Transcript: Friday, February 6, 2015

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Back to work.
Employers are hiring a lot. Wages are rising a little, but a little counts a lot. And the positive news could put a June rate hike by the Federal Reserve (INAUDIBLE) under the table.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Wake-up call. Will 2015 be the year of health care breaches? Our guest tonight says, yes — as new reports surface about how much the industry does not spend to protect its data.

MATHISEN: Fighting waste. Meet the team that`s giving food to people who need it most and building a successful business in the process.

All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, February 6th.

HERERA: Good evening, everyone, and welcome.

Stocks closed out the week to the downside, but still managed to have their best week in more than a year. More on that in just a moment.

But, first, the big story of the day, jobs. The January employment report was strong. Employers hired, wage growth was visible and more people reentered the labor market, a sign that many are confident about their job prospects. The economy created 270,000 jobs last month. More than economists had expected, and numbers for November and December were revised sharply higher. The unemployment rate rose to 5.7 percent.

And one of the most encouraging numbers may have been the increase in average hourly earnings by half a percent. It doesn`t sound like much, perhaps, but it was the biggest monthly gain in more than six years. And all of this positive news has Wall Street and Main Street looking to the Federal Reserve and its timetable for hiking rates.

Hampton Pearson has more.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
The robust hiring in January also included the biggest one-month gain in average hourly earnings in six years, to just under $25 an hour. And there were blockbuster revisions boosting the jobs numbers for November and December, up 414,000 in November, the biggest monthly gain in 17 years.
December`s total was revised up to 329,000.

Philadelphia Fed President Charles Plosser is among the monetary policymakers taking notice.

CHARLES PLOSSER, FEDERAL RESERVE BANK OF PHILADELPHIA PRESIDENT: I think this is extraordinary in many ways and another signal the economy is functioning in a fairly normal fashion and I think that`s important message to get across and that we stop thinking about our economy as something in some kind of perpetual crisis.

PEARSON: Leading economists and Fed watchers say a June rate hike could be back in play if today`s wage growth is sustained over the next several months.

DIANE SWONK, MESIROW FINANCIAL: They certainly won`t say it`s bad news. They want to see much more wage growth. Remember, they want to see
3 percent wage growth sustained to get to their 2 percent target on inflation. So, we`re still well below that.

PEARSON: Job growth was widespread. The retail sector led the way adding 46,000 new workers with construction, health care, manufacturing, and restaurants making similar gains.

UNIDENTIFIED MALE: Six-person booth right there on the corner.

PEARSON: In the greater Washington, D.C. area, chef Mike Isabella has opened a half dozen restaurants and hired 300 employees in the last three years, now is on a fast track to open three more locations and hire another
150 workers in the next year.

The biggest challenge, hiring and keeping skilled employees like pastry chef Ryan Westover, on the job just two weeks after he was hired away from one of Washington`s finest five-star restaurants.

MIKE ISABELLA, PASTRY CHEF: I definitely think that the economy is very strong right now. There are a lot of jobs out there. It`s almost hard to get people to work because there are so many jobs. You know, and again, I just think we`re in a very good time right now from a financial standpoint.

PEARSON (on camera): More than 3.2 million Americans are earning paychecks than this time last year. Now, we need to see some of that cash show up as the increased consumer spending to help more economic growth.

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

(END VIDEOTAPE)

MATHISEN: Well, there`s a relatively new industry that could see big job growth over the coming years and that is drones. And when it does get going big time, it will need a lot of manpower to build and run and design those unmanned vehicles.

Mary Thompson reports from Daytona Beach with the latest installment of our series, where the jobs are.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
For 20-year-old Marco Schoener, flying drones isn`t a hobby. It`s part of his education.

MARCO SCHOENER, EMBRY-RIDDLE AERONAUTICAL UNIVERSITY STUDENT: I`ve flown robotics since I was 9 years old. All through life, I decided I want to do this.

THOMPSON: Schoener is senior at Embry-Riddle Aeronautical University in Daytona Beach, Florida, one of a small but growing number of colleges offering bachelor degrees in unmanned aerial systems or drones.

ALEX MIROT, EMBRY-RIDDLE PROFESSOR: We started three years ago with
11 students and that grew, has grown to about 230 students.

THOMPSON: Professor Alex Mirot said the school launched the program anticipating growing for engineers to build and operators to run drones.
Why? By September, the FAA will propose rules allowing drones to be used commercially, in fields like agriculture, movie-making, security, and maybe even delivery services.

STEVEN GITLIN, AEROVIRONMENT VP: Some people think that the commercial market for aircraft systems could be much bigger than the military market.

