Transcript: Nightly Business Report – August 23, 2016

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Unexpected surge. Purchases of new homes increased to the highest level in nearly a decade. But as sales grow, the size of the homes shrink.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Surprise growth. Best Buy was in a deep hole not too long ago. But today, the retailer is able to do something others are not, and its stock is soaring.

HERERA: Scary statistics. A new report shed light on what’s happening on our highways as more drivers log more miles.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, August 23rd.

MATHISEN: Good evening, everyone, and welcome.

The NASDAQ briefly moved into record territory today, but failed to close there. We’ll have more on that in just a moment, but we begin tonight with housing, where more new homes were sold in July than in nearly a decade — further evidence that the American housing market remains quite healthy. According to the Commerce Department, new home sales rose more than 12 percent from June to the highest level since 2007. Sales were more than 30 percent above their year ago levels and were especially strong in the south, thanks to both low interest rates and low unemployment.

Now, some of the increase in sales has to do with first time home buyers reentering the market and that means homebuilders are catering to them, not with large houses but with smaller, more affordable ones.

Diana Olick reports.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: It’s happening in Brandywine, Maryland, at Mid-Atlantic Builders and across the nation. The average size of a newly built home is shrinking for first time since the end of the recession.

STEPHEN PAUL, MID-ATLANTIC BUILDERS: Mostly, it’s financing. It depends on the market, but in our markets, it’s been — financing is driving the deals and these builders are adjusting their product to meet the affordability issues.

OLICK: More entry level buyers who need mortgages are coming back to the home-buying market and that means more demand for smaller homes.

PAUL: One point during, before the Great Recession, we were probably averaging 4,200 square feet a house. Now, we’re 2,800 to 3,100 square feet. So, yes, they’ve shrunk quite a bit.

OLICK: During the housing recovery, the majority of builders were catering to the high-end because that’s where the buyers were and in large part still are.

Luxury homebuilder Toll Builder Brothers reported a stellar latest quarter with big jumps in sales and new contracts.

DOUG YEARLEY, CEO, TOLL BROTHERS: We’ve had great demand nationwide. Every region for us was up.

OLICK: But other builders like Lennar and D.R. Horton are pulling focus back to more affordable and therefore smaller homes. That’s why the average size of a home built from April to June was over 70 feet smaller than it was in the first three months of the year.

And even if most luxury buyers still like bigger home, luxury builders do see market for smaller homes in one growing subset, the active adult.

YEARLEY: There’s a mix issue, where as more and more boomers buy houses, they may be smaller, because they don’t need all the square footage.

OLICK: And as for the youngest home buyers, the millennials —

UNIDENTIFIED FEMALE: This is all storage for all your fellows.

OLICK: Smaller can often mean tiny, from micro apartments to tiny homes, as long as the place is tricked out with all the top techy amenities, bigger clearly isn’t always better.

For NIGHTLY BUSINESS REPORT, I’m Diana Olick in Washington.

(END VIDEOTAPE)

HERERA: That strong housing report sent shares of homebuilders higher by such as 8 percent. And to read more about new homes sales and the trends to smaller house, head to our website, NBR.com.

MATHISEN: On Wall Street, stocks closed higher today. During the trading day, the S&P 500 came within a point of its intraday high. The NASDAQ surpassed its record, but then pulled back. By the close, the Dow Jones Industrial Average gained 17 points to 18,547, NASDAQ added 15, the S&P 500 was up four.

And oil prices nearly 1.5 percent on reports that Iran was sending signals that it may support OPEC action to curb production to support prices.

HERERA: It’s the summer doldrums on Wall Street. And it has investors worried about a volatile start to the year and a recent string of record setting highs. The U.S. stock market has gone eerily quiet in recent weeks, the quietest it’s been in nearly 20 years.

So, is this a calm before the storm? Or can we expect this to continue?

Scott Wren joins us, senior global equity strategist at Wells Fargo Investment Institute.

Good to see you, Scott. Nice to have you here.

SCOTT WREN, SR. GLOBAL EQUITY STRATEGIST: Good evening, Sue. Thank you. How are you?

HERERA: I’m good.

