Transcript: Nightly Business Report – February 16, 2017

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue
Herera.

Funded in part by —

(COMMERCIAL AD)

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Solid momentum. The job
market, consumer spending, even manufacturing are gaining strength. So,
why does it seem like no one`s noticing?

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: New pick. President Trump has
a new nominee to lead the Labor Department. Who he is and what would he
mean for millions of American workers?

MATHISEN: Ramping up. Consumers are borrowing almost as much as they did
in 2008. But is it different this time?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
February 16th.

HERERA: Good evening, everyone, and welcome.

While you were focused on the stock market or the drama in Washington,
something very important has been taking place. The economy started to
pick up a lot of momentum and the increased activity is taking place across
many sectors. Manufacturing hit its highest level since 1984, according to
the latest Philly Fed survey. Jobless claims remain close to record lows.

Yesterday, we reported that retail sales or sizzling and inflation is
getting hotter, heading in the direction of the Federal Reserve`s target
number, the latest sign that sluggish price growth could be coming to an
end.

MATHISEN: Our first guest tonight agrees that sluggish economic growth is
behind us, and that the U.S. economy seems set to take off. He wrote about
it in “The New York Times (NYSE:NYT).” He`s Neil Irwin, senior economics
correspondent at the paper and he joins us now.

Mr. Irwin. Welcome. Good to see you.

The president today at his press conference said he inherited a mess in
terms of the economy. Did he?

NEIL IRWIN, THE NEW YORK TIMES: No, this is — kind of — of what we
wanted to see for years now, which is an acceleration of growth, broad
based kind of expansion that includes the job market, includes as you say
retails or consumers, the industrial sector, manufacturing, which kind of
hitting on all cylinders now and that`s a good sign heading to 2017.

HERERA: One person that I talked to today it`s the stealth recovery that
it seems to have gone unnoticed. Why do you think that is?

IRWIN: You know, this isn`t a big flashy recovery. This happens with each
jobs report, each, you know, retail report, manufacturing report. Each one
that comes out is a little better than people expected. And the
accumulated weight of all that we`re in a better economy than we were six
months or even a year ago.

It`s not flashy. It`s not as exciting as some of the headlines out of
Washington. But it`s there nonetheless and it`s a good sign.

MATHISEN: The president today that jobs were pouring out of the country to
foreign countries, is that correct?

IRWIN: Hard to see that in the data. You know, we added 227,000 jobs in
January. We`ve had consistent job growth for several years now.
Unemployment rate 4.8 percent. Nobody is saying this job market`s perfect,
we`d like to see more wage gains. We`d like the labor force grow. But
this is definitely not a crisis situation for the job market.

HERERA: I think Mother Nature may have helped out as well at least in some
parts of the country. The winter weather has not been as severe in other
parts and so people actually go out and spend money.

IRWIN: Yes, it`s nice to remember, you know, it seems like every time
there`s a weak number, we say, oh, it`s because it was a bad winter or
there`s bad weather. We`re having the reverse of that right now. It`s
been a pretty mild winter across most of the country, so that creates a
boost to, as you say, the retail sales number, construction, some of the
other sectors that are dependent on the weather.

MATHISEN: What kind of growth rate are most economists looking for for the
U.S. economy here in 2017? And how much faster could the economy grow
under the best of possible circumstances?

IRWIN: You know, most of the consensus views are low to mid-twos, 2 1/2
percent maybe on the high end. That would be a step up from what we`ve
been having, 1.8 percent or 1.9 percent the last several years. So, if
that happens, that`s some improvement.

Of course, Donald Trump wants to see 3.5 percent or 4 percent growth, a
really extraordinary rate. If that happens, we start to get into this
question well how much leeway is there left in the economy, how much slack,
how much room to grow? That`s going to be one of the big debates in the
Federal Reserve and across Washington and across economics over the next
couple of years.

MATHISEN: Neil, thank you for spending time with us tonight. Neil Irwin
with “The New York Times (NYSE:NYT)”.

And later in the program, we`ll focus on the health of the U.S. consumer in
light of a new report that shows that household debt is now at its highest
level since 2008.

HERERA: At the start of a news conference at the White House today,
President Trump announced the nomination of Alex Acosta to be labor
secretary. The decision follows the exit dramatic yesterday of his
original nominee.

Kayla Tausche tells us who the new nominee is and why he was chosen.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: In a wide-ranging
press conference, President Trump praised his choice of Alex Acosta for
labor secretary.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: I think he`ll be a
tremendous secretary of labor.

