Transcript: Nightly Business Report – February 22, 2017

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

Funded in part by —


notches its longest run of record closes in 30 years as the White House
give hints about its budget plan.

one industry that could feel the impact of the immigration crackdown much
harder and much sooner than others.

BREWER: Made in the USA. Why that`s easier said than done for some

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
February 22nd.

Good evening, everyone. I`m Contessa Brewer, in tonight for Sue Herera.

MATHISEN: And welcome for me as well. I`m Tyler Mathisen.

We begin tonight at the intersection of Washington and Wall Street. Today,
President Trump outlined the timing of policies important to investors like
you. He said his team was assembling a budget that would bring down
deficit support infrastructure projects and lay the groundwork for tax
cuts. That budget could be sent to Capitol Hill as early as mid-March.

In the meantime, though, the president says there`s a lot of work that
still has to be done.


requires us to make our government leaner and more accountable. We must do
a lot more with less and we must stop the improper payments and the abuses,
negotiate better prices, and look for every last dollar of saving.


MATHISEN: Investors are focused on the budget because it may offer a
clearer picture of how the president will deliver on both tax reform and
infrastructure spending.

And today, the Dow Jones Industrial Average closed as Contessa mentioned at
its ninth straight record high, rising 32 points to 20,775. NASDAQ though
went the other way, off a scant five, and the S&P basically flat, it lost
two and a half.

BREWER: The potential for lower taxes and increase spending was discussed
at length by policymakers at the Federal Reserve`s last meeting. That`s
leading to speculation that President Trump`s proposed policies could lead
to an interest rate hike sooner than many thought.

Hampton Pearson has those details.


first said meeting of the year are frankly, they didn`t bury the lead.
Most monetary policymakers according to the minutes felt, quote, “It might
be appropriate to raise the Fed funds rate again fairly soon, if incoming
information on the labor market and inflation was in line or stronger-than-

Some participants went on to say that they were worried that communication
about a gradual phase of rate hikes might be misunderstood as committing
the policymakers to only one or two rate hikes this year. A few set
continuing to raise rates at an upcoming meeting would also give the
committee a lot more flexibility to respond to changing economic

Now, the overarching concern in the discussion about the future of the
economy centered frankly on considerable uncertainty in the minds of the
policymakers about prospects for changes in fiscal and other government
policies. In other words, Trumponomics. Both the magnitude and the timing
as far as the effect on the economy, several expressing concerns about what
more expansionary fiscal policy would do as far as increasing the upside
risk of those Fed forecast going forward. As far as global developments, a
bit of relief that frankly foreign activity as far as risk seemingly have

But policymakers again very concerned that the additional appreciation of
the dollar could impact those foreign economies. Of course, the Fed saying
it will closely monitor foreign and domestic data and developments, and we
saw from Fed Chair Janet Yellen in two days of congressional testimony, she
didn`t really tip her hand as to how many and how soon the Fed may be
raising rates going forward.

At the Federal Reserve, I`m Hampton Pearson for NIGHTLY BUSINESS REPORT.


MATHISEN: And today`s existing home sales report extends the trend of
strong economic data points. Sales hit a 10-year high last month, despite
higher home prices and rising mortgage rates. The National Association of
Realtors says an improving labor market and increasing confidence
contributed to the better-than-expected results, and as we`ve been
reporting, a persistent shortage of listings have helped keep prices

BREWER: The Department of Homeland Security issued new rules yesterday
that expand the government`s ability to detain and deport millions of
undocumented immigrants. One of the industries that could be hardest hit
as agriculture because it relies so heavily on those workers.

Aditi Roy has the story.


immigration policy could have a critical impact on the farm economy. The
American Farm Bureau estimates at least fifty to seventy percent of farm
laborers are undocumented, some farmers say the Trump administration`s
policy which cracks down on undocumented workers will strain their

we`re very — we have a lot of very high labor crop crops here, and we`re
looking at huge increases in the cost of labor, and that`s what the current
situation. If it becomes even more scarce, it`ll be hard to do business
here. California is dependent on migrant labor.

