TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Trump tweet trips Boeing. The aircraft maker is caught off-guard and its stock stumbles briefly after the president-elect says cancel an order for a new Air Force One. How business must adjust to a new negotiator and chief.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: The high court speaks. In a victory for prosecutors, the Supreme Court broadens the lines for what can constitute insider trading.
MATHISEN: The biggest jobs challenge. It’s not the migration of manufacturing jobs to foreign lands. It’s automation, and artificial intelligence. It could kill not only factory jobs, but millions in the service economy, as well.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, December 6th.
HERERA: Good evening, everyone. And welcome.
Boeing finds itself in the crosshairs. The world’s largest aerospace company was the subject of a tweet by Donald Trump. The Dow component is the sole supplier of Air Force One, which is used to transport the president of the United States around the globe and has done so since the 1940s.
But today, the president-elect had a complaint. The cost of the new Air Force One is too high, and the order should be cancelled.
Phil LeBeau has more on Mr. Trump’s criticism.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Donald Trump is at it again. Now, he’s calling out Boeing, the company that made every Air Force One, and is working on the next generation of 747s that will eventually carry U.S. presidents, starting in 2024.
Trump tweeted, “Boeing is building a brand new 747 Air Force One for future presidents, but costs are out of control, more than $4 billion. Cancel order.”
A few minutes later, Trump blasted Boeing again.
DONALD TRUMP (R), PRESIDENT-ELECT: The plane is totally out of control. It’s going to be over $4 billion for Air Force One program and I think it’s ridiculous. I think Boeing is doing a little bit of number. We want Boeing to make a lot of money, but not that much money.
LEBEAU: How much will the next payer of presidential airplanes cross? The Department of Defense has budgeted $2.7 billion to be spent over the next two years and that’s before the 747s are even built. They cost billions of dollars, because of the technology and defense capabilities built into each plane.
Boeing’s response to the president-elect, “We are currently under contract for $170 million to help determine the capabilities of these complex, military aircraft that serve the unique requirements of the president of the United States.”
“We look forward to working with the U.S. Air Force on subsequent phases of the program, allowing us to deliver the best planes for the president at the best value for the American taxpayer.”
For its part, the current White House staff says the numbers don’t appear to reflect arrangements between Boeing and the Department of Defense.
Perhaps, but Boeing and DOD are now both under pressure to keep costs in check for the next Air Force One and a duplicate 747.
Those planes are needed because the current pair of 747s that carry President Obama around the world are 23 years old, and by the middle of next decade, they will be due for retirement.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
MATHISEN: Well, as the Defense Department comes under pressure to keep in check, there’s a new report out today that the Pentagon suppressed a study to find ways to cut $125 billion in waste. “The Washington Post” reports the study was buried amid fears Congress would use the findings as a reason to cut the Pentagon’s budget. Among other things, the data showed that almost a quarter of the defense budget is spent on back office business operations.
Eamon Javers has been following the story for us from Washington.
Eamon, what else was in the study today?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes. Hi, Tyler.
This was the lead of “The Washington Post” this morning. And the co-byline on this is Bob Woodward of Woodward and Bernstein fame. So, that’s why this story is getting attention and because of the details you rattled off.
This was the defense business board. It’s an outside group of experts brought in by the Department of Defense to analyze what was going on in terms of the back office employment, all the functions and accounting and business development functions of the Pentagon that don’t necessarily relate to fighting wars.
One of the things they found in addition to those numbers that you just cited was that more than 1 million people are involved in that back office effort, as employees or contractors or non-uniform personnel. That is a big, big number. And it’s bigger than anyone suspected.
The ultimate conclusion here was that the U.S. government is spending a lot more for this back office stuff than anyone really knew before this.
HERERA: What about the timing of all of this? Why was this leaked now?
JAVERS: Yes, you know, I talked to Maya MacGuineas about that today. She’s one of the leading balance budget advocates here in Washington, D.C., and she said that this is definitely not an accident. There is always a reason. Here’s what she had to say.
(BEGIN VIDEO CLIP)
MAYA MCGUINEAS, COMMITTEE FOR A RESPONSIBLE FEDERAL BUDGET PRES.: I’m sure that people who have seen this going on for a long time, and now understand that the defense spending budget is likely to increase under a President Trump, given what he said, wanted to get this information out there. So, leaks happen when people put in a lot of work and they want to want to make sure the information is out there. But there is also always political motivations.