TAUSCHE: The move came just one day after Trump`s first choice, fast food
CEO Andy Puzder, withdrew his nomination, avoiding tough questions from
Republicans who took issue with his personal and business background.

Unlike Puzder, Acosta is far from a government outsider. He clerked for
conservative justice Samuel Alito before he was elevated to the Supreme
Court, was a member of the National Labor Relations Board and ran the Civil
Rights Division of the Department of Justice under George W. Bush.

But it`s one key detail in his CV that makes him a politically safe
candidate.

TRUMP: He`s been through Senate confirmation three times, confirmed, did
very, very well.

TAUSCHE: Acosta`s ten years at the Civil Rights Division includes some
high profile cases, prosecuting lobbyist Jack Abramoff for running a
gambling ring. He sued the Cracker Barrel restaurant chain for providing
inferior service to African-Americans, and supported a Muslim student at an
Oklahoma middle school in a case against discrimination.

One background item that could draw criticism, an investigation of the
Civil Rights Division under his leadership found improper use of political
affiliations in hiring decisions.

The Labor Department is currently in a wait and see mode with a key role
investing investment advisors. So, time is of the essence as confirmation
hearings and votes drag on.

TRUMP: The Democrats are making it very difficult. I think we`re setting
a record or close to a record in the time of approval of a cabinet. I
mean, the numbers are crazy what — some of them had approved immediately.
I`m going forever and I still have a lot of people that we`re waiting for.

TAUSCHE: Just 13 of the president`s 35 cabinet nominees have been
confirmed, and a record number of no votes cast for those that have. While
Acosta faces better odds, it won`t be without contention. The top
Democratic on the committee that will vote on the nomination said she will
insist on a rigorous and thorough vetting process.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.

(END VIDEOTAPE)

MATHISEN: Well, the Senate today did confirm the president`s pick to run
the White House Budget Office. Mick Mulvaney, a proponent of federal
budget cuts, squeaked through with a 51-49 vote. Senator John McCain voted
against the former congressman because of Mulvaney`s past support for
Pentagon spending cuts. He must now get to work on the president`s
upcoming budget plan.

HERERA: Well, the budget, infrastructure spending and tax cuts could be
setting up the next political and economic battle. Not in the halls of
Congress but between some Republican lawmakers and the head of the Federal
Reserve.

Steve Liesman explains.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Two days of grilling
from the Republican Congress made clear that Fed Chair Janet Yellen is not
yet willing to join the Trump economic party. While the stock market
surges in anticipation of coming Trump policies, Yellen and the Fed have
pretty much stood pat.

JANET YELLEN, FEDERAL RESERVE CHAIR: Most of my colleagues decided that
they would not speculate on what economic policy changes would be put into
effect and what they`re consequences would be.

LIESMAN: That stance led to criticism from Republicans like Senator Pat
Toomey.

SEN. PAT TOOMEY (R), PENNSYLVANIA: It just looks like on the surface like
the FOMC members either believe it`s unlikely that any of those things will
actually happen, or they think that those things are not particularly pro-
growth.

LIESMAN: Right now, the Fed forecasts around 2 percent growth of the next
several years, and that will hike three times this year or about three
quarters of a percentage point.

But watch out, more stimulus from the Trump administration could mean
higher rates from the Feds. It`s just that Yellen and the Fed will decide
wait until they see the whites of the eyes of actual Trump policies before
boosting their forecast. And that puts Yellen and the Fed in a tough
political position.

For now, Yellen can get away with saying correctly that nothing`s been
proposed. The bigger question is, what happens when something is? If the
Fed doesn`t boost its forecast, it`ll be seen in opposition. If he does,
it could be seen endorsing Trump`s policy.

President Trump hasn`t said much about the Fed of late. That could change
if Yellen is seen opposing or not endorsing his policies and change big
league.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: While many have been wondering when legislation would be
introduced to repeal and replace the Affordable Care Act, which, of course,
was one of the president`s campaign promises. And today, House Speaker
Paul Ryan said that a bill will be introduced when Congress returns from
next week`s recess.

Lawmakers are waiting on the nonpartisan Congressional Budget Office to
estimate the total cost of the bill.

HERERA: On Wall Street, the NASDAQ and the S&P snap their winning streak
at seven but the Dow clawed it`s way to another record. But for the most
part, stocks were lower on the day. The Dow rose just about 8 points to
20,619. The NASDAQ dropped four and the S&P 500 slid two.