ROY: Fourth-generation farmer Craig Underwood worries he won`t be able to
find enough workers to harvest his crops. Under the new policy outlined by
memos released by the Department of Homeland Security, the government will
prioritize supporting undocumented immigrants who were charged with crimes,
even if those crimes are minor. While the group targeted maybe a small
subset of all farm workers, many who work in agriculture are concerned.

The American Farm Bureau did a study before President Trump was elected on
the impact of an enforcement-only approach to immigration or one that
focuses on cracking down on undocumented immigrants without expanding
programs for guest workers. The advocacy group found if agriculture were
to lose access to all undocumented workers, which would be an extreme
scenario, agricultural output would fall by $30 billion to $60 billion.

The organization also found that an enforcement-only approach to
immigration would increase food prices by 5 percent to 6 percent. And a
study commissioned by the National Milk Producers Federation and conducted
by economist at Texas A&M found that even a 50 percent reduction in the
dairy industry`s immigrant workers would increase the price of milk by 45

The foods that could be most affected are ones that are most dependent on
labor for harvesting. They include strawberries, blackberries, cherries
and asparagus.

Farmers like Underwood are worried that the policy will prevent all workers
from crossing the border.

UNDERWOOD: It is a big part of our labor force. There hasn`t been a legal
way for immigrants to come into the country since the `80s. So, you have
to think that a good portion of our labor force is undocumented. So, any
kind of a crackdown is going to make labor even more scarce.

ROY: While some experts offer automation as a possible solution, many
farmers say not all crops are conducive to machine harvesting. For
instance, bell peppers are delicate and can be easily bruised by
automation. Some farmers also say the upfront costs they would have to pay
to automate their harvesting are simply too high.

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


MATHISEN: Well, it`s not just agriculture. Change in immigration policy
can be tightly intertwined with the broader economy, and one estimate says
that for every one million fewer workers, overall growth would be reduced
by about a half percent.

Dana Peterson, director of North American economics at Citi joins us now.

Dana, welcome. Good to have you with us.

This is obviously an extremely complex issue. There are allegedly or
reportedly 11 million undocumented workers in the United States, roughly 8
million them of them are working.

How much do you think economic growth would decline and how much wood
consumer prices go up if you took that 8 million person cohort out of the
workforce tomorrow? Something that I think we all can agree probably isn`t
going to happen.

took government numbers of $26,000 per year for a person who have we did
not have a high school degree and you multiply that by eight million.
That`s about $200 billion that`s not going back into the economy. That can
be spent on goods and services.

And also in terms of firms, having to find replacement workers or spend on
automation, absolutely, they will pass those costs onto consumers and we
definitely we see an increase in consumer prices.

BREWER: Well, and it`s not just the increase in prices, but you`re looking
right now at unemployment at 4.8 percent. That`s considered full
unemployment in the United States of America. So, if you take eight
million undocumented workers out, that`s about five percent of our
workforce, who fill those jobs? Where do you go to find though the
replacement workers?

PETERSON: That`s a great question. Arguably, undocumented persons are not
counted in that unemployment number, because of those were people that we
actually can`t count. But certainly, I think businesses would find
replacement workers but they certainly have to pay for it.

They`d have to pay benefits and higher wages more or less than offsetting
the games that they might get otherwise.

MATHISEN: You know, there are some people who say that undocumented
workers strain the social services of cities and states in the nation,
that, effectively, they cost more than they produce. Do you agree with

PETERSON: Well, the OECD did a great study on migrant labor across the
number of countries, including countries like the U.S., and it shows that
migrant workers don`t necessarily put a long-term strain on social
services, maybe perhaps initially. But these persons tend to like to find
jobs and become active members of society.

BREWER: Dana, is there a chance that we`re going to see undocumented
workers leaving of their own accord, not being deported but just because of
the environment and thereby, we would see the impact at any rate?

PETERSON: Certainly, you could see some people who are opting to return or
rather leave the U.S. But I would imagine that many people come to the
U.S. looking better economic opportunities that they could not find in
their home countries and/or they`re attempting to flee from war zones in
dangerous situations are not conducive to their life liberty and the
pursuit of its general happiness.