THOMPSON: Steve Gitlin is the vice president of Aerovironment, a maker of small drones sold mostly to the military. The firm is bracing for a pickup in demand and is hiring 100 workers this fiscal year to meet it.

(on camera): Once drones were OK`d for commercial use, the National Association of Unmanned Vehicles Systems International estimates the industry here in the could grow to over $13 billion in the U.S. and rise to
$82 billion by 2025, adding over 103,000 new jobs along the way.

MIROT: The salaries are usually tied to the difficulty and the qualification level of the individual, but anywhere from $150,000 (ph) stateside, and if they`re willing to take overseas engagement, can be high as $100,000, $125,000.

THOMPSON (voice-over): That`s good news for Embry-Riddle senior Jessica Brown who abandoned plans to be a pilot to concentrate on unmanned aerial vehicles or UAVs.

JESSICA BROWN, AERONAUTICAL UNIVERSITY STUDENT: If I could do anything with UAVs, I would love to do it, whether that`s being the actual pilot or just sensor operating, working the cameras and stuff like that.

THOMPSON: Stuff that no longer is part of science fiction, but an industry with strong growth potential in the real world.

In Daytona Beach, Florida, I`m Mary Thompson for NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

HERERA: The president of the Atlanta Federal Reserve Bank says the U.S. economy is strong and that growth is healthy enough to justify an initial interest rate hike later this year. Dennis Lockhart also said he expects the economy to grow 3 percent in 2015 and 2016.

MATHISEN: And, Sue, we may get a little more insight into the Federal Reserve`s thinking when Chair Janet Yellen testifies in front of the Senate Banking Committee on the February 24th. She will present her semi-annual testimony on the economy and monetary policy and appear the next day in front of the House Financial Services Committee.

It will be her first appearance before the Senate Banking Committee since the Republicans took control earlier this year.

HERERA: Now back to the markets, the Dow Jones Industrial Average snapping its four-day winning streak, in part because as Hampton reported earlier, it could support a move by the Federal Reserve to hike rates by midyear.

At the close, the blue chip index dropped 60 points to 17,824, the NASDAQ fell 20, and the S&P 500 fell 7 points. But the Dow still managed to log a very healthy gain for the week, up nearly 4 percent, its best week in more than a year; the NASDAQ more than 2 percent higher on the week and the S&P 500 up 3 percent.

That jobs report caused treasury yields to rise however and crude rose again as well today to $51.69 a barrel, a gain of more than 7 percent for the week, its best weekly gain in four years.

MATHISEN: Consumers increased their borrowing in December, the Federal Reserve reports that borrowing rose by nearly $15 billion to $3.3 trillion. Credit card use rose the most, a sign of growing consumer confidence and probably Christmas, along with auto loans and student debt.

HERERA: A bit of a setback at that West Coast port. Unloading and loading operations will be suspended this weekend. The Pacific Maritime Association, which is the group that represents the shippers, says the temporary suspension is due to the labor slowdown. In a statement late today, they said member companies will no longer continue to give workers premium pay for diminished productivity. Yard rail and gate operations, though, will continue at the discretion of terminal operators.

MATHISEN: Now to Greece, where that country`s debt crisis seems now to be deepening. Standard and Poor`s cut its sovereign credit rating further into junk territory. Now, the rating agency is citing Greece`s growing cash constraints. And late today, “Reuters” reported that Greece must now apply for a bailout extension by February 16th to keep its euro zone financial banking. A few days before that deadline, the Greek government will have a chance to present its reform plan to eurozone finance ministers.

HERERA: Still ahead, spies on Wall Street, and why one of the most powerful officials at the Justice Department warns they are out there lurking.

(MUSIC)

HERERA: A warning for Wall Street today from the Justice Department.
Spies are actively trying to access the U.S. financial system. The alert comes after last week`s arrest of alleged Russian spies operating in New York.

Our Eamon Javers spoke with the assistant attorney general for the national security and he joins us now from Washington with some details on that.

Good evening, Eamon.

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good evening, Sue.

I spoke to John Carlin at the Department of Justice earlier today in their law library there. And he told me that the department`s message for Wall Street is that spies are out there, and he said multiple foreign intelligence services are operating intelligence operations on Wall Street right now.

I asked him what they`re trying to gain by all of this. And here`s what he had to say.

(BEGIN VIDEO CLIP)

JOHN CARLIN, ASST. A.G. NATIONAL SECURITY: They want to figure out if there are ways in the short-term, it may be individuals who work with an intel service but have a private motive and want to make money off what they learn from the stock exchange like regular crooks. It could be that they`re mapping it out. So, in the event one of these nations as a conflict with the U.S., they can disrupt what we value very greatly, our financial sector. It`s security. And third, just be general intelligence to inform the strategies of our adversaries.

