Transcript: Nightly Business Report – March 10, 2017

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

Funded in part by —

(COMMERCIAL AD)

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Setting the stage. Job growth
defies expectations and wages rise. Now, it`s the Fed`s turn.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Where the jobs are. One
industry where hiring might be accelerating to full throttle.

HERERA: The accidental landlords. They didn`t plan on changing the way
office spaces rented but they did, and their bright idea turned into a
growing business.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday, March
10th.

MATHSEN: Good evening, everyone, and welcome to the end of the week.

Well, it is official, the American economy created a lot of jobs in
February, many more than expected. The gains were broad in sectors all
across the economy. The employment rate did take lower. Wages moved up
now at the second-highest year-to-year rate of the current economic
expansion.

Here the numbers: for the month of February, non-farm payrolls increased by
234,000. The unemployment rate now stands at 4.7 percent, a level very
close to what the central bank considers full employment. And average
hourly earnings, they were a 0.2 percent from the prior month, but 2.8
percent from a year ago.

The report comes just days before Federal Reserve officials make a big
policy decision and Hampton Pearson reports.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: February job gains
were widespread with construction leading the way with 58,000 new hires.
And manufacturing, producing its biggest monthly gain in two years adding
28,000 new workers. Health care also continues to be an engine of job
growth.

And it`s the first jobs report covering a full month under the Trump
administration. A top economic policy official says it`s just the
beginning.

GARY COHN, NATIONAL ECONOMIC COUNCIL DIRECTOR: When you look at what we`ve
been doing here at the White House and all the CEOs that we brought in,
whether it`d be Exxon or Sprint or Intel (NASDAQ:INTC), they promised
enormous amount of jobs and job creation in the United States. Those
hirings have not been done yet. Those are future hirings.

PEARSON: Other signs of momentum: a slight dip in the unemployment rate to
4.7 percent. More people working or looking for work, producing the best
labor force participation rate in nearly a year.

DIANE SWONK, DS ECONOMICS FOUNDER & CEO: One of the gains we saw
unemployment was in private education which includes training by employers,
which was very interesting to see that. That`s something that`s been
absent much of the recovery.

PEARSON: Today`s jobs data almost guarantees the right hike when the Fed
meets next week.

And leading economists say, with wage growth accelerating, the odds for
four rate hikes this year are increasing.

DAVID KELLY, JPMORGAN CHIEF GLOBAL STRATEGIST: If we get these kinds of
reports, this kind of economy, I believe the Federal Reserve will raise at
every press conference meeting this year. You know, at least we have some
crisis. So, that would be four rate hikes, not the two the market is
pricing in.

SCOTT CLEMONS, BROWN BROTHERS HARRIMAN: It begun to accelerate and it`s
sort of a goldilocks way. They`re not accelerating to the point where
worried about inflation creeping in, that they are accelerating to the
point to where it puts more money in people`s pockets and increases the
willingness for them to spend that money.

PEARSON: More signs of a stronger economy, late today, the New York Fed
raising its growth forecast above 3 percent for the first quarter, citing
stronger data on inventories, trade, and, yes, jobs.

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

(END VIDEOTAPE)

HERERA: John Sylvia joins us now to talk more about February`s better-
than-expected jobs report, the Fed and possible interest rate hikes. He is
chief economist at Wells Fargo (NYSE:WFC) Securities.

John, always good to see you and welcome back.

JOHN SILVIA, WELLS FARGO SECURITIES CHIEF ECONOMIST: Thank you, Sue.

HERERA: So, does this report kind of nailed it, that the Fed is going to
move on interest rates and move them to the upside?

SILVIA: Yes, definitely, Sue. It does really reinforce the idea that the
economy has momentum, the labor market certainly is at or near full
employment, as you reported just a minute or two ago. And the Fed does
have a green light to move in terms of 25 basis points next week.

MATHISEN: Do you think as one of the sources in that piece of Hampton`s
just mentioned, that we might get as many as four interest rate hikes this
year.

SILVIA: Yes, Tyler, it is possible four. We`re only going with three in
our view, because I don`t want to jump ahead what the inflation numbers,
all the economic growth numbers could be. Yes, there`s been acceleration
in terms of wage growth and inflation, but to get to that next level in
terms of inflation, we`re going to have to wait and see mode on that. So,
we`re going three rate hikes.