MATHISEN: Dana, thank you very much for your insights tonight. We
appreciate it.

PETERSON: Thank you.

MATHISEN: Dana Peterson with Citi.

BREWER: A global trade agreement worth one trillion dollars took effect
today. It`s the first multilateral trade agreement reached under the World
Trade Organization since its establishment 20 years ago. The aim is to
streamline cross-border trade and, of course, it`s coming at a time when
such deals are coming under scrutiny.


ROBERT AZEVEDO, WTO DIRECTOR-GENERAL: This is a win-win agreement. It
reduces costs. It includes — indeed, it creates opportunities. So, there
is no reason why we should be negative at all. It`s just the perfect
agreement for the times that we live in.


BREWER: The WTO director said the deal would reduce trade costs globally
and said the United States is among the first countries to ratify the

MATHISEN: Well, still ahead, we will take you inside the Fort Worth
facility where Lockheed Martin (NYSE:LMT) makes the most expensive weapon
system ever built.


jet over which President Trump waged a cost-cutting war before even taking
office. We`ll show you the high-tech ways Lockheed Martin (NYSE:LMT) has
been driving down the price of the F-35 when we return.



MATHISEN: Lockheed Martin (NYSE:LMT) is ramping up production of its F-35
fighter, the same jet that President Trump called too expensive. To keep
pace, the defense company is automating some of its manufacturing.

Morgan Brennan took our cameras inside the mile-long Fort Worth facility
where the jets are built.


BRENNAN: The most expensive weapons program and history and it`s at a
major inflection point. And not just because of recent criticism from
President Trump.

JEFF BABIONE, LOCKHEED F-35 EXEC. VP & GM: The number of airplanes in the
field is growing exponentially over 200 now and there will be many, many
more going as we increase their production of plans here. The same time,
we`re wrapping up development. So, tying a bow around the development
airplane and that allow us to continue to expand only in the U.S. but
around the world.

BRENNAN: The price of Lockheed Martin`s F-35 Joint Strike Fighter Jet is
falling and falling faster than before. The Air Force`s A Model which
comprises a 85 percent of the program just slipped below $95 million in the
most recent Pentagon contract, a 7 percent drop from the previous deal, and
more than 60 percent decline since the first contract a decade ago.

An F-35 like this one takes about four years to make from order to
delivery. Lockheed currently has about 140 planes in production right now
around the world. But over the next several years, that will ramp up to
about 180 at any given time.

Lockheed Martin (NYSE:LMT) is turning out four F-35s per month. But over
the next five years, that will quadruple to 14. To do that, Lockheed and
its suppliers are using automation.

JANET NASH, LOCKHEED VP OF F-35 PRODUCTION: We want a $80 million dollar
jet. So, we have to take labor out of the cup out of the aircraft build
process and we have to make that process more efficient without any
reduction in quality and by eliminating waste. So, we do that from very
technological advances like this robot which can do the work faster.

BRENNAN: Robots apply the paint that helps make the plane stealth, turning
two days off the process, and machines auto drill parts five times faster
than if done by hand.

3D models are used throughout this assembly line as well, digital thread
that takes hundreds of pages of manuals and translates it into digital
instructions that actually project on the parts of the plane.

But is it all enough for the prime contractor to grow profits, which has
always been the plan.

and the supply chain to bring their cost down at a rate that that allows
them to be more profitable while still delivering each subsequent lot at a
price that`s attracted to the taxpayer.

BRENNAN: The Pentagon is looking to get the price of the F-35A as low as
$80 million by 2020.

But for pilots of the plane, a fighter that disproportionately stacks the
battlefield odds in America`s favor —

BILLIE FLYNN, F-35 TEST PILOT: I cannot put a price tag on bringing back
men and women every single time in an F-35. That`s what matters to the
mothers and fathers of the servicemen and women that will fly this airplane
in combat.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in Fort Worth, Texas.


BREWER: Tesla has posted a wider than expected quarterly loss and that`s
where we begin tonight`s “Market Focus”.

