Transcript: Nightly Business Report – May 5, 2017

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: You`re hired. Job gains
more than double from last month as the unemployment rate falls to a decade
low.

(BEGIN VIDEO CLIP)

WARREN BUFFETT, BERKSHIRE HATHAWAY CEO: I don`t value IBM the same way
that I did six years ago when I started buying it.

(END VIDEO CLIP)

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Big Blue`s big bruise. Warren
Buffett dumps a third of his IBM shares. Should you?

MATHISEN: Repurpose for a purpose. Meet the sisters who are part of the
military who had a bright idea and are giving back while going a very
successful business.

Those stories and more tonight for NIGHTLY BUSINESS REPORT for Friday, May
5th.

HERERA: Good evening, everyone. Welcome.

The NASDAQ and S&P 500 set records, even as IBM shares tumble. We`ll have
more on that in just a moment.

But we begin tonight with jobs. The labor market hasn`t looked this good
in a decade. Job growth recovered in April after a lousy March. And most
agree that the economy is getting very close to full unemployment.
Employers added 211,000 positions last month, more than expected. The
unemployment rate dropped to 4.4 percent, which is a ten-year low.

A broader measure of unemployment that includes discouraged and part-time
workers also fell. And although wages grew compared to a year ago, the
Federal Reserve wants them to pick up even more.

Hampton Pearson reports tonight on America`s employment picture.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The April rebound
in hiring was dramatic. From just 79,000 jobs in March, more than doubling
to 211,000 workers added to payroll last month. At 4.4 percent, the
unemployment rate is the lowest in a decade.

JEFF ROSENBERG, BLACKROCK CHIEF INVESTMENT STRATEGIST: The real story here
is the tightness of the labor markets. It didn`t really show up this month
in the year over year figures. The base effects are pretty strong there.
But the Fed is going to pay attention here.

PEARSON: There are still more than 5.5 million job openings nationwide,
with a shortage in many skill professions triggering competition and higher
wages, and a mini boom for job recruiters.

The Porter Group, headquartered in Columbia, Maryland, specializes in
business to business sales and services with corporate clients from New
York City to the Washington, D.C. area. A spike in business in recent
months now has the firm getting 2,400 new applicants per month. The median
salary and benefits for those who get placed, around $85,000 a year.

JAMES PORTER, THE PORTER GROUP PRESIDENT: It`s really a war for talent, if
you will, going on right now. And people, at least from what we`re seeing,
a lot of people are getting more money even than what they`re qualified
for.

PEARSON: But the lion`s share of workers are still dealing with stagnant
wages. Up just 2.5 percent year over year to around $26 an hour, according
to the Labor Department. In April, hiring was strongest in lower paying
industries. Restaurants and hotels, which added 55,000 new workers.
Health care was second with 37,000 workers and a wider range of salaries.

Leading economists say the wages versus inflation debate will be back on
the table for monetary policymakers.

ALAN BLINDER, FORMER FEDERAL RESERVE VICE CHMN: Everybody is emphasizing
that the Fed is going up in rates, which, of course, they are. But they`re
going very slowly. There`s no panic. There`s no sense we have to clang
the bells because inflation is on the horizon.

JAN HATZIUS, GOLDMAN SACHS CHIEF ECONOMIST: I think it`s very likely that
they`re going in June. I also expect a hike in September and then in the
fourth quarter, I`m looking for a balance sheet adjustment or an
announcement.

PEARSON: This week, monetary policymakers said sluggish first quarter
economic growth was likely transitory. Today`s hiring rebound backs up
that claim.

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

(END VIDEOTAPE)

MATHISEN: Let`s turn now to Jim Swanson for his perspective on today`s
jobs report and the stock market`s response to the data. He`s chief
investment strategist at MFS Investments.

Mr. Swanson, welcome. Good to have you with us.

JAMES SWANSON, MFS INVESTMENTS CHIEF INVESTMENT STRATEGIST: Thank you.

MATHISEN: It seems to me the stock market performs best when the economy
is growing but not overheated, inflation is a little bit but not too much,
and interest rates are low. We seem to have that, right?