MATHISEN: Well, Snapchat looks like it could be the next big initial
public offering worth more than $20 billion. That would make it the
biggest tech IPO since Alibaba. But Snapchat isn`t the only company
looking to sell its shares to the public.

As Bob Pisani reports, there are a number of other firms that are hoping to
make their Wall Street debuts as well.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Is the IPO market
finally heating up? It`s been a long time coming. Social media and camera
companies Snap announced terms for its long awaited IPO today with a
valuation of roughly $22 billion. That would be the largest tech IPO since
Chinese e-commerce company Alibaba went public way back in 2014. The
company should begin trading at the New York Stock Exchange in about two
weeks.

There`s a lot riding on the success of this big one, because a lot of other
companies are waiting to go public. Among them are women`s apparel maker
J. Jill, parka and outer ware maker Canada Goose, floor makers Floor &
Decor, and private equity firm Hamilton Lane.

There were almost no oil and gas IPOs last year, but there`s several
waiting in the wings right now, including Liberty Oilfield Services and
Propetrol Holdings.

Are any of them going to succeed? Well, the markets acting like it wants
IPOs right now. The Rennaisance Capital IPO ETF, it`s a basket of the most
recent 60 IPOs has been moving up along with the rest of the market. It`s
now at an 18-month high.

What`s different than before? We`ve had lower prices. Buyers burned by
high priced IPOs in the last couple of years have demanded and gotten lower
prices recently and that`s helping these stocks outperform in the
aftermarket.

And a notable rally since the election is the final icing on the cake.
What the IPO market needs right now is a period of calm to get the more
than 100 IPOs waiting in the wings out the door.

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

(END VIDEOTAPE)

HERERA: Still ahead, Americans are loading up on debt, flirting with 2008
levels. Should you be alarmed?

(MUSIC)

HERERA: The president of the United Autoworkers would like to meet with
President Trump to discuss NAFTA, and he noted that the UAW has long
criticized automakers for taking advantage of Mexico`s cheap labor.

Speaking to reporters, Dennis Williams said that there are a number of
things needed to correct the trade deal and that his group is looking
closely at the agreement.

(BEGIN VIDEO CLIP)

DENNIS WILLIAMS, UAW PRESIDENT: We`re doing an in-depth look at what is it
that will effectively help us have a trade agreement that is reciprocal in
nature where all three countries have a built-in purchasing power.

(END VIDEO CLIP)

HERERA: Williams also said that UAW organizers are in contact with workers
at Tesla and that any formal effort to organize workers will depend on the
interest level of the employees.

MATHISEN: And following on the story we told you about earlier this week,
workers at a Boeing (NYSE:BA) plant rejected joining a union at a South
Carolina factory. Boeing (NYSE:BA) said 74 percent of the more than 2,800
workers voted against the Machinist Union. Vote was seen as an early test
of labor strength in the Trump era.

HERERA: Secretary of State Rex Tillerson is making his debut on the world
stage. He has meeting with his diplomatic counterpart from the G20 group
of major world economic powers, including Russia. And one issue on the
table was spending on NATO.

Hadley Gamble reports tonight from Bonn, Germany.

(BEGIN VIDEOTAPE)

HADLEY GAMBLE, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s a U.S. foreign
policy offensive in Europe over the next several days with the secretary of
state and defense, as well as the vice president planning to make stops in
Europe.

U.S. Secretary of State Rex Tillerson made his debut in Bonn, Germany,
today, meeting with the ministers of the G20 nations. On the agenda was a
talk with Sergey Lavrov, Russia`s foreign minister, as well as
conversations with Saudi Arabia and Oman over what to do about the
situation in Syria and Yemen.

As European leaders look to engage the future of their transatlantic
relationship with the United States, several questions loomed including
NATO spending.

General James Mattis, the new secretary of defense weighed in.

JAMES MATTIS, SECRETARY OF DEFENSE: It`s a fair demand that all who
benefit from the best defense in the world carry their proportionate share
of the necessary cost to defend freedom and we should never forget it.
Ultimately, it is freedom that we defend here at NATO.

GAMBLE: U.S. Secretary of Defense James Mattis went on to say that the
U.S. plans to moderate its relationship with NATO in accordance with how
much NATO members spend. In 2015, the U.S. spent some $650 billion on
defense spending for NATO. That was over 72 percent of the total NATO
budget. And the U.S. says they want Europe to pay more.

For NIGHTLY BUSINESS REPORT, I`m Hadley Gamble in Bonn, Germany.

(END VIDEOTAPE)

MATHISEN: Avon might need a makeover and that`s where we begin tonight`s
“Market Focus”.

