TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Fiscally fit? New
economic reports show whether the consumer is in good financial shape
heading into the holiday shopping season.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Managing the millions of
travelers. What one airline is doing to help things run smoothly during
what`s expected to be the busiest Thanksgiving since 2006.
MATHISEN: Worth the cost? You won`t believe how much the nation`s
largest public pension fund pays for the privilege of investing in private
equity. But maybe it`s worth it.
All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
HERERA: Good evening, everyone.
The consumer is king, at least it is at this time of the year, when
many start shopping for the holidays, and that`s because consumer spending
accounts for nearly two-thirds of all economic activity. And today, a rash
of economic reports from jobless claims to personal income and spending
gave us a look at just how fiscally fit Americans are heading into the
biggest shopping season of the year.
Steve Liesman breaks down the data.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: A torrent of
economic data released early ahead of the holidays presented an economic
puzzle. How can the same data both bring down the outlook for growth and
consumer spending, and yet, keep economists upbeat about the holiday
selling season? For the answer, you have to delve into the data and keep
your rose-colored glasses handy.
The bad news: consumer spending, consumer sentiment and new home
sales came in below expectations. Some of the data included downward
revisions to prior reports. So, consumers not as upbeat, and they aren`t
spending a whole lot ahead of the holiday season. Ugh.
And all of that prompted Wall Street to lower their growth outlook
for the fourth quarter from 0.3 percent to 2 percent as updated in the
rapid update. Ugh again.
But hold on, because the data also showed jobless claims falling and
personal income surging 0.4 percent. Private sector wages, they had their
best gains since May.
Now some simple math — if income rises strongly and spending
doesn`t, it can only mean one thing, the savings rate has to go up. That`s
exactly what it did.
Savings hit its highest level since 2012, and oddly, that`s what
makes economists optimistic.
Economist Ian Shepardson, for example, says the savings rate spike
will prove temporary, consumers are well-placed for holiday spending. With
wages rising and savings high, and job growth looking healthy, the
consumers should be in good financial shape for the holiday season.
TOM PORCELLI, RBC CAPITAL MARKET CHIEF U.S. ECONOMIST: What I would
say is one of the things we`ve been sort of pounding the table on for quite
a while now is the idea that wage gains, while they`re modest, to be sure,
they`re still gains. And the reality is, in that sort of backdrop, it`s
really easy to sort of build a case around consumption continuing to move
along at about a 3 percent run rate.
LIESMAN: No one can say for sure if consumers will part with their
newfound wage gains or savings in sufficient amounts to make it a green
Christmas for retailers, but the stock market thought so. In one telling
sign of how investors answered today`s economic puzzle, they drove up the
prices for consumer stocks.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
MATHISEN: Jessica Bornn joins us now to tell us who will be the
winners and losers among retailers as consumers get ready to hit the stores
tomorrow and Friday. She`s senior retail analyst with Merchant Forecast.
Hi, Jessica. How are you?
JESSICA BORNN, MERCHANT FORECAST SR. RETAIL ANALYST: Hi there. How
MATHISEN: You know, there is no doubting how important the Christmas
selling season is for retailers, but I wonder whether we make just too
doggone much of Black Friday and this first weekend because things seem to
be on sale all the time, from Halloween forward.
BORNN: That is true, and, unfortunately, the customer knows that, so
it`s been pervasive for years. The customer knows to wait for Black
Friday, so the weeks leading into Black Friday are very dead in the mall.
The traffic levels are down and the customer is waiting because they feel
that if they wait until Black Friday, they`re going to get a better deal,
even though the promotions in the mall are elevated heading into the
HERERA: How much promotional activity do you think we`re going to
see? Because the consumer is also, you know, they`re used to that, they
expect it. They all want to get a good deal. How much discounting is
going to have to happen?
BORNN: Well, right now in the week leading into Black Friday, most
of the retailers started their Black Friday promotions with storewide
percentage off sales and Bogo sales. But what will happen is there is a
glut of cold-weather inventory that just hasn`t sold and as we know, the
weather hasn`t turned seasonal this year.
So, that — those items will take a steep discount on Black Friday
and I think they will actually take away from the traditional gift-giving
items, because much of the focus will be on these steep discounts of up to
60 percent off, potentially, on those cold-weather items.
MATHISEN: Which retailers are hot in your view, and which are not?
BORNN: Right now, we like JCPenney. You wouldn`t have heard us say
that a few years ago, but they`ve actually really repaired their customer
base. They`ve brought back the sales and couponing. It`s working. We
like the new CEO. We think they`re well positioned for holiday.