(END VIDEO CLIP)
JAVERS: So, read this very much as a message directly to Donald Trump from deep inside the Pentagon bureaucracy. The question now will be, what will Mr. Trump do with this information now that it’s been put on the table?
MATHISEN: And so, what is he likely to do about it?
JAVERS: Well, I think you’ve got to look at the mix of what the Trump team are talking about. And then also, what Congress is likely to do. You remember, Donald Trump has said that Marine General James Mattis is likely to be his secretary of defense. He’s a war-fighting expert. He’s an expert on logistics and planning. He might have one take on it.
But the members of Congress will have a very different take. They like to preserve jobs in their district, and that’s what a lot of these million-plus jobs are all about — spread across the country by contractors who are very savvy about making sure that every key member of Congress has a lot of jobs in their district to vote for keeping this structure the way it is.
MATHISEN: Eamon Javers, thanks very much. Eamon in Washington.
JAVERS: You bet.
HERERA: So, with waste allegedly being a problem in Washington, should the government take a hard line approach to get things cleaned up?
Tom Schatz is president of Citizens Against Government Waste, an advocate group, and he joins us to talk about that.
Welcome. It’s nice to have you here, Tom.
THOMAS SCHATZ, CITZENS AGAINST GOVERNMENT WASTE PRESIDENT: Thank you.
HERERA: Obviously, from the name of your organization, you do think there is some government waste that should be addressed. Let me start with Boeing, and then we’ll broaden out the discussion. Specifically, Mr. Trump made his comments this morning.
Your reaction to them?
SCHATZ: He is basically talking about cost overruns on a lot of Pentagon spending and projects and weapons systems. For example, the Joint Strike Fighter is $160 billion over budget. Seven years behind schedule. Boeing’s Pegasus is also overbudget.
And the Government Accountability Office issued a report in March of this year saying that the major defense acquisition program, 79 of them, are $469 billion above the costs that was expected to be used at the time they went into production.
So, in other words, once they started to the time they’re completed, $469 billion. So, it could be $4 billion, could be $2 billion — something is going to be overrun on the presidential plane. There’s no question.
MATHISEN: How much as you look at the entire federal budget, Tom, would you say is represented in waste or duplicate functions or bureaucracy? How much of the roughly $4 trillion could you cut out if you really took a sharp knife to it?
SCHATZ: Oh, Citizens Against Government Waste issues a prime cuts report every year. This year’s report has 680 recommendations worth $644 billion in one year, $2.6 trillion over five years.
There are reports all over the place. Government Accountability Office issues reports on duplication and overlap, tens of billions of dollars in overlapping programs. All that information is there. And incoming president can take it and use it and get the department heads to look for a lot more waste, and they could certainly cut a fair amount of what we’re now spending in Washington.
HERERA: How much of it also comes down to the bidding process on some of these larger products? Or projects, I should say? Boeing is the only bidder, for instance, on Air Force One. However, some of these other contractors also are single bidders.
Should that be changed and do you think Donald Trump will advocate for that type of reform?
SCHATZ: That’s already being done, Senator McCain and Congressman Thornberry, heads of the Senate and House Armed Services Committee respectively have in the Defense Authorization Act a number of proposals to change the way the Pentagon does business and cut some of this waste that the defense business board has identified.
About half of the contracts with the Pentagon are single bidders and a lot of companies don’t want to get involved, because there is a lot of favoritism. SpaceX, for example, when they wanted to get into the launch business had to sue the Pentagon just to get on the list. And that’s helping to save money already.
HERERA: All right. Tom, thank you very much.
HERERA: Tom Schatz with Citizens Against Government Waste.
MATHISEN: The president-elect held a number of meetings today at Trump Tower. One meeting was with the CEO of Japan’s Soft Bank who pledged to make a big investment in the U.S.
(BEGIN VIDEO CLIP)
TRUMP: Ladies and gentlemen, this is Masa of Softbank from Japan. And he’s just agreed to invest $50 billion in the United States, and 50,000 jobs. And he’s one of the great men of industry.
So, I just want to thank you very much.
MASAYOSHI SON, SOFTBANK OF JAPAN: Thank you.
TRUMP: Thank you very much.
And you — if you would like to speak to them, you can. But one of the truly great men.
SON: Thank you. Thank you.
(END VIDEO CLIP)
MATHISEN: Well, no details beyond those were given. And it is not clear if Softbank’s announcement is new. Softbank’s CEO did suggest that his company would focus on the technology sector, and that the money will come from a $100 billion investment fund that his company set up with Saudi Arabia.
