Transcript: Nightly Business Report – October 6, 2016

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

(BEGIN VIDEO CLIP)

GOV. RICK SCOTT (R), FLORIDA: If you`re watching and living in an evacuation zone, you need                                                                       to leave now. If you`re in an evacuation zone, get out.

(END VIDEO CLIP)

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Hurricane Matthew barrels
towards Florida. It could be one of the most expensive storms in U.S.
history. And inflict billions of dollars of damage to coastal homes.
We`ll have the latest.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Major shift. The world`s
largest retailer Walmart reined in its profit outlook as it spends a lot
more to look like an e-commerce company and less like it does today.

HERERA: Getting ahead. Why millennials may have a reason to whine in the
workplace.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
October 6th.

MATHISEN: Good evening, everyone, and welcome.

Hurricane Matthew is massive and it`s continuing its march for the
southeastern part of the United States. President Obama declaring a state
of emergency in Florida. The governor of that state ordering millions to
evacuate, warning that millions more could and almost certainly will lose
power.

The waves are already picking up. And the economic disruption has started.
Businesses shutting their doors. Theme parks closing. There are gasoline
shortages, and that is not all.

Morgan Brennan reports tonight from Daytona Beach.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: As Hurricane
Matthew barrels toward the eastern coast of Florida, President Obama
signing a declaration of emergency for the state. More than a million and
a half people are being urged to evacuate. And throughout the region, more
than 2 million people, the most we`ve seen since Super Storm Sandy.

Throughout day, Florida Governor Rick Scott has been urging people to
evacuate if they are in unsafe zones and to take the storm very seriously.

SCOTT: We should not be putting people`s lives at risk because you made
the foolish decision not to evacuate.

BRENNAN: Folks further south in Florida are already without power. And
Florida Power and Light, one of the largest electric utilities in the
country, expects 2.5 million people to be without power on its 10-million-
customer network. The also warning some of those outages could be for long
periods of time, as the utility has to repair parts of the grid.

Here in Daytona Beach, we see many businesses already boarded up and sand-
bagged with people leaving. Hotels here have already closed to the general
public, and this is considered an evacuation zone that goes into effect at
sunset. We have courts up and down the coast are closed with cruise ships
and container ships being rerouted. In stores, shelves are picked clean
from bread to water to batteries to generators at everyone from Home Depot
(NYSE:HD) to Target (NYSE:TGT).

And at gas stations, many gas stations along the coast are already
experiencing fuel shortages, with the average price of a gallon of gas
ticking up several cents since Tuesday, according to Gas Buddy. Theme
parks have closed down including Disney (NYSE:DIS). It is only the fourth
time in Disney`s history in Orlando it`s closed, the last time in 2004.

And in terms of this hurricane, it`s still much too soon to know what the
damage and thus the economic impact will be. However, for every million
people that are evacuated, Planalytics says that results in $100 million in
losses.

So, for all that are watching and in the area, please be safe.

And for NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in Daytona Beach,
Florida.

(END VIDEOTAPE)

HERERA: And as millions flee the path of Hurricane Matthew, they leave
their homes behind. Homes that will no doubt sustain considerable damage
from the fierce winds and even worse, from the rising water.

Diana Olick takes a look at just what`s at risk.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: No matter how much
Floridians shore up and board up, there will be damage to the state`s
homes. Most notably from the storm surge which could reach nine feet.
Core Logic ran the numbers, and they are staggering for a category 4
hurricane.

In Florida alone, 954,000 homes are at risk of storm surge damage. The
reconstruction value of these homes is just over $189 billion. In Daytona
Beach, which could get the worst of it, there are 97,000 homes in its path
with reconstruction value of over $19 billion.

As the storm moves up the coast, 138,000 coastal homes in Georgia lie in
its path. Reconstruction costs there of $30 billion.

By the time it gets to South Carolina, forecasters expect Matthew will have
weakened to a category 2 storm but 124,000 homes are still at risk of flood
damage with $32 billion in reconstruction.

The numbers are considerably higher today than they were when Hurricane
Andrew hit in 1992. Florida was the epicenter for the housing boom and
bust, and construction there is strong again now. More than 200,000 new
homes have been built in the last decade, according to John Burns Real
Estate Consulting.

And that doesn`t count the many, many new residential towers still
sprouting up in Miami.

And while building materials have improved in the last decade and new codes
require things like shutter systems and high impact glass, very little has
been done in terms of construction engineering to help mitigate the damage
from these storm surges.