(END VIDEO CLIP)

JAVERS: And, Sue, Carlin also said he wants Wall Street CEOs to work with the FBI and the Department of Justice if they have suspicions that anybody on their team is working with a foreign intelligence agency.

HERERA: Eamon, did he give you any indication of how many countries may be running spies on Wall Street?

JAVERS: He wouldn`t give a hard and fast number but he said it`s not just the Russians. He said there are multiple foreign intelligence services running intelligence operations on Wall Street today and he said it`s something executives really need to be aware of.

MATHISEN: And he wouldn`t name names beyond the Russians, would he?

JAVERS: No. You could draw up a laundry list in your mind but he would not do that. Clearly, though, what he said that Wall Street firms need to not necessarily go after anybody in their organization who comes from one ethnic or religious background because the weak links, the people who might leak the information could be anybody.

HERERA: What can American companies do and how do these spies gather that information?

JAVERS: Well, it`s interesting. He talked about some of the oldest techniques in the spy book and he said those are happening now on Wall Street. Things like sex, using attractive young women to approach Wall Street sources for information, using greed of the people they`re approaching, you know, old fashioned bribery. And then revenge, he said that spies look for people who are disgruntled employees who have something against their employer and might want to sell some information in order to get back at them.

HERERA: Hmm. Eamon Javers in Washington. Eamon, thanks.

JAVERS: You bet

MATHISEN: Well, the breach at Anthem is bringing into question how much the health care industry spends on cyber security and whether it`s enough. According to one report, it`s significantly less than in other industries.

Joining us now to discuss this is Adam Meyer. He`s a former director of information assurance for the Naval Air Warfare Center. He`s currently chief security strategist at the cyber risk firm, SurfWatch Labs.

Welcome. Good to have you with us, Adam.

ADAM MEYER, SURFWATCH LABS: Thank you for having me.

MATHISEN: Are these cyber criminals targeting the health care companies because, one, they`re target-rich environments, to borrow the military phrase; two, because they`re so easy to break into; or three, because other places like retailers and banks have gotten harder and smarter to break into?

MEYER: All three, actually. As we saw in 2014, we saw quite a bit of breaches across retail, consumer goods, Home Depot, Target, Sony, and as those sectors increase their spending and become a harder Target, if you will, for attackers to go compromise that data, they`re naturally going to pivot to a new sector where there`s a commodity-rich environment, and that`s going to be the health care sector.

One thing we`re seeing with this breach that`s concerning to me is a lot of people focus on the quantity of data with the large numbers of accounts and records compromised, and really got to also look at it from a qualitative standpoint. Credit cards, e-mail addresses are easy to replace, pretty changeable, not much risk on the consumer. Here, you have your name, your Social Security number, your address. Those are things that are pretty static. They`re not going to change and they can do quite a bit of harm.

HERERA: I think most people are kind of asking in this day and age and in this environment, why health care companies are spending so little on this kind of issue?

MEYER: Well, the perception that I have is that health care company is really focused on the regulatory environments. So you have the HIPAA regulatory environment that`s really pushing, if you`re compliant, you`re OK, if you`re compliant, you`re secure. And in today`s world, being compliant does not mean you are secure.

So, I think there`s a cultural problem where the health care organizations — and this is in multiple sectors where you have insurance companies, you have pharmaceuticals, you have health care patient providers, really going to have to up their game quite a bit to make sure that the spending is applied to the proper places.

(CROSSTALK)

MATHISEN: So they`re spending what IT dollars they have on compliance and on poor management — document management, I suppose, and not enough on security. Do you think this event at Anthem is going to get the attention of the big health insurers, hospital systems and the like, and could this be a kind of pivotal moment?

MEYER: It really should. I think it`s going to have a very similar effect that Target and Home Depot had in the retail sectors. If the board room is smart and the C-suite is smart, they`re going to sit back and they`re going to look at their current posture and find out where they have gaps, and make sure that they have resources applied to those gaps.

One of the problems that I`ve seen in many companies is they treat this as a pure technology problem. They`re throwing tools at it and it`s got to get out of the IT department and get into the C-suite. Cyber touches everything we do, whether it`s consumer information, regulation information, brand reputation, financial infrastructure, supply chain.
It`s all applied. And organizations have to make the culture change to stop treating it like technology and treating it as a business resilience issue.

MATHISEN: It`s real. That`s the last point really seems to me critical. It`s a risk management problem — we have to leave it there, alas, Adam — even more than it is an IT problem.