HERERA: On Wall Street, the blue chip Dow index closed in a record, it’s 11th all time closing high since the election. The small cap Russell Index also in record territory. As for the numbers, the Dow rose 35 points to 19,251. The NASDAQ climbed 24, the S&P 500 tacked on seven.
MATHISEN: Corporate leaders are more optimistic about the business environment in Washington. But according to the latest survey of the business roundtable, there’s also concern about the president-elect’s approach to taking on individual companies. The influential group of CEOs say they would prefer to see broad policy changes, not one-off decisions. CEOs are also wary of plans to potentially impose large tariffs on companies that move jobs abroad.
HERERA: New orders for goods made at factories rose by the largest amount in nearly one-and-a-half years. The Commerce Department said the 2.7 percent increase marked four straight months of gains and was more than economists had expected. Unfilled orders at factories were also higher, ending four straight months of decline.
MATHISEN: Worker productivity rebounded sharply in the third quarter to its best level in two years. And some economists say we’ll need to see more of that if the economy is to continue its expansion.
Steve Liesman explains.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: If President-elect Donald Trump will succeed at delivering higher growth, he’s going to have to boost the nation’s sagging productivity. Economists warn that’s no easy task.
There’s really only two parts that go into growth. How much the nation works and how efficiently it works. And how much it works, that’s governed mostly by labor force growth, and that’s on the decline.
GREGORY MANKIW, HARVARD UNIVERSITY: We just have slower growth in the labor force, the baby boom entering the retirement phase. So, we’re going to have slower growth in the number of people working.
LIESMAN: So that leaves growth and productivity to boost growth and it has been sluggish. Even after a third quarter surge of 3.1 percent, year over year gains were flat compared to a year ago. Since 2007, productivity is up just 1.3 percent on average each year. That’s half of the growth rate from before the recession.
Economists debate where the productivity went and how to get it back. Some, including those advising Mr. Trump, point to overregulation and say productivity growth can be brought back by getting rid of all those rules on the books. Others point to a lack of capital spending that resulted from the Great Recession.
Workers haven’t been given the machines to increase their efficiency. So, a rebound of business investment could boost productivity.
Government spending on roads and bridges is another area to look at.
WILLIAM DUDLEY, NEW YORK FED PRESIDENT: Let’s imagine that we had a lot of fiscal spending on infrastructure. More spending on infrastructure would actually increase productive capacity in the economy. It would resolve bottlenecks.
LIESMAN: But all of that only gets you so far. To really amp up productivity and growth, you need whiz bang technology. Despite more and more computers and cell phones and circuitry and sensors, the evidence so far is none of it is, well, whiz bangy enough — at least not yet — to meaningfully move the needle on productivity.
For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.
HERERA: Still ahead, did the Supreme Court just usher in a new era of insider trading prosecutions?
MATHISEN: In Washington, the Supreme Court sided with Samsung in its patent fight with Apple. The justices said that Samsung’s violation of Apple’s smartphone design patents may involve only one component, not the entire product. That means Samsung may not have to pay hundreds of millions of dollars in penalties.
HERERA: A separate Supreme Court ruling will make it easier for prosecutors to bring insider trading cases. This was the court’s first insider trading case in two decades.
And as Hampton Pearson reports, the ruling was unanimous.
HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: A unanimous Supreme Court clarified the legal ground rules for prosecutors fighting insider trading on Wall Street. The justices rule that sharing corporate secrets with friends or relatives is illegal, even if the insider providing the tip doesn’t receive anything of value in return, in the process upholding a Chicago man’s conviction. Lawyers on both sides of securities law enforcement say the ruling reaffirms an important historical legal standard.
WILLIAM MCLUCAS, WILMERHALE PARTNER SECURITIES DEPARTMENT CHAIR: In all of these cases, the further down the road one gets from the original tipper, in this instance it was an investment banker tipping his brother, who tipped his friend. In all the cases, the more remote you get from the original insider or temporary insider, the harder those cases are for the government to make.
PEARSON: It’s an about-face from a ruling two years ago when a federal appeals court in Manhattan overturned convictions for hedge fund managers Todd Newman and Anthony Chiasson, saying they were too far removed from the inside information chain to be prosecuted. That ruling forced Manhattan U.S. Attorney Preet Bharara to drop some cases and put others on hold.
(AUDIO GAP) his office praised the high court decision. Quote, “In its swiftly decided opinion, the court stood up for common sense, and affirmed what we have been arguing from the outset, that the law absolutely prohibits insiders from advantaging their friends and relatives at the expense of the trading public.”