MATHISEN: You know, you bring up inflation and, yes, wages did pick up
again and the participation rate, the number of people who are actively
seeking jobs, that picked up. But at the same time, we`ve seen oil plummet
and some are bringing up the deflationary word again.

How do those things balanced out do you think?

SILVIA: Well, first of all, Sue, it`s very important to see the labor
force participation rate picks up, picking up. That really tells you that
workers or potential workers have confidence now that there are job
opportunities out there. But listening to the media, the harrowing (ph)
stories and now they`re seeking jobs.

Yes, the lower oil prices are going to be a nice offset. So, once again, I
would say, lower oil prices probably maybe three rate increases, but going
four, I don`t think you have the inflation numbers to justify for rate
increases.

MATHISEN: I love the irony that about a year ago, the job report was
roughly similar to the one today and candidate Trump hated it, said it was
a disaster. This report that he says or his representative say, nearly
perfect in terms of the numbers. Be that as it may, that`s just the irony
of the times and who`s sitting where.

Is it too early to give the Trump administration some credit for the
business momentum that we seem to be seeing?

SILVIA: No, it`s not — probably not too early to give them some credit,
but we need to see that follow-through, Tyler, in terms of are you actually
was going to get — and remember the market is discounting some movement in
the corporate tax, some movement in terms of trade policy, some movement in
terms of the Affordable Care Act reforms, a replacement, call it what you
want.

So, yes, we`ll give them some credit, Tyler, but we need to see some
deliverance of market expectations.

HERERA: All right. On that note, John, thanks so much for joining us.
Have a great weekend.

SILVIA: Thank you, Sue. Thank you.

HERERA: John Silvia with Wells Fargo (NYSE:WFC) Securities.

MATHISEN: And on Wall Street, stocks advanced following the strong jobs
report. But some of the games were lost midday as investors look ahead to
next week Central Bank meeting. The Dow Jones Industrial Average added 44
to finish at 20,902. NASDAQ up 22, and the S&P 500 gains seven.

For the week, the three major indexes were lower fractionally. The NASDAQ
and the S&P snap their six-week long win streaks.

HERERA: The Internal Revenue Service is challenging Caterpillar`s taxes
for the years 2007 through 2012. The Dow component, which is cooperating
with authorities, says it disagrees with that challenge and that it stands
by its financial reporting.

As we told you, authorities raided Caterpillars headquarters about a week
ago in connection with an investigation into the company`s offshore tax
practices. And “The New York Times (NYSE:NYT)” earlier this week published
a report and that report accused Caterpillar (NYSE:CAT) of carrying out tax
and accounting fraud.

MATHISEN: Volkswagen pleaded guilty to three felony charges in connection
with the diesel emissions scandal. The plea is part of the more than $4
billion agreement reached with the Justice Department in January. Under
the deal, the automaker has agreed to new audits and oversight by an
independent monitor. VW admitted to installing software on more than a
half million U.S. vehicles that allowed them to beat or cheat emissions
test.

HERERA: The numbers of vehicles recalled last year in the U.S. hit a
record. The Department of Transportation said automakers recalls more than
53 million cars and trucks. Part of the reason was the massive call back
to replace Takata airbag inflators.

MATHISEN: Still ahead, creating jobs by rebuilding America`s military.

(BEGIN VIDEO CLIP)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Kate Rogers
(NYSE:ROG) in Pascagoula, Mississippi. Tonight on NIGHTLY BUSINESS REPORT,
we`ll tell you why defense manufacturers like Huntington Ingalls maybe set
for a Trump bump.

(END VIDEO CLIP)

MATHISEN: The equivalent of more than a billion barrels of oil had been
discovered in Alaska. That`s the biggest onshore discovery in the U.S. in
30 years. The find could help shore up Alaska`s budget, which has been
hurting lately because the decline in production. The discovery was made
in Alaska`s north slope which was previously thought to be an aging,
depleting oil basin.

HERERA: The president has promised an increase in military spending and
that could result in more jobs, thousands of them.

Kate Rogers (NYSE:ROG) takes us to Pascagoula, Mississippi, and inside the
operations of America`s largest military shipbuilding company.

(BEGIN VIDEOTAPE)

ROGERS: From land to the sea to the sky, President Trump is promising to
beef up the American military to the tune of $603 billion. That marks the
$54 billion budgetary boost in defense spending.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: It will be one of the
greatest military buildups in American history.