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

(END VIDEOTAPE)

MATHISEN: Insurance companies with exposure to Florida were down sharply
in Wall Street trading today. These insurance companies, mostly small cap
stock, they all fell 7 percent or more with HCI Group down the most, off
more than 12 percent. Several of the country`s largest insurers, you may
recall, pulled out of Florida after previous storms.

HERERA: Airbnb is offering free rooms in Florida and South Carolina to
those affected by the hurricane. The vacation rental company has activated
its disaster response tool, which connects evacuees with rooms offered up
by Airbnb host at no charge. Florida Governor Rick Scott made mention of
that service in this morning`s briefing.

MATHISEN: On Wall Street, stocks started the day mostly lower and the Dow
dipped, weighed down by shares of Walmart. More on that in a moment.

But the major indexes climbed back to end just about flat, one day ahead of
the monthly employment report tomorrow. Here are the closing numbers, the
Dow Jones Industrial Average off just 12 points to 18,268. NASDAQ dropped
nine. And the S&P 500 managed to eke out a gain with a rise of one point.

HERERA: More now on Walmart, which is making a bigger push into e-
commerce. The world`s largest retailer warned investors that this long
term plan will be costly and weigh on earnings over the next couple of
years. That pressured shares which fell more than 3 percent.

Courtney Reagan has more on Walmart`s shift.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Even though 90
percent of Walmart`s sales comes from its stores, the world`s largest
retailer is opening fewer of them over the next couple of years than
initially planned and plowing more into its e-commerce business.

Today, Walmart hosted analysts for its annual investor today and
headquarters in Bentonville, Arkansas. And while the retailer outlined
disappointing earnings guidance for the next two years, the big focus was
on growing digital sales.

DOUG MCMILLON, WAL-MART CEO: We have strength going on in the stores. We
know we need to invest in e-commerce to get to scale. It`s about the
longer term for the company. And from a position of strength, we`re
deciding to do it now.

REAGAN: Buying jet.com is a key pillar of Walmart`s e-commerce strategy.
Today, investors heard from Jet`s founder Marc Lore for the first time,
explaining his company`s dynamic pricing model that claims to get consumers
the lowest price.

MARC LORE, JET.COM CO-FOUNDER: That`s what we do at Jet. We in real time
we`ll show the consumer what savings are of buying one product over
another.

REAGAN: Lore`s just 17 days into his new job as head of Walmart`s e-
commerce, and CEO Doug McMillon joked, he`s assumed the role of Lore`s
bodyguard as they work to leverage Jet`s e-commerce success into
walmart.com.

MCMILLON: One of my responsibilities is to try and protect Marc and Jet
from the Walmart bureaucracy that exists so they can continue to move with
speed, continue to innovate, and run unencumbered.

If Marc can be Marc within this company, great things are going to happen.

REAGAN: Walmart`s online sales have fallen short of its aggressive 20 to
30 percent growth goal so far this year. But today, executives said
Walmart could hit the target in the back half of this year, and the next
two years.

Moody`s (NYSE:MCO) analyst Charlie O`Shea isn`t so sure the retailer can
get there but says even if Walmart achieves 20 percent growth online, its
increased investment in e-commerce would be justified.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

MATHISEN: Federal Reserve vice chair Stanly Fischer said low interest
rates may reflect deep seated economic problems and not just temporary
factors or cyclical factors. In a New York speech, Fischer said that the
economy`s fate and higher interest rates depends on coordinated government
policies and not just Fed action. He suggested that some combination of
improved public infrastructure spending, better education and more
effective regulation could promote faster growth in productivity and
economic output. That in turn would pave the way for higher interest
rates.

HERERA: Some positive news on the labor market just one day ahead of the
key monthly employment report. The number of Americans filing for
unemployment benefits fell to a near four-decade low, to 249,000. That
decline is an indication that the labor market is tight and that employers
are not that willing to fire workers.

And as Hampton Pearson reports, both Wall Street and Main Street will be
paying close attention to tomorrow`s report.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: When the Labor
Department releases its September jobs report tomorrow, it`s expected the
economy added 170,000 jobs with the unemployment rate holding steady at 4.9
percent. But private sector hiring slowed in September, just 154,000 new
hires, according to payroll processor ADP, the slowest monthly increment
since April.

At the same time, there were near 6 million job openings.

MARK ZANDI, MOODY`S ANALYTICS: We have a record number of open job
positions. It`s going to be hard to fill them. We`re coming into full
employment, so job growth is going to slow and this is part of that
process.