I guess the question is, is how good is this market? Do you expect the trend that we’re seeing now to continue? Or as we get closer to the fall, are you looking for a bit of a pullback?

WREN: I think the trend in August, you know, it’s usually quiet in August. A lot of people are comparing this to last August, which obviously was pretty traumatic, at least towards the end of the month. So, I think we’re going to see low volume. We’re going to see some range trading at least into Janet Yellen’s speech here.

Now, saying, you know, we’ve come a long way. We’ve basically gone straight up since the post-Brexit vote rally. And so, I would think seasonally, you’re coming into the election. You have an Italian referendum, you have all sort of things going on and it would only be natural that we would see a pullback September, October period, but I don’t think it’s going to be severe.

The level that we’re watching on the downside is 2,050. That’s pretty good technical support. That’s 6 or 7 percent from here. You know, 5 percent, you could — that could happen on anything. I mean, just noise. But I don’t think we’re going to see a big pullbacks here in that September and October period.

MATHISEN: You know, Scott, when we say it’s quite, what we mean is that volatility is down. It’s really down at two year lows, historically low. Why has volatility gone away?

WREN: Well, Ty, I think — you know, lately, you know, the markets had a pretty good bid to it, most of the time and volatility drops like a rock, the VIX drops like a rock on any of these rallies, which obviously, the two pullbacks we’ve had this year, the big ones. They’ rallied back frit quick and in a short period of time.

I think right now, we’re really on Fed watch this month really for the last two or three weeks and, you know, people are wondering, what’s going to happen with the Fed. We’ve seen, we know there’s a lot of dissension. There’s been numerous governors, some saying, you know, interest rates aren’t going up until 2018. Others saying, hey, we could raise this year.

The market’s looking for some clarity out of Janet Yellen’s speech due on Friday and I think after that, you know, if she is hawkish in any way, you know, the market might struggle a little bit there.

HERERA: OK.

WREN: What the market doesn’t want to see is the Feds say, hey, we’re going to have a series of hikes here over the next six or nine months.

HERERA: Scott, thanks always for your perspective. We appreciate it.

WREN: All right. Thanks, guys.

HERERA: Scott Wren with Wells Fargo Investment Institute.

MATHISEN: Best Buy was the top performing stock on the S&P 500 today. Shares rose more than 19 percent, its best day in years. Investors were encouraged by the retailer’s strong quarter, which topped earnings expectations on stronger than expected revenue. And Best Buy is growing sales online, an area dominated, of course, by Amazon.

Courtney Reagan has more.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Best Buy maybe the last big consumer electronics retailer standing and it’s standing strong. While data from the U.S. Commerce Department showed a 4 percent decline in sales at consumer electronics stores in the quarter, Best Buy’s consumer electronic division performed exactly the opposite, growing 4 percent. The category makes up a third of Best Buy’s total sales.

Best Buy’s online sales grew by nearly a quarter, with traffic and the rate of those making a purchase both higher, leading many to wonder if Best Buy and Amazon can coexist, both growing market share.

PETER KEITH, PIPER JAFFRAY: I think the old saying that best buy is losing share the Amazon is just outdated. They’re at least maintaining or gaining sharing in the industry and our broader concern is just on the overall product cycle backdrop which means a bit tepid.

REAGAN: The retailer says tablet, and smartphone sales have been hurt by lack of new products, but sales are now, quote, “less bad”. But if consumers continued investments in big home upgrades, like home theater and new appliances are really making a difference. Sales of appliances like refrigerators or washing machines grew 8 percent in the quarter, marking the retailer’s 23rd consecutive quarter of growth.

4K TVs have been another important sales drivers for Best Buy, but as prices begin to fall, down about 30 percent in a year, some analysts think discount retailers could become a bigger destination for the products than Best Buy, which currently has 115 different models.

KEITH: If you get below $1,000 in 4K, Walmart becomes a lot more relevant in the category and we think they will be a lot more competitive this holiday season, although when you look at the results for Q2, you have to credit Best Buy. They look like they’re continuing to take share in TVs and in the near term, it’s probably no stoppage in that dynamic.

REAGAN: Many think experiencing the big ticket items in store makes a big difference.