Despite receiving a record number of orders for its Model S and Model X
vehicles, the automaker lost more money than expected in the final three
months of the year. Revenue for the quarter increase and the company said
it plans to begin production of its Model 3 sedan in July. Shares
initially rose in after-hours trading, but finished the regular day down 1
percent to $273.51.

Luxury homebuilder Toll Brothers (NYSE:TOL) said an increase in orders help
profits top expectations. Revenue also topped estimates, and the company
lifted the low end of its deliveries outlook for the year. Shares pop 6
percent to $33.93.

GPS and fitness device maker Garmin (NASDAQ:GRMN) said demand for several
of its products helps both profit and sales top estimates in the latest
quarter. The company also issued upbeat guidance for the year. Garmin
(NASDAQ:GRMN) shares rose 7 percent to $54.15.

MATHISEN: Norwegian Cruise Line said the adoption of new ships along with
lower fuel costs led to better-than-expected earnings and revenue. The
cruise line operator also said it is seeing strong bookings for 2017, and
forecasts profit for the current quarter above estimates. Shares up 7
percent of the day at $51.64.

The health insurer Aetna (NYSE:AET) said it would buy back more than $3
billion worth of its shares to accelerated share repurchase agreements.
The company said it will fund the deals with available cash. Shares rose
nearly 2 percent to $128.79.

And the off-price retailer TJX companies said solid consumer traffic lifted
both sales and profit the parent of T.J.Maxx and Marshalls said it plans to
hike its quarterly dividend by 20 percent and buyback more than a billion
dollars worth of company shares. In addition, TJX announced plans to open
a new chain this year that it says will be complementary to my wife`s
favorite store of all home goods and home decor.

BREWER: Mine too.

MATHISEN: This is great news for my wife.

Shares — not necessarily for all of us — but shares up 11 cents, excuse
me, to $76.35.

BREWER: President Trump`s “buy American, hire American” agendas putting
some real pressure on manufacturers to ramp up production here at home.
So, what does that mean for product to be made in America?

Courtney Reagan takes a look.


product`s domestic content is a careful calculation of the sum of its
parts, not just whether it was assembled or manufactured on U.S. soil. The
government considers many factors — origins of raw materials, value of
labor to make a widget, and many processes that go into creating the final

The Federal Trade Commission says that in order to label a product made in
the USA, all or virtually all of those factors must originate here at home.
Though there`s no true quantitative measure of what virtually all is. So,
in terms of what consumers and businesses buy, just a little over half of
the value of those hoods are made domestically.

Nearly 80 percent of food beverage and tobacco products bought in America
are made in the USA. Under a quarter of computer and electronics products
fly the American flag, and just 7 percent of apparel and accessories sold
are U.S.-made.


MATHISEN: Well, knowing what it means to be made in America, Courtney
found to retailers, a toy manufacturer and an apparel maker, who make their
products here. But they are the exception not the rule.

The next part of Courtney`s story takes us to New Bedford, Mass.


REAGAN: Building set Brackitz is 100 percent made in the USA, from
plastics manufacturing, to assembly, to packaging. The Toy Industry
Association says small businesses like Brackitz are the brains behind most
U.S.-made toys. But that`s just a small sliver of the $25 billion spent on
toys annually. While the illustrious “Made in the USA” label is attractive
to toy retailers —

CHRIS COCHELLA, BRACKITZ CEO: Everyone says, “Wow, you made in the U.S.
That`s incredible. How did you do it? We support you.”

The conversation quickly turns to, is it cost competitive on my store

REAGAN: A classic conundrum for any U.S. manufacturer. Domestic
production comes a higher cost. There are other challenges to making toys
in the U.S. Each part of the process is done by different specialized
partners. Adding to the cost and logistics complication, overseas
manufacturers are more likely to take care of it all.

And that`s also the case when manufacturing apparel, another consumer
segments were “Made in the USA” is rare.

But “Made in the USA” apparel manufacturing is not extinct. This 400,000
square foot Joseph Abboud Factory in New Bedford, Massachusetts, has 740
workers. They make about 1,100 suits every day. But it is a rare example,
because ninety-eight percent of the clothing and shoes sold in the U.S. is
made abroad.