PEARSON: Today, the Labor Department reported first time unemployment
claims fell to 249,000 last week, the lowest in more than 40 years.
There`s also upbeat news about American service companies. With health
care and the restaurant industry leading the way, service companies grew at
the fastest pace in nearly a year. The sector counts for nearly two-thirds
of the jobs in the economy. However, Wall Street analysts are split on how
the Fed will read the jobs report when it comes to raising interest rates.

ROB MARTIN, BARCLAYS, SENIOR U.S. ECONOMIST: You`ve got a committee that
is solidly split between a few people who would rather just not raise until
they see some obvious harm from being at zero or near zero and other guys
who want to raise rates today.

PAUL HICKEY, BESPOKE INVESTMENT GROUP, LLC, CO-FOUNDER: If something
happens, it`s always going to be a little later. There`s always something.

PEARSON: Tomorrow is the first of two jobs reports before the next Fed
meeting and the presidential election. We`ll have to wait and see if there
is an October surprise where monetary policymakers or the presidential
candidates.

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

(END VIDEOTAPE)

MATHISEN: As we`ve been reporting, the labor market faces two major
challenges: stagnant wages and a skills gap. But a new report today may
shed some light on the issues.

Steve Liesman explains.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: A vast study of the
U.S. labor market by the Pew Research Center released today finds wages of
younger workers have actually declined compared to 1980. The wages of all
workers, they have soared. The study includes a survey of 5,000 Americans
and an analysis of decades of government data.

Using 2014 dollars, the study found that those age 16 to 24 have seen their
incomes decline 11 percent. Older workers, they`ve seen their wages
increase by 37 percent. Over the time period, the median income of all
workers rose just 6 percent. That was powered by two groups, those with
four-year college degrees and women, who saw 32 percent gain in income
versus a 3 percent decline for men, closing the gender pay gap.

Stagnant incomes is a big reason for widespread political dissatisfaction
across the U.S. and other developed countries, one that has the attention
of the World Bank.

JIM YONG KIM, WORLD BANK PRESIDENT: The only group whose income did not
rise between 1988 and 2008 were really the lower middle class and high end
countries, from the 75th to the 85th percentile, their incomes did not
rise. So, their complaints, their anger I think is real. It`s based on
the fact that they did not enjoy the benefits of globalization like
everyone else.

LIESMAN: The Pew Study found those with rising incomes or those with the
highest education and the most skills.

RAKESH KOCHHAR, PEW RESEARCH CENTER: If they have more education, more
experience, more training. And at the same time, they want people with
different types of skills. They want people with social and analytical
skills, fewer demand, lesser demand for people with physical skills.

LIESMAN: That could explain the young versus old gap in wage gains. More
and more younger Americans are in school, gaining the skills the labor
market demands. Many older workers retire. Those who remain working could
be better paid because they have the needed skills.

For now, the survey shows the labor market wants more skills. And,
luckily, it also shows Americans know they need those skills to get good
paying jobs.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

HERERA: Still ahead, do you hold some of the hottest sectors of the year
in your portfolio? Well, they may be starting to cool off.

(MUSIC)

HERERA: The head of the International Monetary Fund has something to say
about Deutsche Bank. Christine Lagarde says the sooner Germany`s largest
bank reaches a settlement with the U.S. Justice Department, the better.
She said the deal will bring certainty as to what the bank will owe and
whether it matches with its provisions.

As we reported last week, Deutsche Bank CEO said that he does not plan to
raise capital and said he expects regulators to scale back their initial
$14 billion request.

MATHISEN: UnitedHealthcare is accused of gouging customers. Three
customers have sued the company, saying it charged co-payments for
prescription drugs that were significantly higher than the prices it
negotiated with some pharmacies. Under its agreement, the pharmacy then
gave the extra money back to UnitedHealthcare.

According to “Reuters”, UnitedHealth said, quote, “pharmacy benefits are
administered in line with the coverage described in the plan documents.”
The lawsuit seeks class action status.

HERERA: Facebook`s Oculus unit is trying to garner enthusiasm for its
virtual reality goggles. After some stumbles, the company is hosting a
conference for developers with a goal of one day becoming the dominant
player in what could be the next major computing platform.

Julia Boorstin offers us a peek at our virtual future from San Jose,
California.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Facebook`s Oculus
virtual reality technology has been touted for its potential for gaming.
But now, it`s going social. Facebook (NASDAQ:FB) CEO Mark Zuckerberg
announcing ways people from all around the world can interact in the same
place. Up to eight people can meet up in a virtual space with a new
feature called parties. You can play games or watch movies in a shared
space called rooms.

