Transcript: Tuesday, November 25, 2014

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, funded in part by —

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SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Shifting gears. The economy grew at its fastest pace in more than a decade this spring and summer, as consumers shopped, and businesses spent. Will the growth persist in the fourth quarter and into 2015?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Record breaker. Apple’s market value has gone where no company’s has before, touching $700 billion.

GHARIB: Food fight. You’ll soon be seeing more calorie counts at restaurants, supermarkets, and even movie theaters. But will these new rules impact business?

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, November 25th.

MATHISEN: Good evening, everyone, and welcome.

We begin tonight with good news about the U.S. economy. It’s a lot stronger than you may think, and than forecasters had thought. The government today out with an upward revision in economic growth during the summer months. The July through September quarter turned out to be a far more robust one than originally reported, or forecast. By combining growth in the second and third quarters, the economy saw its strongest six-month performance in more than a decade.

So, what’s next for the U.S. economy? And what will this all mean for the upcoming holiday shopping season?

Steve Liesman has our story.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The economy looks to be finding another gear just ahead of the upcoming holidays. The government reported that gross domestic product, the measure of all the nation’s output, rose to 3.9 percent in the third quarter. Better than the 3.5 percent first reported, and better than the 3.3 percent economists had expected.

DAN GREENHAUS, BTIG: There clearly has been a meaningful upward move in the economy’s trajectory over the last couple of quarters. That’s important because as the Federal Reserve gets ready to remove some of the stimulative policies that it’s had in place, a stronger economy is more likely to withstand that than would a weaker one.

LIESMAN: Four of the past four quarters have been above 3 1/2 percent. That’s well north of the lackluster 2 percent growth that’s characterized the post-crisis period.

Only the storm riddled first quarter upsets the trend. Without it, it’s a 4 percent economy. This report showed greater strength in consumer spending, and business investment. Although foreign trade was even worse than first reported, a sign of weakness overseas having some limited impact on the U.S. economy.

GREENHAUS: I would remind people, just a few years ago there was a giant earthquake and tsunami in Japan that totally disrupted the global supply chain, really screwed up the global economy for a quarter or two, and the U.S. did not go into recession.

LIESMAN: The key question is whether the U.S. consumer will be in a shopping mood this Christmas, and here the numbers weren’t so good. Consumer sentiment dropped unexpectedly to the lowest level since June, defying forecasts for another upswing.

Though the economy has been improving, consumers ultimately hold the key to growth, and they remain challenged.

TOM PORCELLI, RBC CAPITAL MARKETS: While it’s true that you have a consumer that was a little bit better the reality is the consumer still remains in this very tight band of just north of 2 percent, and that’s been sort of one of these very consistent stories over the course of the last couple of years.

LIESMAN (on camera): The market will digest part two of this week’s data feast tomorrow with new reports on consumer spending and income in October, along with housing data, consumer confidence, and jobless claims. All this data will help the markets figure out if the third quarter strength will continue into the fourth. Stocks sure seem to be betting on it.

For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.

(END VIDEOTAPE)

GHARIB: Mark Zandi joins us now with more analysis on the economy. He’s chief economist at Moody’s (NYSE:MCO) Analytics.

Nice to see you, Mark.

MARK ZANDI, MOODY’S ANALYTICS: Hi, Susie.

GHARIB: So, are you changing your outlook because of this strong report that came out today?

ZANDI: No, no, I’m quite optimistic about the U.S. economy and today’s numbers are consistent with it. You know, Susie, I don’t think we can maintain this kind of growth rate, a near 4 percent growth rate. But it feels like if you abstract from the ups and downs in the economy, we’re growing about 3 percent which is good. And I expect that to continue into next year.

MATHISEN: Or if you get a mature economy like ours growing at 3 percent, 3 1/2 percent, that is pretty good. The one area, Mark, that I know you know and everybody says has not kicked in is income. Why not? And what will it take to get incomes moving up, and do you expect that to happen any time soon?

ZANDI: I do, Tyler. You know, the reason why we have not seen a pickup in wage growth is because despite the better economy, we still have a large number of unemployed and underemployed, and that’s depressing wage growth.

But at the current rate of growth, we’re creating so many jobs that a year from now, certainly two years from now, we will have absorbed all those unemployed and underemployed. We will see stronger wage growth, and that will kick the economy into an even higher gear. That will be the fodder for more consumer spending going forward.

So, we’re not quite there yet. But we’re getting close.