It hasn`t always been that high, but there are a lot fewer us textile mills
and factories that in years past. Skilled sewing labor at low cost is also
extremely hard to find.

MARK ZANDI, MOODY`S ANALYTICS: There`s a near-record number of open job
positions in manufacturing base because we just don`t have the workers with
the skills necessary to do it.

REAGAN: Couple the supply constraints with years of falling apparel
prices, and you`ve got a difficult set up for American manufacturers to
make the economics work. But Joseph Abboud has made it work, manufacturing
suits here in Massachusetts for 30 years.

to be made in America, but I think our distinctions is we make it well in
America, and that`s an important part of it that the customer is so smart
today. So, I think you can`t fool or you can`t give the customer something
that isn`t worth the price.

REAGAN: The problem for many mid-tier retailers is a price behind that
“Made in the USA” label maybe just too high.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in New Bedford


BREWER: Coming up, from the beach to the next big tech IPO.


in Venice, California, just a block away from Snap Inc. headquarters.
We`ll tell you why this social apps idea could be a game-changer for the
L.A. tech community and unicorns nationwide.

That`s coming up on NIGHTLY BUSINESS REPORT.



MATHISEN: Initial public offering of Snapchat`s parent company Snap is
expected to be the largest technology IPO in years. It`s likely to come to
market next week. Not only will investors be watching closely, but
entrepreneurs as well. That`s because the offering could change the
landscape of the entire industry.

Julia Boorstin reports from Snap headquarters in Venice, California.


BOORSTIN: Snap Inc.`s IPO could be a game-changer not just for the other
startups in the Los Angeles area, but also for unicorns, companies valued
at more than a billion dollars, around the country.

Last year`s IPO market was rough. The lowest proceeds since 2003, the
fewest number of the deals since 2009. That`s the nearly 40 percent
decline in IPOs from 2015, and a roughly 60 percent decline from 2014,
according to Renaissance Capital.

Other big unicorns will be watching to see how Snap fares, including
Spotify, Pinterest, and Dropbox, along with Airbnb and Uber.

KATE MITCHELL, SCALE VENTURE PARTNERS: Net-net, though, I think it`s going
to be very good for future IPOs. I think the market overall, the table is
well set for IPOs for the rest of 2017. And so many companies are
beginning to talk about doing it earlier, and you see that with Snap
versus, let`s say, Facebook (NASDAQ:FB).

BOORSTIN: Snap`s IPO will be a watershed for Los Angeles, as the biggest-
ever for a company based here. Its headquarters right behind me are just
steps from Venice Beach, and the offering to drive a wave of startup, as
dozens of new Snap millionaires invest in or start companies of their own.

And while southern California has had a number of companies that have sold
for billions, including Dollar Shave Club and Oculus, Mayor Eric Garcetti
says Snap`s IPO puts L.A.`s tech scene on the global map.

MAYOR ERIC GARCETTI (D), LOS ANGELES: Folks who have the capital now to
begin and spin-off from Snap their own ideas and their own companies, but
also be that anchor that shows for a long time the buzz about L.A. was, you
start a company here and get acquired, instead of starting a company that
will really become a pillar and become kind of that linchpin for future
activity. That will be an amazing day for L.A.

BOORSTIN: Los Angeles ranks third on the Kauffman index of startup
activity, measuring ahead of San Francisco. And as soon as Snap employees
150-day lockup period expires, we can see them give this neighborhood at
Silicon Beach another boost.

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


MATHISEN: That`s a good place to work right there.

All right. To read more about what the Snap IPO could mean for the tech
scene in L.A., head to our website

BREWER: And that`s NIGHTLY BUSINESS REPORT for tonight, I`m Contessa
Brewer. Thank you so much for watching.

MATHISEN: And I`m Tyler Mathisen. Thanks for me as well. Have a great
evening, everybody. We`ll see you right back here tomorrow night.


Nightly Business Report transcripts and video are available on-line post
broadcast at 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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