And now, people can create avatars and even share facial expression

MARK ZUCKERBERG, FACEBOOK CEO: The magic of VR software is the feeling of
presence, right? The feeling that you`re really there with another person
or in another place. And helping this community build this software and
these experiences is the single thing that I am most excited about when it
comes to virtual reality.

BOORSTIN: As Oculus faces growing competition from Google (NASDAQ:GOOG),
PlayStation and others, it just announced its high end Rift headset will
work with lower cost computers. It gave a sneak peek at a prototype for an
entirely new line of headsets that would be as high quality as the rift
without requiring any computer.

Oculus`s CEO Brandon Iribe wouldn`t say when the new line of headsets would
be available or how much they would cost. But he says the company is
focused on serving a market of millions of people down the line.

BRENDAN IRIBE, OCULUS CEO: There are a lot of VR enthusiasts out there.
This is still early days for VR, but we`ve seen a huge amount of adoption
of VR. I mean, this is a dream so many people have had, that one day we`d
finally step into that virtual reality world. And now, it`s a reality.

BOORSTIN: And to make sure there`s plenty of content to experience, Oculus
is doubling down, announcing it spent $250 million on content and planning
to spend another $250 million to build the ecosystem.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in San Jose, California.

(END VIDEOTAPE)

MATHISEN: Theranos, the once fast-growing startup that ran into trouble,
is shutting its clinical labs and blood testing facilities. It`s also
cutting 40 percent of its workforce. The company set out to revolutionize
the blood testing industry and was valued at $9 billion just two years ago.

But then experts found inaccuracies in the blood tests. Walgreen`s
cancelled its contract with Theranos. And the government began to
scrutinize the company, hard. Theranos says it will now focus on a product
that will, in its words, commercialize miniaturized laboratories.

HERERA: Twitter shares crater as interest to buy that company seemingly
dwindled. And that`s where we begin tonight`s “Market Focus”.

According to industry website Recode, Apple (NASDAQ:AAPL), Disney
(NYSE:DIS), and Google (NASDAQ:GOOG) will likely not bid on Twitter`s
business. But as we told you last night, “The Wall Street Journal” says
Salesforce may be a potential suitor. Shares of Twitter fell 20 percent on
the news to $19.87.

Semiconductor equipment maker KLA-Tencor (NASDAQ:KLAC) and Lam Research
(NASDAQ:LRCX) are scrapping their more than $10 billion merger amid
antitrust challenges from the Justice Department. Separately, KLA-Tencor
(NASDAQ:KLAC) said it will raise its quarterly dividend by 4 percent. KLA
was up nearly 1 is percent to $71.79. Shares of Lam Research (NASDAQ:LRCX)
rose 4 percent to $119.

Boeing (NYSE:BA) saw orders for its airplane fall in the latest quarter
compared to a year ago. The decline was driven by lower demand for its 737
and 777 models. Shares of Boeing (NYSE:BA) fell fractionally to $134.42.

MATHISEN: Nomura downgraded American Express (NYSE:EXPR) (NYSE:AXP) from
neutral to the rare rating of reduced, which is effectively a sell, saying
the credit card company`s weaker than expected sales and higher than
expected costs could lead to AmEx cutting its guidance. Nomura also cut
its price target to $56 from $62. AmEx shares were off nearly 4 percent to
$61.94.

And Costco (NASDAQ:COST), the company that dented American Express
(NYSE:EXPR) (NYSE:AXP) by ending their card relationship recently, posted a
1 percent rise in same store sales in September, topping analysts`
estimates. The discount retailer also said overall sales rose 3 percent in
the latest quarter. Shares finished the day down 51 cents to $149.47.

MATHISEN: L Brands posted better than expected same store sales in
September. The parent company of Victoria`s Secret benefitted from
strength in its Bath and Body Works brand. L Brands up nearly 1 percent to
$71.16.

It was a different story at Gap (NYSE:GPS). The apparel retailer said its
September same store sales fell 3 percent and that a fire in the company`s
New York distribution center pressured results. However, Gaps` pants on
fire decline was less than Wall Street expected. Shares initially rose
after hours, adding to go a 1 percent gain during the regular session.
Shares finished at $22.78.

HERERA: Investors may have noticing a curious thing happening in the
market. The sectors that started the year well are now doing poorly.

Bob Pisani explains the shift under way in the market.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s the new quarter
and the markets are rotating. There`s new leadership. Hot right now:
tech, energy, and banks. Not hot: Interest rate sensitive stocks like
utilities, telecom, and reefs.