MATT MCLINTOCK, BARCLAYS: This company has proven that they can still remain relevant in televisions in selling 4K TVs and selling it as a complete package with a home theater system and presenting that in a shop and shop way where the consumer can have a lot of experience, discussions with people who know what they’re talking about, about how they want to set that up in their house.

REAGAN: McLintock thinks Best Buy store demos and service give it a stronger edge than price wars, which is what we’re going to see a lot more of this holiday season.

For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan.

(END VIDEOTAPE)

HERERA: President Obama today visited areas hard hit by the unprecedented flooding in Louisiana. The region is struggling to clean up and while there, the president underscored the federal government’s response.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: To give you a sense of the magnitude of the situation here, more than 100,000 people have applied for federal assistance so far. As of today, federal support has reached $127 million. That’s for help like temporary rental assistance, essential home repairs and flood insurance payments.

(END VIDEO CLIP)

HERERA: And as we reported yesterday, many homes damaged by the flooding there do not have flood insurance.

MATHISEN: Manufacturing activity in the Central Atlantic Region declined in August, according to the Richmond’s Fed’s regional survey of business activity. There was a sharp decline in new orders.

As we’ve been reporting, the manufacturing sector has been hit hard by weak economic growth overseas.

HERERA: And it is that weak overseas growth that is hurting the shipping industry. Those massive containers that move goods around the world are vital cogs in the global economy.

And as Morgan Brennan reports, this year, the industry is coming under an intense amount of pressure.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is shipping’s busy period, from August to October, as retailers and other consumer focused industries stock up on goods for the holidays.

Peak season means volumes should be surging, but so far, things are off to a, quote/unquote, “slow start”. That’s what the port of Long Beach is calling it, after container volumes dropped nearly 8 percent last month.

The country’s second largest port is blaming market uncertainty and high inventory levels, an issue that’s plagued the transportation and retail sectors all year. The National Retail Federation expects American ports to handle roughly the same number of containers in August as last year, with growth potentially picking up later in the fall.

JONATHAN GOLD, NATIONAL RETAIL FEDERATION: I think we’ll see a general uptick. I don’t think you’re going to see a huge uptick. I think again, you’ll see some growth. But it’s not going to be a significant growth like we’ve seen in prior years. I think growth is good, so again, I think we’re going to see for the year, just under 2 percent growth in general. We’re still waiting to see what the rest of the holiday is going to shake out in the forecast. We’re still predicting numbers to increase over the next couple of months.

BRENNAN: On Wall Street, many analysts expect the season to be muted and some companies are bracing to that possibility as well. Expeditors International noted in a recent regulatory filing that the amount cargo can be moved between Asia and North America may shrink in September. The logistics firm said it doesn’t recall seeing a pullback in capacity in peak season since the recession. It all speaks to a supply mismatch in the market. Too many shifts coupled with too little demand.

The vessels have gotten bigger while global economic growth has remained stagnant. That has sent shipping rate plunging to unsustainable levels and fueled a wave of consolidation, making the peak season all the more crucial for this struggling industry.

But with 98 percent of the world’s manufactured goods from clothes, to smartphones, to heavy machinery moved by containership, a potentially soft season is short to be watched closely, as a barometer for economic health.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan.

(END VIDEOTAPE)

HERERA: Still ahead, as the price of life-saving EpiPens skyrocket, many want to know why there is so little competition.

(MUSIC)

HERERA: Two auto parts suppliers are teaming up to develop a low-cost system for self-driving vehicles. Mobileye and Delphi Automotives say their systems will be available to automakers in 2019, a year or so before most others. Mobileye supplies vision based sensing systems and Delphi provides automotive safety systems. Shares of both companies rose in trading today.

MATHISEN: A new report brings troubling news about how deadly American roads have become. Fatalities are up almost 10 percent this year. And the U.S. is on track for its deadliest year on the highways in nearly a decade. What’s to blame? An improving economy, cheap gas, young drivers refusing to put down their phones.

Here’s Phil LeBeau.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: American roads are becoming more dangerous. In fact, the National Safety Council says traffic fatalities in the U.S. for the first half of the year spiked 9 percent. And they’re up almost 20 percent compared to two years ago.