GHARIB: Well, you speak about consumer spending. I mean, what are the chances that consumers continue to prop up the economy? We saw the numbers today on consumer sentiment. They were down. I mean, can the consumer keep this economy, economic engine going?

ZANDI: Yes, I think so. We’re creating a lot of jobs. The quality of the job growth is much improved. We’re seeing a lot of low-paying but now we’re seeing high-paying, middle-paying jobs. I do expect wage growth to kick in.

But here’s the thing that’s really going to provide some juice in the near term, that’s lower oil and gasoline prices. That’s like a big tax cut to consumers, and I expect that to help propel consumer spending in the Christmas buying season into next year.

And then you also have low interest rates, you have very low debt burdens, and you have now record high stock prices. Everything is coming together for solid, sturdy, even strong consumer spending growth into next year.

MATHISEN: Let’s get to the question of the year for, I think, for 2015. Maybe you’ll agree, maybe you’ll disagree, and that’s interest rates and what is next for them.

On the one hand, you have falling unemployment. That was one of the things that the Fed has suggested might well trigger a tighter monetary policy. On the other hand, you have low and maybe even falling inflation. And the last thing the Fed would want to do it would seem to me would be to raise interest rates in the face of inflation that is below their target.

What do you say?

ZANDI: Yes, a lot of moving parts here. But I think if you buy into my script for the economy, a better economy, lower unemployment, accelerating wage growth, by the time we get into mid next year, late next year, I do think at that point the Federal Reserve will begin to raise interest rates.

Of course, they’re coming off of zero, so they’re incredibly low, and they will raise them very slowly, at least initially. So, my sense is the higher interest rates will, you know, they’ll — they won’t hurt the economy, because it would be creating so many jobs at that point, the economy will have so much momentum that we’ll be able to digest those higher interest rates. But higher interest rates are coming.

GHARIB: All right, Mark, we’ll leave it there. Thank you so much, Mark Zandi with Moody’s (NYSE:MCO) Analytics.

MATHISEN: Apple (NASDAQ:AAPL), already the world’s most valuable company, has gone where no other firm has been before. Its market valuation topped $700 billion for the first time ever today. Despite an early raise shares of the iPhone maker did end lower down nearly 1 percent when all was said and done.

But that $700 billion market value is equal to that of ExxonMobil (NYSE:XOM), the world’s second most valuable publicly traded company, and the drug giant Johnson & Johnson (NYSE:JNJ) combined. Put it into perspective, 92 percent of the companies in the S&P 500 have a market cap under $100 billion.

Other fun fact: if Apple (NASDAQ:AAPL) were a country, it would be the 20th largest in the world when you compare its value to GDP. And consider this with $700 billion — you could buy about half the world’s population an iPhone 6 with a two-year contract.

GHARIB: Despite that better than expected report on economic growth that we just told you about, stocks ended the day mostly lower. The early boost stocks got from that GDP figure was offset by a surprise decline in consumer confidence this month. And a slowdown in growth of home prices in September. They grew by about 5 percent year over year.

So, here’s how things looked at the close. The Dow lost three points, the NASDAQ was up three. And the S&P was down by two points.

MATHISEN: Two days ahead of a highly anticipated OPEC meeting over in Vienna, crude prices sank to fresh four-year lows after an impromptu meeting by oil ministers from Saudi Arabia, Venezuela, and non-OPEC members Russia and Mexico broke up without any agreement on cutting production level.

With that, domestic crude fell today by $1.69, to close just above $74 a barrel. Brent Crude, the international standard, also fell. It was down $1.35 a barrel to $78.33.

GHARIB: Another type of energy is getting some scrutiny from the highest court in the land. The Supreme Court agreed to hear complaints from 21 states and the energy industry that federal EPA limits on mercury emissions from power plants, 15 years after they were first imposed, are too costly and too expansive.

MATHISEN: U.S. bank regulators have approved Wells Fargo’s plan for its own theoretical bankruptcy. The Federal Reserve and the FDIC said Wells Fargo’s so-called Living Will still had a few shortcomings to be addressed next year, but would provide what it said was an ordinary wind-down in a bankruptcy. The blessing sets wells apart from several of its big bank peers whose plans were rejected by the Fed last summer.

GHARIB: Mixed quarterly earnings from Hewlett-Packard (NYSE:HPQ) tonight — a disappointment for investors hoping to see better results now that the tech giant is three years into a planned turnaround, including splitting the company into two parts next year.