What happened? Well, the facts on the ground have been changing. Rising
interest rates are helping banks and hurting interest rate sensitive
stocks, which had been seeing valuations move to unsustainable levels.

Second, this improving economic news is helping cyclical stocks. Third, an
oil rally is pushing energy stocks higher. And, finally, semiconductor
stocks are powering the technology sector higher on heavy demand for chips
in personal communication devices and for the home.

You put it all together, we got new market leaders, banks, technology, and
oil and gas companies are up double digits since the third quarter began.
And utilities, REITs and telecom stocks are down double digits.

What`s it mean? The biggest mover of volatility is the Fed. Bulls are
hoping that any volatility around a Fed rate hike in December may be offset
by strength we have seen in financials and technology. And for the moment,
that scenario is holding.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.

(END VIDEOTAPE)

MATHISEN: Coming up, why the activity tracker is going to the dogs,
literally.

(MUSIC)

HERERA: Here`s a look at what to watch for tomorrow.

As we reported, the employment report for September is due out before the
opening bell. A number of Federal Reserve presidents and governors are
speaking, including Cleveland Fed`s President Loretta Mester and Governor
Lael Brainard speaking as well. And we`ll find out if Americans are taking
on more or debt with the release of the consumer credit report. And that
is what to watch for Friday.

MATHISEN: Verizon (NYSE:VZ) plans to begin working with drone makers to
connect the flying devices to its network. Verizon (NYSE:VZ) says the
plans would let drones connect to the Internet while in the air and stream
videos live. According to the company, there are also commercial
applications like oil pipeline inspections and wildfire examination.

HERERA: Snap, the parent company Snapchat, is reportedly working on an
initial public offering that could value it at $25 billion or more. As
first reported by Dow Jones, the IPO could take place as early as March.
Snapchat allows you to send videos and pictures, both of which self
destruct after a few seconds of viewing them. Snap is also reportedly on
pace to exceed the top end of its 2016 revenue forecast.

MATHISEN: Activity trackers have a lot of people love them as a way of
keeping on top of their health and wellness. But now, the wearable market
is entering the annual kingdom. Smart technology companies are now
targeting pets.

As Aditi Roy tells us, it`s an increasingly lucrative market.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The wearables market has
literally gone to the dogs. This is the Link ACK, it`s a smart dog collar.
The data is all on this module. All you have to do is snap it in like this
and put it around your dog. A smartphone will track his activity.

It`s just the latest new product to hit the hot new pet wearables market.

Astor is an Australian cattle dog who loves to go on walks. Her doting
owner would love to know where she is and what she`s doing when he`s not
there. And that`s exactly the type of pet owner Link is going after.

HERBIE CALVES, LINK CMO: It`s not a demographic target, it`s more of a
psychographic target, and consumers and dog owners who think of their dog
as a child. And they would be the early adopters.

ROY: The Link AKC is the first pet wearable funded and marketed by the
American Kennel Club, a nonprofit for purebred dog owners. The smart
collar monitors how much activity your dog is getting, has a remote
controlled light to help you find him in the dark and shows you where he is
at all times.

CALVES: It`s similar to a cellphone that you would give to your kids so
you have the peace of mind that you can always get enough with them or know
what they`re up to. This is like having a cellphone for your dog.

ROY: The market opportunity is large and growing. In U.S. alone, pet
owners are expected to spend more than $60 billion on their furry
companions this year, according to the American Pet Products Association,
and the global pet wearable market is expected to reach $2.3 billion by
2022, according to Grandview Research.

Link has some catching up to do. Its competitors include whistle and fit
bark which already sell their pet wearables on Amazon (NASDAQ:AMZN).

The Link AKC is available on preorder now, and soon on Amazon
(NASDAQ:AMZN). It costs $199 with a monthly subscription between $6.95 and
$9.95. The company hoping its collar will soon be a popular stocking
stuffer for Fido.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Francisco.

(END VIDEOTAPE)

HERERA: What did you just say?

MATHISEN: You have to divide the number of steps by four to get the right
amount.

HERERA: To get the right amount of —

MATHISEN: Yes.

HERERA: Who knows?

All right. That does it for us on NIGHTLY BUSINESS REPORT for tonight.
I`m Sue Herera. Thanks for joining us.

MATHISEN: And thanks from me as well. I`m Tyler Mathisen. Have a great
Thursday evening, everybody, and we`ll see you tomorrow.

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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