DEBORAH HERSMAN, NATIONAL SAFETY COUNCIL CEO: We cannot keep accepting these highway fatalities. It would be the equivalent of a major plane crash occurring every week, actually, two plane crash is occurring every week. And our hair would be on fire. We wouldn’t accept that. Why do we accept it on highways?

LEBEAU: What’s going on? Well, the improving economy means more people commuting to work. Also with gas selling for just over $2 a gallon, people are driving more.

And then there is this disturbing fact: distracted driving is getting worse, especially among teen drivers. Thirty-five percent of teen surveyed by the National Safety Council admit they’re willing to text and drive. And almost half of them say they use social media sites or even video chat behind the weal.

HERSMAN: Even though we have more than 45 states banned from texting in place, we’re seeing the use of these devices when people are behind the wheel go up, in spite of all of the education and in fact, people say they know that they shouldn’t be doing it.

LEBEAU: While many drivers and tech firms offer systems or software to disable cell phones in the car, it’s clear many drivers would rather stay connected behind the wheel and run the risk of a deadly accident.

All of which means this upcoming Labor Day weekend could be one of the most deadly ones on U.S. highways in several years. In fact, the National Highway Safety Council says this labor day weekend could be the deadliest on U.S. roads since 2009.

For NIGHTLY BUSINESS REPORT, I’m Phil LeBeau, Chicago.

(END VIDEOTAPE)

HERERA: Lower pet food sales hurt results at J.M. Smucker. That’s where we begin tonight’s “Market Focus”.

A drop in sales in the company’s Kibbles ‘n Bits and Meow Mix brands caused the maker of Folgers Coffee to pose worst than expected revenue. The company also lowered its sales guidance for the year as it expects the weakness in the pet division to continue. Shares went to the dogs. They fell 8 percent on the news to $143.63.

Weak foot traffic dragged down results at Kirklands. The home decor and furniture retailer saw its loss widen in the latest quarter, missing street. Estimates overall revenue did rise I should say, but not at the clip analysts were hoping for. The company gave full year earnings guidance below expectation. That sent shares plummeting 18 percent to $12.03.

Monsanto and Bayer may soon be signing a merger deal. According to a Bloomberg report, the drug giant is said to be in advanced talks wit the seed maker regarding a potential acquisition. And while a deal is not guaranteed, one could be reached within the next two weeks. Monsanto shares were higher by 2 percent to $107.10 and Bayer does not trade in the U.S.

MATHISEN: La-Z-Boy missed a profit and sales expectations. It’s lazy after all, and said some store sales fell as weaker demand for furniture at the whole sale level, impacted results. The retailer also said foot traffic remained challenging. Shares punished initially in afterhours trading. The stock finished the regular session though up 3 percent at $31.20.

Clovis Oncology said the Food and Drug Administration has accepted the pharmaceutical company’s application for an ovarian cancer drug. The government agency also and granted the new treatment priority review and is expected to give an approval decision by early next year. Shares up to 27 percent on the session at $23.03.

HERERA: The soaring cost of the life-saving drug is garnering more attention. Last night, we told you that the price of EpiPens have risen over the past few years and that some member of Congress are calling for an investigation.

Tonight, Meg Tirrell takes a closer look at the reasons why and the lack of competition for a drug that’s in very high demand.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: It’s a life saving drug and it’s price has increased by more than 500 percent in the past decade. The EpiPen used in emergency allergy attacks is now drawing the attention of lawmakers.

SEN. RICHARD BLUMENTHAL (D), CONNECTICUT: Clearly, this price gouging. There’s no other term for it. It’s morally bankrupt.

TIRRELL: Investors in EpiPens’ maker, drug company Mylan, are growing concerned about the increasing focus, putting pressure on Mylan’s stocks. EpiPen accounted for more than 20 percent of Mylan’s profits last year and grew a billion dollars in revenue.

BLUMENTHAL: This price is now so high, they’ve been raised 600, 700 percent and that’s an open invitation to competition.

TIRRELL: But competition hasn’t succeeded, though many have tried.

First, there was French drug maker Sanofi’s Auvi-Q, made available in January of 2013 in the U.S. It looked different from the marker like EpiPen and features voice guided instructions for users. But a glitch last year led to some products potentially dispensing an inaccurate dose of the drug, and Auvi-Q was pulled off the market. Sanofi discontinued its partnership on the product earlier this year.