SWANSON: We do. And you have to remember, this whole business cycle, the
economy, people have been lamenting it`s growing too slow. The average
growth rate has been about 2 percent.

But the stock market kept going up because profits were strong. So, don`t
always equate the economy with profits over the stock market. But right
now, the economy is on very solid footing.

HERERA: You — according to my notes anyway, say that the implication is
that we can`t get all that much more growth out of this economy because
there aren`t as many people to employ, we`re close to full employment.

SWANSON: Yes, and that`s the dilemma. When people talk about let`s see
more growth, it`s very tough to get it. The two drivers of growth are the
number of people willing to work and what they call productivity, how much
let`s say services and goods you get per hour worked. The government tells
us that`s been falling, not been very good and we can count the number of
people and that`s not growing very fast.

We`re pretty much at full employment. So, don`t expect the U.S. economy to
ratchet up in its growth level. I think that would be very disappointing
if people think that.

MATHISEN: Some of those other sort of internal measures like people who
were working part-time but would rather work full-time, that`s come down.

One of the stubborn things that people — the nitpickers point to is the
idea that labor force participation has been relatively historically low
and not moving up. My counterargument to that, and I`d like to get your
reaction to it, is that, I think, is structural and represents a
demographic change. In other words, baby boomers retiring, leaving and not
wanting to work.

SWANSON: Eleven thousand people in this country turn 65 every day. When
we look at the numbers, 85 percent of them don`t work. So, they`re
dropping out of the workforce.

And, you know, you mentioned inflation. Well, wages have a tough time
going up because these are the highest paid people in the society. And
they`re leaving. And they`re being replaced by younger workers who don`t
make quite as much.

So, that tends to limit the amount of runaway inflation that people keep
talking about. So, two things: slower growth and not as much inflation as
we`ve seen in the past.

HERERA: So, what does this mean for the market? If I`m an investor and
the market has been on a very good roll, do I continue to put money to work
in this market? Or are you a little cautious, given the fact that you
don`t expect the same level of growth?

SWANSON: I`m tiptoeing around this market. Let me start from the
viewpoint that by any measure, and we look at a lot of them, the market is
expensive. And, you know, it has been rising for a long time.

And you don`t want a market that`s going up faster than profits. And I
think that could happen later this year. I see signs that profits could
not rise as much as we`re seeing now. They`re very strong. But I think
that will fade again. We`ve seen these mini cycles.

And I think people should be cautious, because we`re now coming up on the
eighth anniversary of the business cycle. And the longest one we know of
since World War II is ten years. So, as you get closer to let`s say the
next recession —

MATHISEN: Right.

SWANSON: — people should be more cautious and less in the stock market.

MATHISEN: Jim, thank you very much. Appreciate it.

Jim Swanson with MFS Investments.

SWANSON: Thanks for having me.

MATHISEN: You bet.

HERERA: On Wall Street, the S&P 500 and NASDAQ closed at record highs, as
energy shares followed a rebound in oil prices. And while the Dow also
gains, they were capped by a decline in the shares of IBM, which we`ll talk
about in just a second.

The blue chip Dow index advanced 55 points to end the week at 21,006. The
NASDAQ added 25 and the S&P 500 rose nine. For the week, the major
averages were all up fractionally.

MATHISEN: And more now on IBM, which saw shares fall when CNBC reported
that one of its biggest investors has lost confidence in the company.
Berkshire Hathaway (NYSE:BRK.A) chairman Warren Buffett sold a third of his
stake, saying simply that IBM hasn`t performed the way he expected when he
started buying shares six years ago.

In an interview with Becky Quick, he further explained his decision.

(BEGIN VIDEO CLIP)

BUFFETT: The earnings have been obviously disappointing. I mean, five or
six years ago, I think they were earning $20 plus billion pretax. Maybe
it`s $13 billion now. And I don`t think the quality of earnings has
improved.

So, it`s — you know, it`s been a period when I`m sure that it`s been
tougher than they thought and tougher than I thought. But I was wrong.

IBM is a big, strong company, but they`ve got big, strong competitors too.

