TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Slowing to a crawl.
Economic growth stalled at the start of the year as businesses slashed investment and exports tumbled. Insights from a former Fed governor about what`s next.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Not yet. The Federal Reserve does not move on rates and left few clues about what might lie ahead.
MATHISEN: And, your money. What should you do with your stocks and bonds now that the Fed has spoken?
All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, April 29th.
HERERA: Good evening, everyone, and welcome.
Anemic. That describes first quarter growth. And while many expected the economy to be weak, they didn`t expect it to be this weak.
Gross domestic product, the broadest measure of goods and services produced across the economy, grew at just 0.2 percent, a massive deceleration from the fourth quarter and much worse than expected. Federal Reserve policymakers also downgraded their assessment of the economy, leaving more questions about when the central bank will raise rates.
We begin tonight with two reports. Hampton Pearson has more on the Federal Reserve statement, but we begin with Steve Liesman and the economy`s slow start to the year.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
The first quarter`s weaker than expected GDP has ignited a debate on Wall Street and at the Federal Reserve over whether the economy is slowing more seriously or just working through some temporary setbacks.
Severe winter weather in the East and port shutdowns in the West were the obvious temporary factors. But the negative effects of a stronger dollar and the decline in oil prices also played a role and no one knows how long they will continue to hurt the economy. What we do know is that it was another weak first quarter in a string of them.
ETHAN HARRIS, B OF A MERRILL LYNCH: It`s kind of a deja disaster, the same thing we saw last year. We came into the first release of GDP expecting growth of above 1 percent and it came in effectively at zero. I do think that some of this is the normal volatility, the numbers and it will — we will get a bounce back.
LIESMAN: Consumer spending hung in there with a nearly 2 percent gain after an even stronger rise in the fourth quarter. While economists believe lower oil prices and more jobs had even higher consumer spending, it was not the main source of weakness.
The biggest drag came from exports which fell 7 percent and knocked a full percentage point off growth. The strong dollar could be playing a role, making U.S. exports more expensive and hurting the overseas earnings of U.S. companies. Slowdowns in the ports out west could have played a role, keeping exports from leaving the country.
Another major area of weakness, plunging investment in the oil and gas sector as a result of lower oil prices.
MICHAEL GAPEN, BARCLAYS CHIEF U.S. ECONOMIST: The minus 23 in structures is a big decline. And about 15 percent will be related to capex in the energy sector. So, the rig count drop in Q1 is showing up there.
We were tracking minus 11 percent, about twice as large of a drop.
LIESMAN (on camera): The good news: last year`s sharp decline in the first quarter was followed by 5 percent growth in the second quarter. All Wall Street and economists can do now is wait and hope that GDP history repeats itself in 2015.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
The Federal Reserve wrapped up a two-day meeting by issuing a policy statement downgrading its assessment of the economy, citing slow growth during the winter months, a decline in consumer spending despite rising household incomes, softening business investment, and job gains moderating.
Evidence some fed watchers say there`s no sign that a rate hike is imminent.
HARRIS: They want to hike rates, but they want to hike in the context of better data. Now, they`ve seen two soft quarters in a row including a zero quarter. To dig out of that hole, they need to see two solid numbers in a row. That means that September is the earliest they would go and they could wait longer.
PEARSON: But Fed Chair Janet Yellen and her fellow monetary policymakers said most of the factors that contributed to the slowdown in the first quarter are transitory. It expects the job market to rebound and inflation to move back to the fed`s 2 percent target. Some Fed watchers say a June rate hike is not off the table if the economy rebounds in the second quarter.
JOHN BELLOWS, TCW GROUP: They`re willing to look through that weakness. They think it`s oil, they think it`s the dollar, and they think the economy is going to be stronger in the second and third quarter.
PEARSON (on camera): The latest bottom line from the Fed, depending on the economy, every future meeting of the FOMC should be considered live when it comes to the possibility of an interest rate hike.
For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson at the Federal Reserve.
MATHISEN: Randy Kroszner joins us now for more analysis on the Fed and the economy. The former Fed governor now a professor of economics at the University of Chicago`s Booth School of Business and a frequent guest on NBR.
Welcome back, Randy. Good to see you.
Do you see the economy the way Chair Yellen does — and that is that the first quarter was beset by transitory and that the economy will bounce if not snap back, and that inflation will soon be moving back towards 2 percent?