Then, there was attempted competition from Israeli drug giant Teva. It was aiming to develop a product so similar to EpiPen, it could be swapped in by pharmacists. But it was shot down by the FDA in February of this year, with regulators citing certain major deficiencies.

And there’s another product in the market similar to EpiPens. It’s called Adrenaclick, and it’s made by Impax Laboratories. But according to that company CEO, its run into supply issues.

Analyst Timothy Chang still raised Mylan buy, saying its is in generic drugs.

TIM CHIANG, BTIG MANAGIG DIRECTOR: They’ve been known as a manufacturer with a clean track record with the FDA. I think that’s actually one of the reasons why they are the only major supplier of EpiPens in the United States.

TIRRELL: Mylan has said a changing health care insurance landscape that puts more cost on patients has presented new challenges and it says it has patient assistance programs that offer free drug and co-pay assistance to help. But the drug pricing controversy which isn’t limited to the EpiPens shows no signs of abating.

For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell.

(END VIDEOTAPE)

MATHISEN: Coming up, finders keepers? Not if California’s largest casino and you might not believe what some people live behind.

(MUSIC)

HERERA: The National Labor Relations Board ruled that graduate students who work as teaching assistants at private universities are employees of the school, not just students. It’s a landmark decision and it clears the way for them to join or form unions. Some universities had warned that a decision in favor of students could inject collective bargaining into graduate program, thereby undermining the purpose of graduate education.

MATHISEN: And, finally, tonight, we’ve all forgotten things. How many times have you left your glasses at a restaurant? Your keys at the gym? Your phone in a store, probably more than you’d like to admit. But you will probably never guess what gets left behind at California’s largest casino.

Jane Wells is in Temecula, California.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: So, here we have our items from the casino side.

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: People have a lot of fun when they go to a casino and they tend to forget things.

SHIRLENE ORR, PECHANGA CASINO & RESORT: Things you’re not sure what they are.

WELLS: They forget a lot of things.

ORR: We’ve had glass eyes turned in. We get walkers. We get —

WELLS: Dentures.

ORR: Yes, dentures.

KATHARINE MILANI, PECHANGA CASINO & RESORT: I’ve had the $9,000 ring.

ORR: It’s not unusual to have four or five bikes at a time in here.

MILANI: Fishing poles.

ORR: If you can think it, we get it.

WELLS: Think weird.

MILANI: I was going through a backpack that someone had left. And I actually found the remains of his mother.

WELLS: So many things get left behind, that one casino is expanding its lost and found.

ROBERT KRAUSS, CASINO VP OF PUBLIC SAFETY: Right now, they’re in a room about 17 by 20 feet. They’re going to move to a room double that size.

WELLS: The Pechanga Casino and Resort is a massive property, the largest casino in California, Native American-owned, with a gaming floor larger than many in Las Vegas. The property’s manager says they’re currently operating at 100 percent capacity, so they’re investing $285 million to expand, which will mean a lot more hotel rooms where maids will find a lot more stuff.

MILANI: Looks like a bag of peaches.

WELLS: Last year, over 20,000 items were lost and found, including cash. Someone once left behind a drone in a room. Another person forgot his prosthetic leg. Most items are eventually returned. Those not claimed in 30 days are donated to charity.

Well, not everything is donated.

MILANI: Any alcohol that we’ve got, we have to dump.

WELLS: Pechanga’s two-woman lost and found will expand to four people with the larger resort, meaning more detective work for even the simplest of items, like a hand crocheted water bottle holder recently returned to one woman who reacted as if she hit the jackpot.

MILANI: It was very special because her niece had made it for her and she has passed on. So she was so happy to get it. So, that’s rewarding.

WELLS: For NIGHTLY BUSINESS REPORT, Jane Wells, Temecula, California.

(END VIDEOTAPE)

HERERA: And that is NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. We want to remind you, this is the time of year your public television station seeks your support.

MATHISEN: And I’m Tyler Mathisen. Thank you for your support. Have a great evening, everybody, and we’ll see you back here tomorrow night.

END

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) 2016 CNBC, Inc.

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