Adam Meyer with SurfWatch Labs.

MEYER: Thank you for having me.

HERERA: The number of oil rigs that Baker Hughes uses craters and that`s where we begin tonight`s “Market Focus”.

Some new data shows the driller`s weekly rig count declined by more than 80 last week as it struggles with the plunging price of oil. In the company`s recent earnings announcement, it said it would cut 7,000 jobs because of that downturn. Still, shares rose a fraction to finish at $62.67.

Two defense appliers announce they`re merging today. Communications equipment maker Harris Corporation will buy defense and aerospace company Exelis in a deal valued nearly $5 billion. The consolidation comes after years of declining defense budgets. Shares of Exelis surged 36 percent to $24.13. Harris rose more than 9 percent to $76.18.

MATHISEN: Shares of Madison Square Garden rallied after the owner of the New York Knickerbockers posted better than expected quarterly results.
The company`s numbers were driven by better sales in the entertainment and sports unit, not more win by the Knicks. The stock was up 2 percent to $78.

Activist fund Sandell Asset is taking aim at Brookdale Senior Living.
The firm released a letter it sent to Brookdale, calling for it to separate its real estate portfolio into a REIT. It`s also calling for a revamp of the board to unlock, quote, “shareholder value.” Shares up more than 6 1/2 percent there at Brookdale to $36.88.

HERERA: So, let`s get right to our market monitor and his stock picks. He joins us now. He`s Jason Pride, director of investment strategy at Glenmede, an asset management firm with $29 billion under management.

Jason, welcome. Nice to have you here.

JASON PRIDE, GLENMEDE DIRECTOR OF INVESTMENT STRATEGY: Thanks for having me too.

HERERA: You say it`s important to have a healthy waiting in the U.S.
but twist defensively given modest overvaluation. So, let`s take a look at some of your picks.

Abbott Labs makes the list. Why?

PRIDE: So, what we`re trying to do here is we`re trying to keep stability in the U.S. while taking some risk abroad. We recognize if you`re taking risk abroad, that`s a little bit stomach churning, particularly with what`s going on in Greece right now. So, finding stability in the U.S. is the key piece. So, that means you have to focus on things like health care services and supply companies.

Abbott fits right into that profile, a very stable business model, a decent dividend yield, reasonable valuations, and a company that`s able because of their excess returns on capital, just churn out that incremental earnings growth even when the economy is just pumping around 2 percent, 2.5 percent with a moderate growth rate.

MATHISEN: Your second pick into the model of emphasizing return investment capital, 19.6 percent ROA at Accenture.

PRIDE: So, Accenture, again, we`re getting that international diversification, a little bit stable of a company than Abbott Labs, but a decent valuation again, and a company with really high returns on invested capital. You know, again, it could churn that out.

The difference in this franchise, this is not in the healthcare space, it`s in the technology space, it`s one of the largest international IT consulting firms available, with a great steady business model, and they`re pushing right into the Asian markets and getting a good amount of market share there.

HERERA: You also like Medtronic. Their acquisition of the Irish domicile, Covidien, is one of the reasons why you like it.

PRIDE: Well, it`s been — it`s been a little bit of a controversial issue, given how many — how many companies are pushing into the international trend, trying to use that international cash without bringing it back on shore.

Here, we find a very reasonable company — again, steady business model, very focused on that supply area of health care provisions. But with a nice dividend yield, decent valuation and a good business strategy for how to do something with the cash. It`s basically just sitting overseas and not able to come back across the borders.

MATHISEN: Quick thought on the markets. I know you don`t pay a ton of attention to the big macro-picture of the jobs report, but you must have a thought on whether today`s numbers make it more likely that the Fed will raise interest rates later this year. Quick thought.

PRIDE: Right. So, it does make it a little bit more likely. We`re still in the camp of a September rate hike being the best approach.
They`ve been communicating June up until now. You know, the fact is they`ll probably stick with the June rate increase but have a very slow trajectory over their course of rate hikes after that in order to compensate for earlier hike.

HERERA: Jason, thanks so much. Have a great weekend.

PRIDE: Thanks for having me.

HERERA: Jason Pride with Glenmede.

Ty?

MATHISEN: And coming up, a high-tech business solution to an all too common problem, food waste, and how one company is giving discarded but still fresh food to people who need it. Our latest bright ideas, next.

(MUSIC)

MATHISEN: TurboTax customers could not file their state tax return today because of suspicious activity. The company`s parent Intuit said it is now investigating criminal attempts to use stolen data to claim refunds after hearing concerns from a handful of states. The tax software maker says it is working with state governments to resolve those issues.