HP earned $106 a share. That was right in line with analysts’ estimates. Revenues of more than $28 billion were slightly lower than forecast as sales fell 2 percent. This is the 12th decline in sales in the last 13 quarters. Shares were initially down in late trading as the company lowered earnings guidance for the current period.

And still ahead, you’ll soon see calorie counts in more places than ever before, as the FDA issues new rules and big changes for the food and restaurant industry.

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MATHISEN: New federal rules out today issued by the FDA mandate clearer calorie counts on food consumed at chain restaurants, theaters and amusement parks, and on prepared foods bought at some groceries or convenience stores. It’s part of the rule making of the 2010 Affordable Care Act.

Sara Eisen has the story.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Like it or not, counting calories is about to get a whole lot easier. After four years of work, the Food and Drug Administration has finalized rules requiring calorie information to be listed on the menus of chain restaurants, and on vending machines.

UNIDENTIFIED MALE: I think it’s a great idea.

UNIDENTIFIED FEMALE: If I have a craving for something I’m probably going to eat it anyway.

UNIDENTIFIED FEMALE: Some days, I care. Some days, I don’t.

EISEN: According to the National Restaurant Association, about 200,000 locations will now have to post their calories. And entertainment venues that serve food like amusement parks and movie theaters will also need to comply.

DR. MARGARET HAMBURG, FDA: I think consumers really do want more information about the food that they’re eating and this is responsive to that, and industry has recognized that consumers want this information, too.

EISEN: Under the rules, each menu and menu board must include the statement, quote, “2,000 calories a day is used for general nutrition advice but calorie needs vary.”

Some cities and states already have similar requirements but industry associations have pushed for a single nationwide standard for some time. The Affordable Care Act made it a law. So, anyone dining out will have clear, easy-to-use nutrition information presented in the same way no matter what part of the country they’re in.

And the labeling that has already occurred hasn’t had any measurable impact on business, according to the MPD Group, that says restaurant visits were up 1 percent this year, and up 2 percent at quick-serve restaurants.

(on camera): The new rule will apply to restaurants and vending machine operators with 20 or more locations. They will have one year to comply.

For NIGHTLY BUSINESS REPORT, I’m Sarah Eisen.

(END VIDEOTAPE)

GHARIB: American consumers also have an appetite for better health care. This is the time of year they’re reviewing their options for health insurance and payment plans. CVS (NYSE:CVS), the giant pharmacy chain, is becoming a major player in health care, thanks to a big push by the company’s CEO.

Tonight, we hear the views of Larry Merlo in our segment “From the C-Suite”.

(BEGIN VIDEOTAPE)

LARRY MERLO, CVS (NYSE:CVS) HEALTH PRES. AND CEO: We’ve seen the increase in terms of people getting the flu vaccine.

GHARIB (voice-over): Larry Merlo isn’t a pharmacist anymore, but as CEO of CVS (NYSE:CVS), he’s reinventing its pharmacy business so people view the chain as the place to go to become healthy. Last winter, he announced that CVS (NYSE:CVS) would stop selling cigarettes. He also renamed the company CVS (NYSE:CVS) Health, formerly known as CVS (NYSE:CVS) Caremark.

CVS (NYSE:CVS) is also the fastest growing provider of walk-in clinics, operating more than 900 of them. It’s opening three new minute clinics every week, because Merlo says the changes in health care demand it.

MERLO: Today, we have a shortage of primary care physicians, and at the same time, there’s more people coming in to the health care system. So, we see an opportunity to increase access to care, and at the same time, to be able to provide that care at a lower cost.

GHARIB (on camera): You know, the business model for health care really hasn’t changed much for decades. You have a doctor, a specialist. You can go to a hospital if you need to. What do you see from where this whole health care system is going?

MERLO: We describe it as the retailization of health care, where the consumer is going to have more responsibility, and accountability, in terms of making health care purchasing decisions. So, I think we’re beginning — we’re in the early innings of that.

GHARIB: So, Larry, you have been in this business for a long time. When you look back, was there anything that you anticipated back then that would be good innovations that we’re seeing today?

MERLO: The one thing that really hasn’t changed is the fact that, you know, the pharmacist is the most accessible health care procession. I mean, here we are in a store, we can walk back, talk to the pharmacist, you can pick up the phone. You really can’t do that with any other — you know, health care professional.

And I think the role of the pharmacist is evolving. They, today, are the face of neighborhood health care. And you know, I think the pharmacists will take on an added role in terms of not just, you know, dispensing a prescription, but, you know, adding, you know, advice and counsel, and being a health care concierge to some degree.