MCLUCAS: This decision is important, because I think it clarifies precisely what the decision to do said, what it stood for, and because it was a unanimous decision.
PEARSON: Not only was the decision unanimous, it was speedy. The eight justices taking just two months to decide the case.
For NIGHTLY BUSINESS REPORT, I’m Hampton Pearson in Washington.
MATHISEN: The clothing retailer Francesca’s raises its outlook for the year. And that is where we begin tonight’s “Market Focus”.
The decision follows better than expected quarterly earnings and revenue, which were helped by a strong back to school shopping season and higher e-commerce sales. Shares surged nearly 29 percent to $20.01.
On the flip side, the arts and crafts chain Michaels slashed its earnings outlook for the year after reporting a decline in quarterly same-store sales. The company added, it expects comparable sales to be flat to down one-and-a-half percent in the current quarter. Shares were off almost 2 percent at $23.85.
And Chipotle CEO Steve Ells admitted today that he was nervous about the burrito chain being able to meet its sales and earnings targets for the year. In an investor conference, Ells said he was not satisfied with the rate of recovery following a norovirus outbreak that has dented Chipotle’s financial results and foot traffic. Shares fell 7 percent to $366.37.
HERERA: Toll Brothers said an increase in home sales and higher average selling prices helped lift revenue above expectations. The luxury home builder saw profit fall more than expected, but still gave a strong outlook for 2017, citing positive demand trends in many regions. Shares rose nearly 5 percent to $31.93.
Microsoft has cleared its last regulatory hurdle in its purchase of networking site LinkedIn. Today, the European Union approved the $26 billion merger after Microsoft agreed to several concessions that are aimed at protecting competition. Microsoft shares were down 27 cents to $59.95, while LinkedIn rose to $95.94.
MATHISEN: There may be an unintended consequence to keep workers at an Indiana plant instead of moving those jobs to Mexico. As we’ve reported, air conditioner maker Carrier owned by Dow component United Technologies made the decision following pressure from President-elect Donald Trump. The company received $7 million in tax breaks over ten years and said it would invest $16 million to keep the plant updated.
But as the CEO of United Technologies said in an interview yesterday with CNBC, updating the plant will result in more automation and an important consequence.
(BEGIN VIDEO CLIP)
GREG HAYES, UNITED TECHNOLOGIES CHAIRMAN & CEO: We’re going to make up $16 million investment in that factory in Indianapolis to automate to drive the cost down so that we can continue to be competitive. Now, it is as cheap as moving to Mexico with lower cost labor? No. But we will make that plan competitive because we’ll make the capital investments there. What it ultimately means there will be fewer jobs.
(END VIDEO CLIP)
HERERA: Fewer jobs is also what many say Amazon’s new concept grocery store will result in. As we reported yesterday, the Seattle store uses artificial intelligence technology that eliminates checkouts and cashiers, all consumers need is a phone.
There was big reaction today. Headlines ranged from the “New York Post” calling it a job-killer, to “Vanity Fair” saying we’re moving to a world without jobs, to the “Wall Street Journal” calling checkout a thing of the past.
MATHISEN: And it’s that increase in auto medication and artificial intelligence that reflects the shifting nature of work. So, are technological advances the biggest threat to workers?
Martin Ford is author of “Rise of the Robots” and he joins us now.
Mr. Ford, welcome. Good to have you with us.
Are we too focused on the wrong thing, namely moving jobs overseas and are we missing as a result the really big idea, which is that automation could end up killing far more jobs than migration?
MARTIN FORD, AUTHOR, “RISE OF THE ROBOTS”: To a large extent, I think that’s true. And, in fact, technology has already had a very big impact, although it’s not quite as visible as things like global trade. But it’s going to accelerate in the future. And this new store from Amazon is definitely a very prominent example of that.
HERERA: So, you say that more jobs will be destroyed than created by technology, longer-term. Is there a way to remedy that?
FORD: I don’t think there is a way to stop that. What we have to do is try to adapt to it. The thing is that the machines, algorithms, robots are beginning to think. They’re taking on cognitive capability, not just, you know, manipulative, manual work any more. And that’s going to have a much broader impact.
MATHISEN: Is it that different — in other words, the evolution of artificial intelligence, not to mention robotics and other things, that make it different this time, and what I’m driving at here, Mr. Ford, is the idea that we have gone through technological change many times before. From agriculture to machines and we didn’t need as many farmers or as many crop-pickers, but those people turned out to get jobs.