ROGERS: Among one of the top priority, building up the Navy, growing
nation`s fleet to 350 ships from the current 274. For military ship
builders like Huntington Ingalls, General Dynamics (NYSE:GD) and their
suppliers, this potentially means more business and more jobs.

MIKE PETTERS, HUNTINGTON INGALLS INDUSTRIES CEO: We`re seeing the market
for shipbuilding is improving. We started investing in the facilities a
couple years ago to create the space for these folks to work.

ROGERS: Even based on the Navy`s current plans that don`t include
President Trump`s ambitious proposal, Huntington Ingalls is looking to hire
4,000 people in the next three to five years.

PETTERS: We have dozens of crafts that are involved in the building of the
ship. That`s pipefitters, that`s welders, painters, insulators — just
about anything you can imagine that you might need it in building a city,
we use, because frankly that`s what we`re building.

ROGERS: Twenty-six-year-old Jeffrey Cofer is training in Huntington
Ingalls apprentice program. The National Guard veteran of the Iraq War,
Cofer has been in the program for three years, working up to his 8,000-hour
requirement for pipefitting.

JEFFREY COFER, HUNTINGTON INGALLS APPRENTICE: The best part about it is
the opportunity to learn a trade, something I didn`t have before.

ROGERS: Cofer is spending time in the classroom, learning everything from
basic map in naval architecture and working in the shipyard.

Entry-level workers here can earn up to $57,000 a year plus overtime and
benefit.

COFER: And we move around the yard, we see different stages of ship
construction.

ROGERS: If the president`s proposal comes to fruition, industry workers
will have opportunities for years to come. But to get what he wants,
President Trump will need buy-in from a divided Congress.

ROMAN SCHWEIZER, COWEN SR. DEFENSE ANALYST: A pretty significant expansion
of military procurement, as well as manpower, is probably in store. I
think it`s going to be difficult for him to get what he wants. So, there`s
a fight coming.

ROGERS: Companies like Huntington Ingalls rely heavily on the orderly flow
of work from one ship to the next. And CEO Mike Petters hopes that changes
in Washington what we bring an end to the defense sequester that currently
cap spending until 2021, and has been a strain on operation.

PETTERS: Let`s get back to the process of creating budgets and
establishing priorities and allocating resources to those priorities.

ROGERS: Congressional fight or not, shipbuilders like Cofer will be ready
for action.

COFER: I`m very honored, very proud to be a part of it. I know what it
feels like to be on the other end of equipment built by American workers.

ROGERS: For NIGHTLY BUSINESS REPORT, Kate Rogers (NYSE:ROG), Pascagoula,
Mississippi.

(END VIDEOTAPE)

HERERA: And to read more about hiring at defense contractors, you can head
to our website, NBR.com.

MATHISEN: Vail Resorts (NYSE:MTN) shred its estimates and that is where we
begin tonight`s “Market Focus”.

The ski resort operator said an increasing customers, particularly at its
Whistler and Park City locations lifted quarterly profit and sales above
expectations. The company also raised its quarterly dividend 30 percent to
more than a dollar a share. Vail up more than 4 percent on the day to
$188.89.

And Southwest Airlines (NYSE:LUV) see some dark skies ahead. The airline
lowered its outlook for operating unit revenue, saying unexpected softness
would cause a drop of as much as 3 percent in the first quarter. Southwest
down 48 cents at $55.88.

And the specialty apparel and footwear retailer Genesco (NYSE:GCO) said
weakness that it`s teen retailer Journeys resulted in overall revenue fell
short. But the company`s profit did improve, that`s thanks to a strong
holiday shopping period. And that sent shares up 8 percent to $61.30.

HERERA: Shares of fiber optic cable maker Finisar (NASDAQ:FNSR) were lower
after the company posted disappointing results late yesterday. Finisar`s
guidance for the current quarter was also weak, and the shares plunged
today 22 percent to $26.98.

Retailer the Buckle (NYSE:BKE) which sells brands such as Oakley and
Billabong said a challenging retail environment cause revenue profit and
same-store sales to fall. The results were below the company`s guidance as
well as Wall Street`s expectations. Nonetheless, the shares picked up
momentum, rising nearly 3 percent to $17.80.

And Zumiez (NASDAQ:ZUMZ), which sells skateboards and apparel, beat both
profit and sales expectations after the bell yesterday, but shares still
got crushed today. The company forecast a loss for the current quarter
that was much larger than what Wall Street was expecting. Shares fell 12
percent to $18.40.