GHARIB: You know one of the big worries for many people is that their companies are not going to be paying for their insurance anymore. Is it just a matter of time that American businesses are not going to be paying for your insurance and they’re going to offload their employees to the exchanges?

MERLO: Well, I don’t see that trend occurring in a meaningful way. I think, you know, when you think about the value proposition for employees — yes, there’s, you know, the base compensation programs, but you know, all of the other benefit programs to include health and medical benefits, that’s part of that value proposition.

And I think employers will be — will be very cautious about, you know, how they think about that before they simply move, you know, large percentages of employees into the exchange population.

GHARIB: Who do you fear is your competition? Is it Walmart? Are those Walmart care clinics a threat?

MERLO: No. I think that there are various forms of competition across all the businesses in which we operate. And you know, I think that, you know, we look at, you know, whether it’s Walmart, or Walgreens, or an Express (NYSE:EXPR) Scripts, I think they’re all competitors.

GHARIB: So, do you ever see yourself getting into the insurance business? You already have the prescription business. You have your clinics. You’re coaching people on how to quit smoking and how to sign up on the insurance exchanges.

MERLO: Well, you know, Susie, it’s a great question. We’re actually in the insurance business today. When you think about Medicare programs, Medicare Part D programs for seniors for prescription drug coverage, you know, we actually have an insurance product. It happens to be the second largest provider in the Medicare prescription drug market.

GHARIB: We’ve seen now with this open enrollment period that more people are getting insurance. With people having more insurance, what does all this mean for CVS (NYSE:CVS)? Does that help you?

MERLO: Well, we’ve seen that, you know, as, you know, people enter the health care system, they’re able to utilize, you know, the health care system, and we have seen a modest improvement to our business as a result.

GHARIB: I know you spend a lot of time talking to customers in the store. How are consumers feeling these days?

MERLO: I think they continue to be, you know, very cautious. I would describe the consumer as, you know, a smarter consumer. And I would describe our economy as one that is in constant pause. We see some positive movement in the right direction.

But, you know, then it comes to a halt. I don’t think we’ve seen anything that, you know, you would describe as sustained momentum.

GHARIB: Mm-hmm.

As the CEO running this huge company, what worries you? Or what keeps you up at night?

MERLO: I do worry about, you know, overregulation and, you know, the threat that that has in terms of, you know, getting in the way of private sector innovation. And I think that, you know, industry needs to continue to, you know, work with the policymakers, and the regulators in terms of ensuring that, you know, private sector innovation is not stymied or compromised by regulation.

(END VIDEOTAPE)

GHARIB: And you can watch the extended version of my interview with Larry Merlo. Just go to our Web site NBR.com.

MATHISEN: Well, Tiffany’s same-store sales sparkled. That sent the stock to record highs. And that is where we begin tonight’s “Market Focus”.

Investors ignored the earnings and revenue miss and weak full-year sales forecast. But strong demand in the Americas helped Tiffany (NYSE:TIF) pull off higher comparable store sales number, and that cheered investors. Shares were up more than 2 1/2 percent to $107.60.

DSW (NYSE:DSW), the other end of the retail food chain, discount shoe retailer posted better than expected third quarter results as its same-store sales also rose more than 2.5 percent. As a result, the company hiked its full-year earnings forecast. Shares were 2 percent higher; $34.38 is the finish there.

GHARIB: Hormel, the maker of Spam, posted quarterly earnings that came in a penny below analyst estimates. It also gave a 2015 outlook that fell short of expectation. The meat company did hike its dividend by 25 percent to $1 a share, but still, the stock fell by more than 5 percent to $51.32.

And cost-cutting and higher menu prices paid off for Cracker Barrel this quarter. The restaurant chain posted earnings that were up by 25 percent and it looks like the company expects to keep up that momentum, raising its earnings and revenue guidance for the year. Shares were up more than $3 to $124.40.

MATHISEN: Well, several businesses were burned, others looted, when protests erupted in Ferguson, Missouri, last night. The violence came about following the decision by a grand jury to not indict local Police Officer Darren Wilson in the shooting death of 18-year-old Michael Brown in august.

Scott Cohn joins us now from Ferguson where tensions remain high.

Scott, what are people expecting this evening in Ferguson? And what are local business owners telling you about the impact that these — that these burnings and lootings have had?