The cosmetics company, which has posted falling sales since 2012, continued
that trend in its latest quarter, saying its lower than expected revenue
was hurt by fewer reps selling its products. The company also missed
profit expectations as sales were down in all markets except Latin America.
Avon shares plunged more than 18 percent. They are at a low $4.77.

And meantime, profit and sales at Wendy`s fell as the fast food chained
operated fewer company owned restaurants in the latest quarter. Revenue
managed to top expectations, but profit missed slightly. The company also
launched a new $150 million share buyback program, hiked its quarterly
dividend by half a penny to 7 cents a share. Still, shares were down 4
percent to $13.69.

Dean Foods (NYSE:DF) reported flat sales but profit rose, although not by
enough to meet Wall Street`s expectations. The company also gave downbeat
earnings guidance for the current quarter and full year, saying it expects
results will be sandbagged by investments in a joint venture and lower
demand for milk. Not in my house. Shares were down 8 percent to $18.80.

HERERA: Kate Spade confirmed it is exploring strategic alternatives but
said there`s no guarantee a deal will happen. As we reported back in
November, the luxury handbag maker was pressured by one of its shareholders
to pursue a sale. The company also reported higher quarterly revenue, but
that missed analysts expectations, while it`s profit beat targets. Shares
popped 14 percent to $22.56.

Cabela`s said weak foot traffic was problematic in the latest quarter. The
hunting and fishing retailer posted declines in same store sales, revenue
and profit, calling the results disappointing. Cabela`s is currently in
the process of being acquired by its rival Bass Pro Shops for more than $5
billion. Shares of Cabela`s were off nearly 5 percent to $46.22.

GNC Holdings saw its sales fall more than expected and it posted profit
that was sharply below forecast. The nutrition supplements company also
suspended its quarterly dividend, but said it`s seeing encouraging trends
in its recent turnaround efforts and is optimistic about returning to
profitable growth. Nonetheless, GNC shares were off 7 percent to $7.72.

And shares of Trip Adviser continue to fall following disappointing results
after the bell yesterday. The trip review website said a drop in
subscription revenue, along with higher marketing cost caused profits and
sales to miss estimates. Shares were down almost 11 percent to $46.92.

MATHISEN: More now on that household debt report we told you about earlier
in the program. The total amount of debt climbed by the most in nearly a
decade in the recent quarter, driven by increases in credit card debt, auto
loans, student loans, and a year end surge in mortgage originations.
According to the Federal Reserve, household debt increased to more than
$12.5 trillion at the end of last year, and that is just shy of the all
time peak set back in 2008. It`s around the start of the financial crisis.

HERERA: So, what does the rise in-house hold debt suggest about the health
of the consumer?

Let`s turn now to Scott Brown, chief economist at Raymond James, for some
answers.

Scott, welcome.

What does it say about the consumer? When you see that comparison to 2008,
I hear alarm bells but apparently it`s a little different this time.

SCOTT BROWN, RAYMOND JAMES CHIEF ECONOMIST: It`s a lot different, I think.
You`re looking at a bigger economy compared to where we were in 2008. So,
the level isn`t necessarily worrisome.

I think when you look at the fourth quarter numbers, you had a big pop.
But a lot of that was in mortgages and you had initial increase in mortgage
rates and that tends to give a lot of people on the fence kind of decide
whether or not the buy a home. It really prompts them into action when
they see mortgage rates starting to go up. So, you very often see a surge
as mortgage rates begin to rise and then things start to slow down a little
bit more.

I think the longer term trend, you know, the consumer debt doesn`t seem to
be too far out of line relative to the trend in personal income, say, and
that`s pretty appropriate. But we often say that debt doesn`t matter until
it does and if there`s an economic downturn, and debt becomes a force to
make that downturn even weaker.

MATHISEN: I thought one of the stories post-financial crisis, Scott, was
that the American public had de-levered its balance sheet, reduced its
debt, not so?

BROWN: Well, I think that`s still definitely the case. Again, you`re
seeing consumer debt rising more or less in line with the overall economy
and that`s — you know, more appropriate. If you don`t have any loan
growth in the economy you`re not going to get any economic growth. The
question is, is it excessive?

And I think when you look back at the boom years in the housing market, you
know, you had people taking a gigantic amount of home equity out and
spending it on vacations, new cars and so on. And when the housing
collapse came, that all went away. So, that was a very serious adjustment.

We`re not really seeing signs of people are pulling equity out of their
homes at this point to finance their spending.