Another retailer we really like is Ulta, which is a cosmetics brand,
mostly off mall. And they`ve really changed the landscape of how female
shoppers buy cosmetics and fragrance and beauty items, and it has the
department store scrambling to figure out that open sell model and we think
HERERA: Who is behind the eight ball a little bit or struggling?
BORNN: There`s a few retailers that are struggling. I would say Gap
(NYSE:GPS) and Old Navy are one of the more recent ones that we`ve turned
negative on. They really are without any major fashion direction right
now, and there are so many other retailers doing fashionable basics better
that the competitive landscape is just too much for them to overcome right
MATHISEN: Jessica, have a great Thanksgiving.
BORNN: Thank you.
MATHISEN: Jessica Borne with merchant forecast.
HERERA: More details now on the sales of homes that Steve Liesman
mentioned in his report. The Commerce Department reports that sales surged
nearly 11 percent in October to a seasonally adjusted annual rate of
495,000, but that number was slightly below estimates. However, the number
of properties for sale was the highest since early 2010, alleviating some
of the concerns over a lack of inventory. The rebound in October follows a
plunge in September sales.
MATHISEN: And orders for long-lasting manufactured goods rose in
October after two months of weakness. Durable goods orders increased 3
percent last month, and that was much more than expected, led by a surge in
demand for commercial aircraft and transportation equipment. A key measure
of business investment within the report also snapped back.
HERERA: Stocks closed really narrowly mixed on this last full
trading day of the holiday weekend. The Dow Jones Industrial Average rose
one point to 17,813.
HERERA: Yes, exactly. Get out the balloons.
The NASDAQ was 13 points higher and the S&P 500 fell a fraction of a
Oil prices rallied after a smaller than expected rise in crude oil
inventories was out and a decrease of the number of U.S. rigs. Domestic
crude rose 17 cents.
As investors in the U.S. head into the Thanksgiving holiday, tensions
between Russia and turkey ratcheted up today. Turkey accusing Russia of
deceit, Russia saying it will continue to fly missions near Turkish air
space, and the economic ties that bind these countries run very deep.
Hadley Gamble reports tonight from Istanbul.
HADLEY GAMBLE, NIGHTLY BUSINESS REPORT CORRESPONDENT: We`re just
over 24 hours since a Turkish military F-16 shot down a Russian aircraft,
and that pilot that survived the crash is speaking out. He`s now said that
he received no warning before his aircraft was shot out of the sky and
that`s in direct contradiction to what we`ve heard from Turkish authorities
who said that they warned the Russian aircraft repeatedly to stay out of
their air space.
Now, the tit for tat over where the plane was actually flying when it
was shot down continues. We`ve heard from Recep Erdogan, the president of
Turkey, he said that this was not done in direct provocation. He said he
didn`t do this to escalate tensions.
But the question, of course, remaining, if you`re going to blow
another aircraft out of the sky, how else will this be perceived?
Now, the economic lifeline between Turkey and Russia is under
pressure tonight. Behind me you can see the Bosporus. It`s really where
east does meet west. Any Russian military hardware that`s going to move
into the eastern Mediterranean is going to come through this strait.
You also have to remember that this is a major lifeline in terms of
the oil and gas trade that goes between these two countries. Turkey has a
$25 billion-a-year energy import bill from Russia. This is a major
economic relationship. They have trade, tourism and energy as well.
And so, the big question is going to be whether egos are allowed to
For NIGHTLY BUSINESS REPORT in Istanbul, I`m Hadley Gamble.
HERERA: French President Francois Hollande returned to Paris where
he met with German Chancellor Angela Merkel and where the two laid flowers
at a memorial site in the city.
Meantime in Brussels, the manhunt for those involved in the Paris
attacks has widened just as the lockdown in that city begins to ease.
Julia Chatterley reports from Belgium`s capital.
JULIA CHATTERLEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Two key
developments in the story here in Brussels.
The first, the ongoing manhunt that`s been in place since the Paris
attacks over ten days ago just expanded. The Belgian authorities now
looking for a second man. His name is Mohamed Abrini. He was seen two
days prior to the Paris attacks on camera in a gas station with the key
suspect of this manhunt originally, a man called Salah Abdeslam. So, two
men now being hunted by the Belgian authorities and the reminder of just
why the security alert level in this country remains at the highest level.
Now, despite that, the other development is the lockdown measures
that have been in place for the last four days eased today. We saw schools
reopening, literally with a great deal of police presence, but we also saw
the subways opening, around 50 percent of them actually by midday today
were open. We went down there and talked to travelers just to get a sense
of whether or not they were still fearful, whether they were just glad to
get back to work, or whether or not they felt that the authorities
overreacted to the risks here.