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, it’s too early to obviously put a number on economic impact. But if you look at West Florissant Avenue behind me, usually a busy thoroughfare, it is shut down. This is considered a crime scene and an area where all hell broke loose yesterday, in fact. Looters, protesters, police, gunfire, not far from here, fires across the street.

So, the concern is that it’s going to repeat itself, but they’re taking extraordinary steps to try and prevent that.

GHARIB: So, what are business owners telling you about — are they just shutting down their businesses? And when did this whole situation stabilize? Any sense of that?

COHN: Well, the hope is that it stabilizes quickly. The National Guard presence has been ramped up considerably tonight. Three times the number of guard members will be very visible compared to yesterday. And when it stabilizes depends on when tensions cool.

But there’s a lot of talk about extending this as sort of an economic boycott in to the Thanksgiving — post-Thanksgiving holiday season, Black Friday. There’s a movement to try and basically withhold money from businesses, and from the economy. And so, the people here get the respect that they feel they deserve.

MATHISEN: So, this is part of a campaign to not shop this weekend, and curiously, what do the — do the aggrieved people, the demonstrators, think that would do?

COHN: They think that it will make their presence known. It will make people understand the impact that they have. African-Americans contribute about $1 trillion to the economy every year. And so would just logically be a significant part of the holiday shopping revenues for retailers and businesses.

And so, if they stay home, they apparently reason that that would have an impact, would make their opinions known to people beyond just law enforcement and beyond their own communities.

MATHISEN: And so, this is a call to stop shopping, to stay home, nationwide, for people in the African-American community? Am I understanding?

COHN: That’s what it is. And we don’t really know how much is taking hold. But there are a lot of people certainly talking about it.

MATHISEN: All right. Scott Cohn, thanks very much in Ferguson, Missouri, for us tonight.

GHARIB: And coming up on the program, why almost every farmer in California, the nation’s biggest agricultural state, is keeping a close eye on a peach farm.

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GHARIB: The Pension Benefit Guaranty Corporation, this the federal agency that ensures private pension plans, will now allow you to roll over your 401(k) savings into your company’s pension plan, increasing your monthly income during retirement. And still guarantee the portion you roll over. One of the benefits, according to the experts, if your pension fails, you’ll still get your 401(k) rollover money in annuity payments. But they also say rolling over 401(k) money into an IRA instead offers investors more control.

MATHISEN: At the nation’s largest peach farm there’s a big food fight going on. It’s being closely watched by both small farms and big agricultural giants. This dispute involves the farm’s owner, the United Farm Workers Union, and a contract that the state of California is trying to force on the farm.

Jane Wells has the details.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It is the most contentious farm labor standoff in decades. Outside Los Angeles City Hall this fall, United Farm Workers and supporters protested against a farmer hundreds of miles away for not enacting a new contract. In a case being watched by every farmer in the nation’s biggest ag state. But not everyone here was pro-union.

UNIDENTIFIED FEMALE: These people they just want to take our money away.

WELLS: She has worked for Gerawan Farms, the largest peach operation in the country. Dan Gerawan said the UFW organized workers here in the ’90s, then disappeared without ever negotiating a contract.

DAN GERAWAN, FARMER: For 18 years no letters, faxes, phone calls, no inquiries made on behalf of four employees. No access to the fields to see the employees.

WELLS (on camera): But two years ago, the union returned. Some workers balked at the idea of paying union dues and eventually there was a vote on whether to decertify the UFW. That was a year ago. We still don’t know the results.

(voice-over): Instead, under California law, the state Agriculture Labor Relations Board came up with a contract for Gerawan. A contract he is fighting in court.

GERAWAN: No business will survive under a process where the government literally writes your labor contract for you, and forces it on you and employees.

ARMANDO ELENES, UNITED FARM WORKERS UNION: We now have a contract which Gerawan refuses to implement.

WELLS: But what about last year’s vote to decertify the UFW? The state will not reveal the vote results. It’s holding a month-long hearing investigating whether Gerawan coerced workers to kick out the union.

ELENES: Gerawan would like you to focus on counting the votes and ignore everything that was done to get to an election.

WELLS: Both sides continue to press their cases in court, and in the court of public opinion. While the results of a year-old vote on whether to keep the UFW remains a secret.

For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.

(END VIDEOTAPE)

GHARIB: And that is NIGHTLY BUSINESS REPORT for tonight. I’m Susie Gharib. Thanks so much for joining us.

MATHISEN: And I’m Tyler Mathisen. Thanks from me, as well.

Have a great evening, everybody. We’ll see you back here tomorrow night.

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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