RANDALL KROSZNER, UNIVERSITY OF CHICAGO`S BOOTH SCHOOL OF BUSINESS:
So I don`t think we`re going to get as much of a bounce back as we got last year. I think the economy will be coming back. We`re going to do better I think in the second and third quarters than we did in the first. But I don`t see the same snapback because part of what happened in the first quarter is we didn`t sell as much as we expected and so, there`s a lot more inventory. So, probably businesses are going to produce a little bit less because they want to run down some of those inventories.
HERERA: So, Randy, as you look at the fed statement and assess it, what was the most significant either change or factor in today`s announcement?
KROSZNER: It was interesting how they characterize the slower economy as in part transitory. That left them complete flexibility because it said some of it`s transitory, so don`t think that the rate hikes are off the table. But it`s only in part, so it left open the possibility that, well, maybe some of these things could be lingering like headwinds coming from stronger dollar, and so we have to wait and see.
MATHISEN: So, as you look at the statement there and you do the sort of criminology or the linguistic analysis of it —
MATHISEN: — but you see them really trying to leave it very open and maintain all of their flexibility so that they can move when they want to.
But basically, isn`t this a very accommodative Federal Reserve?
KROSZNER: Well, I think certainly with a $4.5 trillion balance sheet, it`s very accommodative. There`s no doubt about that.
But I think that the question is when are they going to start pulling the punch bowl away a little bit and I think there are a lot of different views around the table. And so, Chair Yellen has to manage both the expectations in the markets about when they move, but also satisfy the different members of the FOMC, some of who want to move very soon, probably wanted to move earlier, and others who may not want to move until next year.
HERERA: And where do you — when do you that they should move or will move?
KROSZNER: Well, I think inflation pressures are really not there. We saw that in the core personal consumption expenditure index, the price index from the GDP was less than 1 percent, was 0.9 percent. That is probably the lowest that it`s been since 2010. Wage pressures are not there yet. We have these uncertainties in the economy.
So, my guess is it`s going to be a while before they would feel comfortable to move probably toward the end of this year. But it`s going to depend on the data, as always.
MATHISEN: Well, very briefly, why we need higher interest rates?
Typically when you raise interest rates because either inflation is getting too hot or the economy is getting too hot or both at the same time. Why do we need them now?
KROSZNER: Well, the Fed wants to try to not be behind the curve because the expectation is that at some point, we`ll start to see wage pressure. We`ll start to see price pressure. We haven`t seen that yet.
So, the Fed wants to make sure that it`s ready, that inflation doesn`t get out of control and the economy doesn`t overheat.
But I think exactly as you said, given where we are, I`m not sure that they`re in a rush to raise rates.
MATHISEN: All right. Randy, great as always to see you. Thank you very much. Randy Kroszner with the University of Chicago`s Booth School of Business.
HERERA: And as Steve Liesman reported a little bit earlier in the program, exports dropped sharply in the first quarter, even as a growing number of small businesses have started selling their goods overseas, and we`ll have more on that part of the story later in the broadcast.
MATHISEN: And, Sue, to stocks now, which had a choppy session following the release of that Federal Reserve statement. The Dow Jones Industrial Average was off as much as 156 points at one point during trading today. It closed 74 points lower at 18,035. The NASDAQ off 31 points, it was off about 1 percent earlier in the day. And the S&P 500 fell about 8.
As for the bond market, yields whipsawed this afternoon, breaking back above 2 percent as you see there.
HERERA: Joe Duran joins us to discuss what you should do with your money now that we`ve heard from the Fed. He is CEO of United Capital, a financial life management firm with about $13 billion under management.
Welcome back, Joe. And I guess that is the question —
JOE DURAN, UNITED CAPITAL CEO: Thank you. It`s good to be back.
HERERA: What do you do with your money now that the Fed has taken all the calendar issues out of the particular statement that we heard today?
DURAN: Well, the first thing you need to do is look at the overall risk of your portfolio. I think a lot of people have benefited less from the rising stock market and haven`t looked at their overall risk, and I would suggest that we`re entering period starting in May where we`re going to have a lot more uncertainty, a lot more whipsawing.
So, make sure to look at the overall risk in your existing portfolio before you then assess where to invest.
MATHISEN: It would seem to me that a lot of people have benefitted from a rising bond market over recent years, and that some of the risk in the portfolio of many individuals might well be in bonds.
Do you agree or disagree?