The fundamentals, you know, job growth is pretty good still. We expect
that to slow as the job market tightens. Nominal wage growth has been
trending higher, it`s a little bit choppy from month to month. But, you
know, compared to a year or two ago, when we had that big drop in gasoline
prices and consumers really had a lot more money to spend, gasoline prices
are up a little bit.

And so, you know, the budget`s maybe getting tighter. So, consumer
spending growth ought to continue to improve but not very strong, not very
weak either.

HERERA: So, if I understand what you`re saying correctly, we could almost
view this accumulation of debt as a sign of an underlying strengthening
economy as we suggested at the beginning of the program and a consumer that
is confident in jobs and the economy?

BROWN: I think that`s exactly the case. We don`t really see the kinds of
excesses in the consumer debt market. Well, obviously, we do have some
problems with student loans. I think that`s going to be a serious problem
for those people that have that student debt. It`s not going to be a
systematic problem for the economy as a whole.

HERERA: All right. We`ll leave it there, Scott. Thank you. Scott Brown
with Raymond James.

BROWN: My pleasure.

MATHISEN: And coming up, lightening the load. The red tape that business
owners on Main Street would like to see rolled back the most.

(MUSIC)

HERERA: Delta is paying out about $1 billion in employee bonuses. That`s
a little less than last year`s record payout but still among the best in
corporate America, and it`s the third year in a row that the airlines
employees received more than $1 billion in profit sharing. The amount of
the bonus each year depends on how well the airline performs financially.

MATHISEN: President Trump signed legislation undoing an Obama
administration coal mining rule. The bill gets rid of a regulation to
protect waterways from coal mining waste that officials finalized in
December. The legislation is the second administrative rule repeal this
week.

HERERA: Main Street business owners are waiting for the Trump
administration to lighten their regulatory load.

And as Kate Rogers (NYSE:ROG) reports, there are a few rules in particular
that they would like to see go.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Kristie Arslan`s
gourmet popcorn company Popped Republic has taken off in the past five
years and she`s considering franchising. But Arslan can`t bring herself to
take the leap just yet worried about a 2015 decision from the National
Labor Relations Board known as the Joint Employer Rule which holds parent
company liable for violations at franchise locations.

KRISTIE ARSLAN, POPPED REPUBLIC CO-OWNER: This rule would impact us
because if we did do franchising, if something happened with one of our
franchisees, they had an issue with their workers and their workers were to
sue them, we could actually have that liability too with the way the new
rule is structured and we certainly as a small business are not looking at
ways to increase liability. We`re looking at ways to grow.

ROGERS: Critics argue these regulations are stifling small businesses like
Popped Republic from investing in new employees and expanding. President
Donald Trump has promised to cut Washington`s red tape and enacting a
regulatory freeze and eliminating the budget for new federal regulations in
2017 as one of his first executive orders.

Deregulation is welcome to many on Main Street. Just last year, more than
400 regulations were finalized, costing $164 billion to implement,
according to the conservative research group American Action Forum.
Separate data from the nonpartisan National Small Business Association
finds companies are spending about $12,000 a year to comply.

That compliance weighs heavily on the minds of entrepreneurs like Gian
Carlo Alonso, CEO of Amerikooler, the a manufacturer of walk-in freezers in
southern Florida. The Affordable Care Act has led to increased premiums
for his 137 workers and has him considering ways to cut back.

GIAN CARLO ALONSO, AMERIKOOLER CEO: The Affordable Care Act, one of the
unintended consequences is, you know, you try to avoid hiring people if you
don`t have to. In the past, we may need — we`re like, hey, it would be
nice to hire maybe ten more people to help capacity, now we`re like,
there`s no way. Let`s try to figure out a way to make it happen without
hiring people.

ROGERS: Back at Popped Republic, Arslan is hoping for change.

ARSLAN: We love just to see more regulatory reform. I think, you know,
it`s hard for us. We don`t have a lawyer on staff to help us figure it all
out and so, it would be great if the government and agencies could take a
little bit more care at looking at the small business impact of regulations
before they just charge ahead issuing new ones.

ROGERS: For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

HERERA: And to read more about the regulations that small business owners
would like to see lifted, head to our websites, NBR.com.

And that does it for NIGHTLY BUSINESS REPORT. I`m Sue Herera. Thanks for
watching.

MATHISEN: And thanks from me as well. I`m Tyler Mathisen. Have a great
evening everybody and we hope to see you back here tomorrow night.

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) 2017 CNBC, Inc.

 

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