisco Bay Area.
She`s been called the Martha Stewart of kids` birthday parties.
MATHISEN (voice-over): Who do you turn to when the kids make those special birthday party requests?
SOPHIE MALETSKY, SOPHIE`S STRESS-FREE SOIREES: I want to be a
princess, and I want there to be a dragon.
MATHISEN: Or maybe.
MALETSKY: I want to be a rocket ship.
MATHISEN: Sophie Maletsky has the answers and a knock for know-how.
MALETSKY: We take a refrigerator box and turn it into a rocket ship.
MATHISEN: As a young kid, Maletsky started doing art projects with her grandmother and never stopped. After college, she became a New York actress. But that stopped in 1992 when her husband took a job in San
MALETSKY: I was like all right, I got to do something, so I started
MATHISEN: Babysitting, as luck would have it for A-listers, CEOs, movie stars, taking their kids` wildest dreams and turning their garages into caves, pool patios into pirate ships. Sometimes, she learned the hard way like the time she built a candy-filled dragon pinata with 10 layers of
MALETSKY: I literally saw the thing apart. So, you learn by mistake.
It was still a great party.
MATHISEN: Other moms noticed and began booking her to do their
MALETSKY: I was charging like $10 an hour. These are very wealthy women. They were like of course, that`s fine. They could a bargain. They can smell it a mile away.
MATHISEN: Now a 3,500-square-foot warehouse is home to the props and supplies she`s gathered over 20 years and thousands of parties. Her company, Sophie`s Stress-Free Soirees, booked more than 200 events a year.
These days, the typical birthday party can cost more than $1,000.
Corporate events and bar and bat mitzvahs run into tens of thousands. But do plan ahead.
MALETSKY: For bar and bat mitzvahs, I`m already booked all the way
Hi, I`m Sophie, and welcome to my world.
MATHISEN: For do-it-yourselfers. Sophie`s on YouTube. In case you ever need bubble snakes or shelf elves. She`s even got a new book, “Sticky Fingers”, detailing things you can make with duct tape. But what really gets her going is planting the seeds of creativity in her young party
MALETSKY: This is the kind of thing that gets me choked up about what I do. I was like, oh, come on, you`re a party planner but some will say hey, Sophie, can I work for you. I really love parties, I`m really interested in doing this as a business, my own someday.
KENDALL OWINGS: She inspires creativity in every kid she meets.
MATHISEN: Kendall Owings was at one of those birthday parties in the mid `90s and came back to work for Sophie as a team. Since then, she`s worked as a Kentucky Derby hat maker, taught sewing, and now, she`s starting a full time job as a costumer for the New York City ballet.
So, just remember, memories made and lessons learned at those birthday
parties can pay off, long after the cake is gone.
MALETSKY: How many people get to wake up and say they get to see the
light bulb go off in a kid`s imagination every day of her life.
MATHISEN: And Sophie`s World has six full-time employees and anywhere from 40 to 60 part timers, she employs depending on the size of an event.
That is, Sue, is from the “Why didn`t I think of that?” category.
HERERA: Oh, no, kidding. I have to say, my kids never had that kind of elaborate party.
HERERA: Listen, more power to her. She`s made it into a huge business. Good luck to her.
All right. That`s it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera, in for Susie. Thanks for watching. Have a good weekend.
MATHISEN: And I`m Tyler Mathisen. Have a great weekend, everybody.
We`ll see you back here on Monday.
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.