HERERA: Falsifying forms, misusing company property, all sure fire ways to get terminated you`d think. But according to a new report, the IRS hired back hundreds of employees who misbehaved. A watchdog found that the government agency reinstated workers even after they accessed taxpayer information they weren`t allowed to, or had off-duty legal issues, and in many cases, the report also found that that misconduct cropped up again.

MATHISEN: Anyone who`s worked in or around the food service industry has seen good food go to waste. An off-quoted 2012 report by the National Resources Defense Council says Americans throw out $165 billion worth of food every year.

That`s why the three people you`re about to meet are making it their business to bridge the gap between our nation`s food distribution system and the non-profits that depend on their donations.

(BEGIN VIDEOTAPE)

MATHISEN (voice-over): Roughly 40 percent of all the food in the United States goes uneaten. Most of the extras end up in a dumpster or a landfill.

ROGER GORDON, FOOD COWBOY CO-FOUNDER: We need another food bank in Kansas.

MATHISEN: Roger Gordon, Barbara Cohen and Roger`s brother Richard are doing something about it.

ROGER GORDON: Richard is a trucker and sometimes had a shipment rejected by the receiver because the eggplants were too dark or the carrots weren`t straight enough, what-have-you. So, he`d call me and I`d look for a church or food bank to take it.

MATHISEN: He didn`t find many takers though. Richard Gordon has been driving big rigs for 30 years. He spoke to us from his truck in Virginia, via Skype.

RICHARD GORDON: This produce doesn`t last long. You have to keep it moving.

MATHISEN: There isn`t much time when fresh food becomes available and many truckers offload in the wee hours. Restaurants close up late at night when most non-profits are closed.

ROGER GORDON: We start to think, well, if you could build an app to get people to food, maybe you could build an app to help food find people.

MATHISEN: Their app called Food Cowboy gives for-profit food distributors a way to communicate with non-profits looking to help the needy and vice versa.

BARBARA COHEN, FOOD COWBOY CO-FOUNDER: We`re right on the frontier.
I mean, we`re really are. We`re doing something that hasn`t really been done.

MATHISEN: Barbara Cohen`s expertise in public health, nutrition, and hunger issues help the Gordons craft a big style app that`s palatable to non-profits.

COHEN: Food Cowboy is an air traffic control system for food that is coming in from a donor and going out to a recipient charity.

The business community holds the food. So, creating a system the charities can use that replicates the way they think creates a better match.

ROGER GORDON: Can we get an 18 wheeler into your parking lot?

MATHISEN: Recipients pay Food Cowboy less than 10 cents a pound, less than half their normal delivery charges. Larger donors, C corporations, get a tax deduction.

But smaller businesses like family farmers and local restaurants have fewer guaranteed incentives. To grow, Food Cowboy is depending on changes to the tax code.

ROGER GORDON: Try to explain to a farmer why Section 17a3 of the tax code and Congress may grandfather you in, that`s not enough to create a permanent change in behavior, which is what we need to do if we`re going to solve hunger.

MATHISEN: Changing behavior takes time. But it happens. Recycling turned out to be more than a fad. In a year and a half, Roger Gordon says more than a thousand truckers downloaded the app, and Richard Gordon says drivers like it.

RICHARD GORDON: There`s no going out to payphone. There`s no turning up and pay for. With the app, we can find food banks with 50-mile radius instead of driving it into another state or another city.

MATHISEN: Newer non-profits like Nourish Now in Maryland`s Montgomery County are bringing change to the system, chilling fresh food with its own refrigeration unit, but also warming up to a more business-like approach.

BRETT MEYERS, NOURISH NOW FOUNDER AND EXEC. DIR.: If you get the text, you get that phone call, the application work, you go ahead and rescue the food. The food is going to bad, you`ve got to get it soon enough, save it, give it to people in need.

MATHISEN: If Food Cowboy is successful, the days of too late to donate could be numbered.

ROGER GORDON: The idea is to grow this, to make this a systemic solution. We`re trying to change the way two systems work.

(END VIDEOTAPE)

MATHISEN: The Food Cowboy folks talk about changing behavior. They mean all of us. They`re hoping to see a day when you pick up your kids at school and you also transport some cafeteria leftovers say to a food bank that you pass on your way home. Doing well by doing good.

HERERA: Absolutely. What a great idea.

MATHISEN: Yes, fantastic.

HERERA: We should all do a little bit like that.

That does it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera.
Thanks for watching.

MATHISEN: And thanks from me as well. I`m Tyler Mathisen. Have a great weekend, everybody. We`ll see you back here on Monday 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) 2015 CNBC, Inc.

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