Listen in to some mixed opinions.
UNIDENTIFIED FEMALE: I`m feeling OK. Yesterday, I went to my work,
but today I decided to take the metro because I think it`s OK.
UNIDENTIFIED MALE: I think it might have been a little bit over the
top, just because I was under the impression that there was some concrete
action to be taken. They arrested 16 people but released 15 yesterday, so
it just makes it sound like it was a little bit pointless overall.
However, I think a lot of people were scared, and ultimately, it`s good to
reassure people, or at least try and take some action to try and prevent
CHATTERLEY: Let me contrast what that man there was saying about
this overreaction. I spoke to a woman today who said, hang on a second, if
we`re still operating at this high security level, if we`re still fearful
of an imminent terrorist attack, why are we opening schools and why is the
subway coming back to normal? What`s the situation here? Are we at risk
or aren`t we?
I think that`s a fair question in the circumstances and actually
underscores I think the level of uncertainty still remaining in this city
of Brussels. But for now, what we see is the highest security level
remaining in place, the lockdown measures removing, and of course, an
expanded manhunt, two men now being sought by police.
For NIGHTLY BUSINESS REPORT, I`m Julia Chatterley in Brussels.
MATHISEN: Still ahead, why authorities aren`t taking any chances on
safety this upcoming holiday weekend.
MATHISEN: As shoppers and retailers prepare to get into the holiday
spirit, they are also confronting the harsh realities of terrorism.
Officials keep saying there`s no credible threat to so-called soft targets,
but as Scott Cohn reports from San Jose, they`re not taking any chances.
SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Upscale shops,
open-air elegance, Silicon Valley`s Santana Row is a magnet for new money,
but it`s also the kind of place that security professionals call a soft
target, which, in light of the Paris attacks, is not lost on shoppers here.
UNIDENTIFIED FEMALE: It happened in Paris, it happened in big
places, so why not in San Jose? We`re in the center of, like, technology.
COHN: Some security here is visible, but most isn`t, a balance all
mall operators are constantly trying to strike. The nation`s largest mall
operator, Simon property group, says all its efforts are closely
coordinated with local and national law enforcement, and each center has
its own detailed security plan.
This isn`t new for mall operators, and it isn`t abstract, either.
Terrorists killed 67 people at a shopping mall in Nairobi two years ago.
U.S. homeland security officials say the biggest threat remains overseas.
The message from the president, reassurance.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I want the American
people to know entering the holidays that the combined resources of our
military, our intelligence and our homeland security agencies are on the
case. They`re vigilant, relentless and effective.
COHN: Officials say shoppers should be vigilant, too. Security
experts say that should include having your own escape plan when you`re in
a public place. Plenty of people are undeterred.
UNIDENTIFIED MALE: I`m not going to let terrorism, you know,
determine what events I go to or shopping for my family or loved ones, so,
not going to happen.
COHN: The International Council of Shopping Centers has high hopes
for this holiday season in the U.S., forecasting about 3 percent growth and
sales approaching half a trillion dollars, that forecast before the Paris
attacks. But so far, there are no plans to revise it.
Scott Cohn, NIGHTLY BUSINESS REPORT, San Jose, California.
HERERA: Security will also be tight at the Macy`s (NYSE:M)
Thanksgiving Day parade, the biggest in the country. The company and the
city of New York are taking extra precautions to protect the millions of
spectators expected to line that parade route.
Courtney Reagan has our story.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The safety
of the more than 3 million Macy`s (NYSE:M) Thanksgiving Day parade
participants and spectators is always a top priority, and following recent
terrorist attacks, it`s front and center for the parade`s 89th anniversary.
The retailer says it works closely with law enforcement, as it does every
year, on comprehensive security plans, saying, “As with any public event in
New York City, security elements are extensive, from the very visible
presence of law enforcement officers to wide-ranging, behind-the-scenes
security operations. The safety of our participants and spectators is the
top priority for us and our agency partners.”
The NYPD is the lead security agency for the parade, and Commissioner
Bill Bratton says that the number of officers trained to deal with an
active shooter situation has increased from 100 several years ago to more
than 500 today, and that number ramps up even further for an event like the
And while the U.S. State Department has warned Americans to, quote,
“avoid public places,” Bratton says New York City is a special case.
BILL BRATTON, NYPD COMMISSIONER: In New York, we`re here
encouraging, come down and join the crowd, be one of the 3 million who are
going to have a great time on Thanksgiving. It`s how New York City works.
It`s how it`s always worked It`s how it always will work.