DURAN: I completely agree. It`s the area with the biggest risk that most people, the average viewer and the average investor, simply unaware of. They might go for an extra 1 percent in yield by buying a 30-year bond instead of a ten-year bond and be doubling or tripling their risk. So, a 1 percent change in interest rate could be instead of an 8 percent decline a
20 percent or 22 percent decline.
The risk right now in bonds is incredibly high. We tell everyone that`s where the real problems lie potentially for the market.
HERERA: All right. So, once you`ve assessed your risk or your exposure as the case may be, what equity positions are you recommending right now? I see you`re looking closely at Europe.
So, what we see in the dollars actually that it`s been weakening quite a lot against the euro. And what we`re seeing I think is the commodity market and the currency markets telling you the fed is going to do nothing until much later in the year than originally expected, and that means that you`re going to have a lot more volatility and uncertainty.
So, what we think is you want to invest in those markets that haven`t participated as much — Europe, emerging markets — and if we`re going to have rising interest rates, you want to be in larger companies than smaller companies. So, there are some names we think are interesting if you have taken care of the risk of your portfolio.
HERERA: All right, Joe. We`ll leave it there. Thank you very much.
Joe Duran with United Capital.
MATHISEN: And still ahead, want to find the lowest price online?
It`s a simple question with a complicated answer. But Courtney Reagan`s got it.
MATHISEN: The Securities and Exchange Commission has called for new rules on executive pay. The proposal would link compensation of top executives to the company`s financial performance and require the disclosure of stock options and other benefits. The proposal passed bay vote of 3-2. It was mandated by the 2010 Dodd-Frank financial reform law.
HERERA: Oil prices hit their highest level of the year today.
Inventories at the large oil storage facility in Cushing, Oklahoma, saw its first stock drawdown in five months, and that suggests to some that the oil glut may be starting to ease. West Texas Intermediate Crude rose 2.5 percent to $58.50.
MATHISEN: The energy markets are also watching a shift in power in Saudi Arabia, the world`s top oil-producing country. The moves come at a time of almost unprecedented regional turmoil and could have far-reaching implications.
MATHISEN (voice-over): The changes announced by 79-year-old King Salman today follow a host of transformational moves that began in January when he succeeded King Abdullah, who died at the age of 90. Saudi regime changes are watched closely in Washington and on Wall Street to see how they affect both the politics and the business of an evolving Saudi Arabia, not to mention the turbulent Middle East.
King Salman put his 55-year-old nephew, Prince Mohammed bin Nayef, next the line to become king. He`s the first of his generation to move one step from the throne. King Salman also moved his own son, 30-year-old Mohammed bin Salman, up to second in line.
Bin Salman is Saudi Arabia`s defense minister and has already assumed a high-profile role in the military campaign the country has waged in Yemen. He`s also in charge of a key committee that oversees economic affairs.
The most coveted tricky time for Saudi Arabia and for U.S./Saudi relation, the Sunni monarchy is keeping a close eye on its regional rival, Shiite-run Iran, and the regime, a longtime U.S. ally, is weary of any American rapprochement with Tehran.
As for Saudi Arabia`s critical industry, oil, the royal shake-up left it largely untouched. Longtime oil minister Ali al-Naimi kept his job, though replaced as chairman of the country`s oil company, Saudi Aramco, by a well-known businessman.
Few think the changes will affect Saudi oil production or the price of crude.
PAVEL MOLCHANOV, RAYMOND JAMES: Oil is too important for the Saudi economy in a very fundamental way for it to be, you know, a function of political games, and that`s not going to change regardless of which individuals happen to be at the top at any given moment.
MATHISEN: Oil aside, there are other issues at home that could destabilize the regime. Employment for a you population, nearly half of which is under 30, is one issue. Maintaining stable relations with conservative clerics is another. And yet, a third is how moving younger men up in the line of succession will play with hundreds of older princes who could well feel shoved aside.
MATHISEN: And finally, the new king is being much more assertive and quicker to make decisions than his predecessors in reaction to global events.
HERERA: MasterCard`s profits rose double digits and that`s where we begin tonight`s “Market Focus.”
More consumers swiped, which helped the credit card company`s bottom line, but revenue missed estimates. The CEO says consumers are spending less on gas and more on paying down their debt. Shares rose just a penny to settle at $90.24.
Humana (NYSE:HUM) reported earnings today that fell below consensus.
Revenue did rise 18 percent as the insurer`s memberships continued to grow and it reaffirmed its full-year outlook. Still, shares fell 7 percent to $168.05.