MATHISEN: And now to our market monitor who likes homebuilder stocks, the
sector closed up for the fifth straight week. That`s the longest win
streak it`s had since August — there you see it — up 16 percent over the
past year.

Chris Bertelsen is president and chief investment officer at Aviance
Capital Management.

Chris, welcome back. Good to have you with us. I hope I pronounced
Aviance correctly, did I?

CHRIS BERTELSEN, AVIANCE CAPITAL MGMT. PRESIDENT & CIO: You did, Tyler.
Thank you.

MATHISEN: You know, one of the bright spots in the jobs report today was
construction hiring, which suggests that the homebuilder and building
sector is moving ahead at is absolutely confident with what you`re
recommending.

Let`s start with your first pick, D.R. Horton (NYSE:DHI). Why do you like
it?

BERTELSEN: I think D.R. Horton (NYSE:DHI) really is terrific. They are
mid-level type of home builder. They are great at creating jobs not only
for skilled trades workers but for semi skilled as well, and they have
inventory which is basically bought back in 2011, `12, and `13.

Plus the fact they`re 35 percent discount to the market. So, there`s about
as cheap sectors you can find breaking and D.R. Horton (NYSE:DHI) is
breaking out from its 2013 old highs and good timing.

HERERA: All right. Lennar (NYSE:LEN) is next on the list and you say it`s
similar to D.R. Horton (NYSE:DHI). But they did something interesting
during the financial crisis they reinvested in their raw commodity, which
was land.

BERTELSEN: Absolutely. That`s the one item on a home builders balance
sheet is really their land. So, now, they`ve got big built-in profit.
They bought WCI here in Florida, and they do a little more rental, but
pretty much a carbon copy of Lennar (NYSE:LEN). Again, very cheap, strong
balance sheet. You got to like.

MATHISEN: And the last one is a sort of a step up in terms of the sort of
house price they — the price point at which they do business, and that is
Toll Brothers (NYSE:TOL). Why do you like them?

BERTELSEN: Well, Toll Brothers (NYSE:TOL) certainly is for the upper end
buyer. They are big in country clubs and high-end communities. You have
to like Toll Brothers (NYSE:TOL) because that is one of the fastest-growing
segments. As we see baby boomers retire and those that have earned
substantial money over a period of time, they like the Toll Brothers
(NYSE:TOL) communities, and I think therefore attracted to the high-end,
although a smaller segment of the market.

HERERA: Right. How do you view the housing market itself right now,
Chris? Because, you know, we hear that there`s a shortage of first-time
buyer or entrance level types of homes out there. But demand is it`s
pretty good from what we`ve been hearing.

What do you see?

BERTELSEN: Yes, there`s no question that the first time home buyer at the
lowest levels sort of sets the market. But I think this is the one area
where policy in Washington from both sides of the aisle want to see a
public-private partnership that you`ll have it.

So, I think you`ll see even incentives and stimulations for what you would
consider starter and beginning homes and things at the low end of the price
range.

MATHISEN: Can you find me a nice place in Sarasota, Chris?

BERTELSEN: Come on down.

MATHISEN: How is it going? Let me ask you a quick serious question: do
you expect that people will get off the fence and go into the real estate
market because interest rates are moving up? Is this going to hurry them
up?

BERTELSEN: There`s no question that that`s the stimulus. But we fast
forget that we had some building booms when we had four and five percent,
not saying we`re going to get there in a hurry, but we certainly look like
we`re marching in that direction.

MATHISEN: All right, Chris. I see in Sarasota.

Chris Bertelsen —

BERTELSEN: Thank you, Tyler.

MATHISEN: — Aviance Capital Management.

HERERA: And coming up, headquarters on demand. The story of two
entrepreneurs and their bright idea to help support other businesses.

(MUSIC)

MATHISEN: A lot happens on Wednesday next week, in fact, take the rest of
week off. You don`t need to bother with it.

Here`s what to watch folks: The Fed will release its decision on interest
rates and host a press conference Wednesday. As we reported, the Central
Bank widely expected to raise rates. The same day, the president`s new
pick to lead the Labor Department will have his confirmation hearing. And
Wednesday night at midnight, the debt ceiling extension expires, that means
the Treasury cannot borrow any new money. Hope they`ll get a solution to
that.

That`s what to watch next week.