(END VIDEO CLIP)

MATHISEN: At the end of 2016, Mr. Buffett owned 81 million shares of Big
Blue, making him IBM`s single biggest shares holder. He started cutting
his stake in the first and second quarters of this year and he has since
stopped selling but still owns more than 50 million shares. In trading
today, IBM fell 2.5 percent to just about $155 a share. Buffett purchased
shares of IBM at an average price of roughly $170.

HERERA: So, if Mr. Buffett is selling some of his IBM shares, should you
be selling as well?

Kim Forrest, portfolio manager at Fort Pitt Capital, joins us now to talk
about that.

Welcome back, Kim. Nice to see you again.

KIM FORREST, FORT PITT CAPITAL PORTFOLIO MANAGER: Thank you.

HERERA: So, what do you make, first of all, of Mr. Buffett`s move to sell
IBM?

FORREST: Well, it was really surprising, and I`d say it was equally
surprising as to the day he announced that he bought the shares, because he
was a long time person — he had for a very long time said he would not buy
technology, he didn`t understand it. Well, maybe Warren didn`t understand
this purchase fully and I think that`s why we`re staying in while Warren is
getting out.

MATHISEN: Why are you staying in, and what would change your time? It`s
been a long time, this stock has underperformed the S&P over the past few
years. I think over the past six years, it`s up like 8 percent. The S&P
is up 90 percent.

FORREST: Well, when Warren bought in, what he didn`t understand and I
don`t think a lot of people understood was a lot of the sales were going to
China. There was a political change there and they became China first
buyers. So, a lot of those sales dried up.

But there`s a lot of changes that are going on, that`s not the only thing.
The cloud came in, big data came in. And IBM has really great clients, and
by that I mean they`re really big companies that depend on the systems that
IBM sells them.

But here`s the thing: we`re going to the cloud. So, a lot of spending has
not been done on what IBM does. And they did some acquisitions. They are
moving towards the cloud. But their clients aren`t moving as fast as
everybody else. And plus, those sales are not quite as high in margin as
Warren would like. So, we see the future being provided a little bit by
IBM or a lot by IBM to its clients.

But, you know, probably not at the margins that Warren wanted when he
initially bought the stock.

HERERA: So, it sounds like you`re expecting a little bit of volatility in
the stock. Do you expect a management change or reshuffling?

FORREST: Well, I wouldn`t be surprised. Part of a boss`s job, and as CEO,
you`re the big boss, is you have to explain what you`re doing to a lot of
people, not just the employees and clients but also your shareholders. And
it looks like Warren didn`t receive a message that he liked or maybe Ginni
wasn`t able to really get him excited about what IBM can do for its
customers and then in turn for the shareholders.

But either way, you know, Warren`s out. So, maybe Ginni`s out, too.

MATHISEN: Yes, if you`re not keeping your biggest shareholder happy, it
can increase pressure on you.

Kim Forrest, thank you.

FORREST: Thank you.

MATHISEN: Kim Forrest is with Fort Pitt Capital.

And still ahead, high stakes elections for the global market.

(BEGIN VIDEO CLIP)

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m
Michelle Caruso-Cabrera in Paris, France, ahead of this Sunday`s election.
The voters here are choosing a president. But in the rest of Europe, they
see it as a referendum on the European Union and the Euro. More coming up
on NIGHTLY BUSINESS REPORT.

(END VIDEO CLIP)

MATHISEN: Federal Reserve officials said the Central Bank should cut its
balance sheet in half. The president of the St. Louis Fed said that
trimming should start in the second half of this year.

(BEGIN VIDEO CLIP)

JAMES BULLARD, FEDERAL RESERVE BANK OF ST. LOUIS PRESIDENT: The size of
the balance sheet is larger than we would like. So, that`s why I`ve been
an advocate of beginning to shrink the balance sheet by ending the
reinvestment policy. I think we could go down to as low as $2 trillion.

(END VIDEO CLIP)

MATHISEN: They put that card in there so he knew who it was. There was a
little confusion.

As we`ve been reporting, the Fed purchased a lot of bonds in the wake of
the financial crisis to shore up the economy. Investors will watch how and
when the trimming happens because it could have a similar effect to
tightening interest rates.