REAGAN: The enhanced concern isn`t stopping Macy`s (NYSE:M) from
holding the annual parade, and it`s not the first time some have questioned
whether or not the show should go on.
TERRY LUNDGREN, MACY`S CEO: I have been challenged in the past that
in 2001 and in 2008, to eliminate the parade and eliminate the fireworks by
different groups of people that think, why should you be spending money at
this period of time? And I`ll tell you why, it`s because the country needs
REAGAN: And Macy`s (NYSE:M) gets a brand equity uplift at the most
important time of the year. While the retailer won`t disclose how much it
spends on the parade, brand experts argue the return on investment is worth
CHARLES KOPPELMAN, CAK ENTERTAINMENT CEO: Think of how much money is
spent on commercials for the Super Bowl and think of the on-air presence
that Macy`s (NYSE:M) gets. The value is — I don`t think you can count the
value. It`s incredibly valuable for Macy`s and for its brand.
REAGAN: Macy`s (NYSE:M) isn`t the only beneficiary. The floats and
balloons sponsored by big companies with most appearing in the parade for
three straight years. This year`s new floats include Ocean Spray, KFC and
So, while safety is getting extra attention this year, the man in the
big red suit will be coming down 34th Street as planned.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in New York City.
MATHISEN: Deere`s earnings fall, but not as much as expected, and
that is where we begin tonight`s “Market Focus.”
The farm machinery maker managed to post results that topped
estimates, despite weak conditions since crop prices are low. The company
also offered a better outlook, saying it is prepared to deal with a
worsening slump in demand for its gear. Shares rose nearly 5 percent to
$80 on the button.
Hormel announcing its board approved a 2-for-1 stock split. The move
still has to be approved at the firm`s annual meeting in January. The firm
says it thinks the split will put its stock price in a more attractive
range for a number of investors. Shares 3 percent higher today, $73.55 the
Donaldson (NYSE:DCI) cut its earnings guidance for the year, this
after the filtration manufacturer reported a more than 30 percent decline
in profits. The company blamed reduced customer demand and currency
headwinds for the disappointing quarter. Despite that, the stock was up
nearly 3 percent to $31.28.
And the private equity and asset manager American Capital
(NASDAQ:ACAS) has hired Goldman Sachs (NYSE:GS) and Credit Suisse to help
it undergo a strategic review of its options. The company will consider a
sale of its whole business or units and will hike its share buyback
program. The stock popped 9.5 percent to $15.22.
HERERA: Universal (NYSE:UVV) Display saw its shares rise on a report
that Apple (NASDAQ:AAPL) plans to switch to a new type of display, which
the company produces for its iPhones starting in the year 2018. Shares
rose 7 percent to $51.95.
Sony (NYSE:SNE) says it has now sold more than 30 million PlayStation
4 consoles. The firm says the system has sold faster than any of its
predecessors. The stock fell more than 1.5 percent to $26.51.
And Pandora announcing Adele is bringing her latest album, “25,” to
its service. News of the album`s availability comes after Adele said
earlier that she had decided against making her album available on other
services, like Apple (NASDAQ:AAPL) Music and Spotify. Shares of Pandora up
4.5 percent to $13.82.
And a panel that advises the Food and Drug Administration announced
that BioMarin`s data on an experimental drug was not persuasive enough to
warrant approval. The FDA hasn`t officially voted to approval for the
medication, which treats a muscle disorder. Nevertheless, shares fell 2
percent to $96.06.
MATHISEN: The nation`s largest state pension, the California Public
Employees Retirement System, also known as CalPERS, says that it paid $3.4
billion in performance fees to private equity managers since 1990 and $700
million last year alone. Now, that`s on top of standard management fees
that totaled $414 million last year.
So, will this disclosure lead to tougher scrutiny of private equity
investments and put pressure on managers to cut their fees?
Joshua Gotbaum is former director of the Pension Benefit Guaranty
Corporation, now a guest scholar of economic studies at the Brookings
Joshua, welcome. Good to have you with us.
JOSHUA GOTBAUM, FORMER DIR., PENSION BENEFIT GUARANTY CORP: Good to
MATHISEN: Why did this stand out so much, what CalPERS did, and why
did it take them so long to do it, to reveal what they pay in performance
fees to private equity?
GOTBAUM: I think the fact is that CalPERS is doing their job. What
their job is, is to review the whole $300 billion-plus that they are
responsible for and ask, where are you getting value for money?
And they`ve done this — they are doing this review continually.
About less than a year ago, they did this review and decided hedge funds
were not getting value for money. We`re going to cut back dramatically on
In the case of private equity, what they found was that even though
the fees are very high, that the returns are so high that even after fees,
it`s worth it, from their perspective.