HERERA: The hotel business is going after Airbnb. A study funded by a
hotel industry groups says the home sharing startup is running illegal
hotels, according to the American Hotel and Lodging Association, whose
members include the likes of Marriott and Hyatt, as well as others. Airbnb
is able to avoid regulations and offer lower prices, oftentimes renting out
entire homes not just rooms.

Airbnb calls the report inaccurate and misleading.

MATHISEN: Working spaces are continuing to change. Open layout, social
areas, multiple companies sharing real estate, they`re all pretty common
now. But two New York City entrepreneurs both with tech backgrounds got
the bright idea that changed the way leases work, not only by increasing
flexibility for renters, but also for building owners.

(BEGIN VIDEOTAPE)

MATHISEN: When Arnol Sarva and Edward Shenderovich began renting out their
extra New York City office space a few years ago they didn`t think it would
turn into a business called Knotel.

ARNOL SARVA, KNOTEL CEO: Knotel started by accident. We were sitting on
top of an explosively powerful business.

MATHISEN: Powerful? Sarva says Knotel brought in about $10 million, but
starting it meant taking on multinational multibillion dollar company.

EDWARD SHENDEROVICH, KNOTEL CHAIRMAN: We started looking at their numbers
and trying to understand what we actually have something unique to offer.

MATHISEN: Two of the big boys renting office space are We Work and Regis
(NYSE:RGS).

Six-year-old We Work develops co-working spaces mostly for smaller startups
and individuals looking to share the cost of kitchen, social space, Wi-Fi,
even group health insurance.

Regis (NYSE:RGS), in business for more than 25 years, used to target big
businesses. Now, it`s aiming for other segments as well with 3,000
locations across 120 countries.

But Sarva and Shenderovich believe there`s a giant underserved market,
newer, faster growing companies with 20, 30, maybe 50 employee.

SARVA: Less than percent of the office market is the co-working types
stuff. Ninety-nine percent is companies that need a headquarter.

MATHISEN: Startups tend to begin life as nomads. Five-year-old Venuebook,
an event space booker, is in its seventh office.

KELSEY RECHT, VENUEBOOK FOUNDER AND CEO: We have our first sign.

MATHISEN: Brand identity is a plus but Kelsey Recht says Knotel`s flexible
one-year lease allows Venuebook to move again if necessary. Knotel says
space for 20 runs about $10,000 a month in New York City.

RECHT: We didn`t want to sign a really large least and then have to sublet
to another company.

MATHISEN: To Knotel, leases are the enemy.

SARVA: Leases are what you thought was the only way to do business, up
until someone showed you a different way.

MATHISEN: Sarva and Shenderovich say long-term lease, five, seven 10
years, hurt small businesses and landlords. If average rents rise during
the lease, landlords can`t cash in. Knotel helps landlords turn over their
spaces more often, letting the market dictates the price the same way
hotels change room rates day-to-day.

Knotel shares the risk with landlords and collects the marching off the
top.

NORMAN KURLAN, BUILDING OWNER: That was really a problem for building
owner because you can`t really run a building with your leases turning over
after six months, and I think Knotel took care of that.

MATHISEN: Thirty-year commercial real estate veteran Norman Kurlan is the
landlord who first pushed Sarva and Shenderovich to fill extra space they
were renting from him.

KURLAN: It`s not really a traditional sublease operation. It`s more of a
moving around the companies as they needed space.

MATHISEN: Sarva and Shenderovich also believe their tech background will
help landlords adapt into the future. Who knows what the conference room
will look like in 10 or 20 years.

SHENDEROVICH: What we`ll provide them is a service that alleviates the
necessity for them to become experts in technology. And for residents,
we`ll alleviate the necessity for them to become experts in real estate.

SARVA: You have to coordinate different people who needs over time that
change. Now that we have technology, we can coordinate the needs and put
them together.

(END VIDEOTAPE)

MATHISEN: Knotel has 15 locations in the New York City now. But with $25
million in new investment capital, it is expecting to expand outside of New
York and total about 40 locations by year`s end. Already expanded beyond
tech startups, its client list now includes media, finance, fashion and
retail companies.

Good business working.

HERERA: Good business, yes.

All right. That will do it for us on NIGHTLY BUSINESS REPORT tonight. I`m
Sue Herera. Thanks for watching.

And we want to remind you, this is the time of year your public television
station seeks your support.

MATHISEN: I`m Tyler Mathisen and we all thank you for your support. Have
a great weekend, everybody, and we will see you back here on Monday.

END

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