Anthem also posted mixed results. Profit rose and topped estimates as Medicaid enrollments were up. But sales came in below the Street`s estimates. Shares were off two percent to $151.07.
And Lumber Liquidators reported a surprise first-quarter loss. This as the flooring retailer faces possible criminal charges from the Department of Justice. The investigation centers on imports from China that allegedly contain a higher level of formaldehyde, a known carcinogen.
Shares plunged about 20 percent to $26.76.
MATHISEN: Starwood Hotels might be looking to sell itself. The company hired the advisory firm Lazard (NYSE:LAZ) to explore strategic alternatives, saying no option was off the table. Separately, the company beat on both the top and bottom lines in its latest quarter. Shares up 8 percent to $87.52.
Meantime, Salesforce.com (NYSE:CRM) is also a possible takeover target, that according to a report from Bloomberg. With a market value of almost $49 billion, there are only a few Internet and software companies that are larger than this cloud computing firm. Shares spiked on the report, up 11 percent to $74.65.
Shares of Twitter still tumbling after last night`s disappointing report. Today, CEO Dick Costolo reacted to the less than ideal numbers, saying new products should help Twitter in the near future.
(BEGIN VIDEO CLIP)
DICK COSTOLO, TWITTER CEO: We had a slight miss on revenue. Anthony and I talked about that on the call. We`ve got a great revenue engine. It was due to our direct response business. Those products are new, less than a year old. We know what we need to do there and I think we`ll see improvement.
(END VIDEO CLIP)
MATHISEN: Twitter shares were off 9 percent today to $38.49.
And a big miss after the bell from Yelp. That`s the site that lets people review businesses. It posted a loss, revenue missed estimates and its outlook also disappointed. And that sent shares sharply lower initially after the report. You see it right there, falling off the cliff.
During the regular trading session, the stock closed up fractionally at $51.29.
HERERA: The easiest question shoppers can ask is — where can I find the lowest price? But the answer can be complicated. So, Courtney Reagan and CNBC, along with personal finance Web site Nerd Wallet teamed up to figure it out.
Courtney, so how did you conduct your research? What did you look at?
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is a very a nonscientific study, but CNBC and personal finance Web site Nerd Wallet looked at 11 consumer electronics products at five retail Web sites every week for 12 weeks and we compared the prices pre-shipping and pretax.
We`re talking just base price here.
MATHISEN: So, what did the nerds find?
REAGAN: And so —
MATHISEN: You excluded, of course.
REAGAN: Oh, right, right.
So, what we found is that in this snapshot of time, this 12-week study, Best Buy (NYSE:BBY) and Target`s prices were higher than Amazon
(NASDAQ:AMZN) and Walmart`s prices. However, Walmart was out of stock the most often. Best Buy (NYSE:BBY) was out of stock only one time on one product in the final week. Costco (NASDAQ:COST) was the fifth retailer, and that wasn`t difficult because the products were not consistently listed on the site. Some weeks they were there, some weeks not.
MATHISEN: Were the price differences large, material?
REAGAN: It depended. So, on the TVs, you saw a pretty large price variation because that is a higher priced item. So, that makes sense.
REAGAN: But if you look at the Sony (NYSE:SNE) PlayStation IV or the Nikon DSLR camera that we looked at, those prices were pretty consistent from week to week and retailer to retailer. The retailers` response to us, many of them said, look, we all have price matching policies and programs with the exception of Amazon (NASDAQ:AMZN). Amazon (NASDAQ:AMZN) then pointed out we have third-party sellers. We don`t influence their prices so we have lots of prices that you could be looking at.
But all of this was publicly available information on the Web site.
We just really combed through it and carefully looked at it.
HERERA: So, you could — you could get a price match, but then you had to go through the whole process of trying to get the price match, right?
REAGAN: You do. You do.
HERERA: Scan it, get the skew over the retailer.
REAGAN: Or at least somehow prove to the retailer that you have found a lower price on an identical item within a close period of time, and that`s going to vary from retailer to retailer, whether it`s seven days, a month, online, offline, a little different, but it doesn`t hurt to ask in certain —
Excellent. Courtney, thanks so much.
REAGAN: Thank you.
HERERA: Great job.
All right. To read more about finding lo online, head to our Web site, NBR.com.
Coming up, how technology has helped small businesses do something they once thought was impossible — sell their goods overseas.