Why is this different this time?
FORD: That’s right. This time it’s much more broad-based, and, again, I focus on the fact that the machines are thinking. They’re taking on cognitive skills. You know, they’re beginning to make decisions and most importantly to learn.
If you look back at agriculture, that was a very specific mechanical impact. It did disrupt the agricultural sector. Millions of jobs were lost. But, of course, those people moved on to manufacturing and then later on moved on to the service sector.
This time, we have got this very broad-based scalable technology coming for everything all at once. It’s going to hit every part of the economy. There really isn’t going to be some new rising sector that’s going to absorb the millions and millions of people that are impacted by this.
HERERA: Usually when we see technological innovation, it’s a net positive for the economy, all things considered, and for a society. But you argue that may not be the case this time, because of the income inequality and the social inequality that this may develop into.
FORD: That’s right. I mean, the positive side of this is definitely still going to be there. There are going to be many, be many positive aspects to this. Just look at that Amazon store. You can walk in and walk out without ever standing in a line. We’re going to have self-driving cars at some point that will save millions of lives, because they’re going to be safer.
So, those are all good things, but the inequality aspect of it, the fact that it’s going to remove opportunity, especially for a lot of average, typical people is going to be a problem. What we have to do is figure out a way to adapt to that, to address that negative side of it, so that we can embrace the positive side.
MATHISEN: Martin, we’ll discuss this more, I’m sure, in the future. Martin Ford, author of “Rise of the Robots.”
And coming up, stocking stuffers, not robots, the shares that have historically done well this time of year.
HERERA: The Justice Department is reportedly investigating advertising agencies. According to the “Wall Street Journal,” the department is looking into whether ad agencies steered business to their in-house units over third party firms by rigging the bidding process. The production and post-production of commercials is a $5 billion business. The report pressured shares of two of the largest ad firms, Interpublic Group and Omnicom.
MATHISEN: A lot of people spent a lot of money this time of year. Consumers spend it on gifts, investors on stocks.
And as Dominic Chu reports, some names have historically performed far better than others at this special time of year.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: ‘Tis the season for making that list and checking it twice. And it’s not just about whether the kids have been naughty or nice. It’s also about taking stock of what’s in your investment portfolio, and how they’re doing.
Historically speaking, some parts of the market have fared better than others during the holiday season. So, according to data and analytics firm, Kensho, over the past 20 years, a handful of stocks have had a track record of being positive performers between Thanksgiving and the end of the year.
Among those S&P 500 stocks that have been nice during that span, try home improvement retailer, Lowe’s, which has produced positive returns 80 percent of the time. Also, Public Service Enterprise Group, which is a northeast regional utility power player in the United States, it’s been positive 85 percent of the time. And food and beverage container maker, Ball Corporation, that’s posted a positive holiday season return 90 percent of the time.
And as for the historically naughtier performers, you’ve got oil and gas-related stocks like Chesapeake Energy, which is positive 45 percent of the time. You’ve got toy-maker, Hasbro, has been positive about maybe 30 percent of the time. And then payroll processor Paychex has been a positive trade a quarter of the time during the holiday season over the past 20 years.
Now, some experts are looking at bigger themes beyond just straight stock-picking.
NEIL HENNESSY, HENNESSY FUNDS: There’s $3.5 trillion in fixed income products in the mutual fund industry. And everybody knows that interest rates are going to go up and so, these people are going to get crushed.
When I look at the nice side, the nice side is the market. You should be in the market. The amount of moneys corporations are making today and any kind of relief out of Washington on either healthcare, regulations or taxes, the stock market is going to go right through the roof.
CHU: This is the time of year when you’ll hear a lot about seasonal performance trends. But always remember that past performance doesn’t necessarily mean the same in the future. And always keep your tolerance for risk in mind when making those financial decisions, whether it’s for a seasonal trade or longer-term investment.
For NIGHTLY BUSINESS REPORT, I’m Dominic Chu.
HERERA: You’re always on the nice list.
MATHISEN: Yes, never naughty.
HERERA: Never naughty. Never.
MATHISEN: I don’t know whether I want a stocking stuffer is a share of stock, though.
HERERA: No. Well —
MATHISEN: — sweeter.
HERERA: That does it for us on NIGHTLY BUSINESS REPORT. I’m Sue Herera. Thanks for joining us.
MATHISEN: And thanks from me, as well. I’m Tyler Mathisen. Have a great evening, everybody. And we will see you back here tomorrow.
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.