Let me give you a for instance. CalPERS says that over the last 20
years, their investments in regular stocks have averaged about 8 percent
per year compounded. Their investments in private equity after admittedly
really high fees have returned 50 percent more than that, about 12 percent
per year compounded.
So, my view of this is, CalPERS is doing their job. What`s different
and important and which we should encourage is that they are providing more
detail and more information about the fees they`re paying than most pension
funds have ever provided.
GOTBAUM: And I`m hoping that that sets a new standard for honesty
and disclosure, because that`s how you actually make sure you get value for
HERERA: I`m sure it would put pressure to get people to disclose to
get other managers to disclose. You have an issue, though, not necessarily
with CalPERS, who you say is doing their job, but with Congress.
GOTBAUM: The — I think there`s a separate question here, which is
private equity has always been a high-cost form of investment. It`s
because private equity firms don`t just trade stocks and bonds, they buy
the company, they put management in, they make operational changes and at
some point sell the company either through the stock market or in a private
sale. If they are successful, they make very high fees, and that`s why you
need professionals like CalPERS to scrutinize and make sure those fees are
The flip side of it and the reason why some folks are ticked off is
that, unfortunately, Congress has said that private equity firms and hedge
funds, after they make those very high fees, don`t get taxed as much as the
rest of us. They get taxed at the capital gains rate, rather than at the
ordinary income tax rate.
MATHISEN: And those fees are what we refer to, am I correct, Joshua,
as carried interest? And that`s the carve-out for those fees, correct?
MATHISEN: But finally, just to tie it off, it sounds like you`re
saying, I should — if I`m a CalPERS investor, I should be happy that
they`re paying these high performance fees because it means they`ve got
GOTBAUM: I think if I`m a CalPERS pensioner, I should be happy that
the folks at CalPERS are doing their job, they`re sharpening their pencils
and they`re making sure that if they pay high fees, which they are —
MATHISEN: They`re getting back —
GOTBAUM: — they`re getting real value for it.
MATHISEN: All right.
GOTBAUM: And here they are.
MATHISEN: All right, Josh. Have a great Thanksgiving. Joshua
Gotbaum with the Brookings Institution.
GOTBAUM: You too. Thanks.
HERERA: And coming up what some airlines are doing to manage the
rush of fliers during this very busy holiday travel weekend.
MATHISEN: An update on a story we told you about in September.
Turing Pharmaceuticals became a lightning rod for criticism after it hiked
the price of a 62-year-old drug by 5,000 percent. Today, the firm said it
would offer medication that`s called Daraprim to hospitals at what it calls
a significant price cut. Touring says it will cut the price by up to 50
percent for hospitals and offer smaller pill bottles. It will also give
free starter packs to physicians to improve access in emergency situations.
HERERA: The annual Thanksgiving travel rush is on, and this year,
AAA estimates more than 47 million people will travel at least 50 miles
this weekend. The overwhelming majority by car, but millions more will
also be flying.
Phil LeBeau reports from inside the united airlines operations
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: From security
lines to lines of planes waiting to take off, this Thanksgiving will be the
busiest for airlines since 2006. So, travelers are already packing a
healthy dose of patience.
UNIDENTIFIED FEMALE: You`re going to notice there`s going to be a
backup in the line, but for me, it`s priceless, you know. Peace of mind is
LEBEAU: With the economy doing better, the number of people flying
is up 3 percent, so airlines like United are adding more workers and
flights. In fact, here at United`s operations center, the airline has
scheduled another 140 red-eye flights for Saturday morning and Sunday
morning as more people look to fly when the airports and skies are less
SANDRA PINEAU-BODDISON, UNITED AIRLINES SVP: Customers are more
savvy in traveling, and they really want to expand the time, the holiday
they have with their family and friends, and so, it gives another option.
And you know, hopefully, you get a little sleep on the plane, too, but when
you get back, you`re rested from the holidays.
LEBEAU: While the terror attacks in France may be prompting some
tourists to stay away from traditional destinations, flights to Europe are
still full. This year, about 10 percent of those traveling for
Thanksgiving will be leaving the U.S.
JOHN HEIMLICH, AIRLINES FOR AMERICA VP: We`re close to the record,
and more importantly, we`re at the highest amount since the recession,
since those peak volumes.
So, it`s a great sign of consumer confidence and a good time to fly.
LEBEAU: And a good time to be with family and friends.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
HERERA: That does it for us. I`m Sue Herera. Happy Thanksgiving.
MATHISEN: And happy Thanksgiving from me. I`m Tyler Mathisen.
We`ll see you for a special edition here tomorrow on NBR.
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