MATHISEN: Here`s a look at what to watch tomorrow.
Dow components ExxonMobil (NYSE:XOM) and Visa (NYSE:V) are out with their earnings. Two economic reports will be released before the bell:
jobless claims and personal income and spending. And take note of this — it`s the last trading day of the month. That`s what`s on the agenda for tomorrow.
HERERA: Ben Bernanke has a new job. The former chairman of the Federal Reserve has been hired by PIMCO as a senior adviser to that firm.
Bernanke will provide guidance on PIMCO`s investment process and meet with clients on occasion. Earlier this month, Bernanke joined hedge fund Citadel in an advisory role.
MATHISEN: Another sobering survey on Americans` ability to save.
According to Northwestern Mutual, one-third of those surveyed have no financial plan. Fifty-eight percent believe they need time prove their financial planning efforts. Forty-three percent haven`t spoken to anybody about retirement planning. And 21 percent of Americans are not confident they will reach their financial goals.
HERERA: More small businesses are able to do something they once thought would be impossible — export. And the decision to expand sales overseas has created a financial lifeline for some of them.
Kate Rogers (NYSE:ROG) has more on the rise of the so-called micro- multinationals.
KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Exporting has brought Gelb Music, an institution in Redwood City, California, since 1939, back from the brink. The brick-and-mortar took a stab at selling products overseas seven years ago on eBay (NASDAQ:EBAY) amid construction and slowing growth. Sales started out small at around
$250,000 in year one. Today, nearly 30 percent of its business comes from exports.
MIKE CRAIG, GELB MUSIC ECOMMERCE MANAGER: It saved the store. We had some slow time at the store, we had some construction going on, sales had dipped. That`s when we started putting a lot more products in the eBay
(NASDAQ:EBAY) and it really saved the store. We did about $750,000 that one year. And now with the global shipping program that`s come about, now we can reach other areas of the world we never would have reached in the first place. So, and repeat customers, too.
ROGERS: Having a global footprint goal for many U.S. small businesses but unfortunately for most, it`s not a reality. Data from the International Trade Administration shows less than 5 percent of American small businesses are shipping their goods overseas. Now, e-commerce platforms are helping small businesses to expand their reach globally, breaking down exporting barriers like language differences and regulations according to a new report from eBay (NASDAQ:EBAY).
EBay finds that in 201490 percent of the small and medium-sized businesses that sell on its site are exporting. More than 190,000 of the businesses reached consumers on four or more continents. In 2009, less than 30,000 were exporting to at least 15 country markets.
Gelb Music now has customers all over the globe with repeat customers in unlikely places as far as the Middle East. EBay says 80 percent of its sellers now reach five or more markets.
Small businesses once struggled to find customers overseas and ran the risk of not getting paid upon exporting, says Todd McCracken, president of the National Small Business Association.
TODD MCCRACKEN, NATIONAL SMALL BUSINESS ASSOCIATION: With these ecommerce platforms like eBay (NASDAQ:EBAY), they solve both of those at once. They`re helping you find customers by using their marketing channels and they help assure you get paid by the tools they have.
ROGERS (on camera): Of course, eBay (NASDAQ:EBAY) is hardly the only game in town. Other e-commerce platforms including Amazon (NASDAQ:AMZN), Etsy, and Alibaba all boast a global reach. However, the sites would not provide comparable exporter numbers. Given the reach of those four platforms alone, it`s likely the small business exporting trend will continue.
For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).
HERERA: And to read more about how e-commerce companies are helping small businesses go global, head to our Web site, NBR.com.
MATHISEN: And finally tonight, there was no take me out the to the ball game today at Camden Yards. The Baltimore Orioles and the Chicago White Sox played to what is believed to be the first Major League Baseball game in front of a completely empty stadium. Fans were shut out of Camden Yards as a precaution following the unrest that broke out with tensions between residents and police on Monday. The final score was 8-2 Orioles.
The game was completed in a very brisk two hours.
HERERA: You know, they did do. Today`s attendance, you know, when they announced that at the top, today`s attendance is — zero. I read that.
MATHISEN: I could have guessed the attendance and maybe won a prize.
HERERA: You could have.
MATHISEN: Zero. All right.
HERERA: So good to have us back together.
MATHISEN: Yes, it is. It`s fun to be together.
HERERA: All right. That does it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for joining us.
MATHISEN: And I`m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody. We`ll see you right back tomorrow night.
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.