HERERA: The French go to the polls this Sunday to choose their next
president. It`s one of the most consequential French elections in decades
because it has much wider implications for the future of Europe. One
candidate wants France to keep the Euro. The other wants the country to
abandon it.

Michelle Caruso-Cabrera reports tonight from Paris.

(BEGIN VIDEOTAPE)

CARUSO-CABRERA: It`s the final day of campaigning for the two French
presidential candidates, Emmanuel Macron and Marine Le Pen. Both are
working to sway voters like Jean-Pierre Mercier.

How many cars are made here each day?

JEAN PIERRE MERCIER, TRADE UNION REPRESENTATIVE: Six hundred.

CARUSO-CABRERA: Six hundred. How many people lost their jobs?

MERCIER: Three thousand.

CARUSO-CABRERA: Mercier was the head of the union at this now empty
Peugeot Citroen auto plant. The plant was more than 200 factories that
closed in 2014, the exodus of manufacturing jobs hasn`t stopped. In the
town of Amiens, Whirlpool (NYSE:WHR) factory workers will be on strike,
concerned they will be out of work next year when their plant moves to
Poland.

Both candidates visited the plant this week. Macron, who supports more
integration with Europe, was booed. He eased some of France`s very rigid
labor laws when he was economy minister and these workers think he will did
more of the same if he becomes president.

But Marine Le Pen was cheered. She wants France to leave the European
Union and quit the euro. She says the Whirlpool (NYSE:WHR) employees are
victims of globalization and she wants tougher labor laws. But that`s not
what business owners want.

VIRGINIE RADICE, ANAHIDE SAINT ANDRE CEO: All the collection, the
production of the collection, are made in France.

CARUSO-CABRERA: Virginia started a new fashion line four years ago. She
says it`s tough to be competitive in France.

When economists look at France, they think the labor laws here are too
rigid.

RADICE: Yes.

CARUSO-CABRERA: Do you agree?

RADICE: Yes.

CARUSO-CABRERA: France has a strictly enforced 35-hour workweek. It`s
also extremely difficult to do layoffs. And worker protection taxes are
the highest in Europe.

RADICE: You have to be very cautious to hire people, because if you do a
mistake, it is more difficult to change.

CARUSO-CABRERA: Unemployment is just one of the key issues in this
election. The others, terrorism and immigration, and whether or not the
euro and the European Union are the cause of all three.

For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera, Paris, France.

(END VIDEOTAPE)

MATHISEN: A drop in mall traffic hit sales at Revlon (NYSE:REV). And that
is where we begin tonight`s “Market Focus”.

The cosmetics company posted a loss and said weak demand across all
divisions in North America dented results. The company added that it
remains focused on restoring brand growth domestically and expanding its
presence in Asia and Latin America. Meantime, shares down more than 23
percent today to $19.30.

The health insurer Cigna said strong membership growth in its government
plans helped profit top analysts` expectations. Revenue also in ahead of
estimates, and the company raised its outlook for the year. Cigna shares
up 2 percent to $160.25.

HERERA: In a push to restructure, Pearson, the world`s largest provider of
textbooks and education products, is cutting nearly $400 million in costs
by 2019 and is considering selling its U.S. business. That news sent
shares higher by 13 percent to $9.53.

Pipeline operator TransCanada saw earnings double as the company benefitted
from a recent acquisition and higher profit in its Mexico pipelines. Both
profit and revenue beat expectations. TransCanada shares rose nearly 3
percent to $46.88.

A St. Louis jury has ordered Johnson & Johnson (NYSE:JNJ) to pay $110
million to a woman who said the company`s baby powder containing talc
caused her ovarian cancer. This is the largest verdict so far of the more
than 2,000 accusing J&J of not warning about the risk. Shares fell 44
cents to $123.51.

MATHISEN: And now to our market monitor who likes companies with exposure
to emerging markets, technology and the aging demographic. Last time he
was on in November, he recommended Waters (NYSE:WAT), Ecolab (NYSE:ECL),
and PepsiCo, all of which have risen.

He`s Allen Bond, top performing co-portfolio manager at the Jensen Quality
Growth Fund, which is up more than 8 percent this year.

Allen, welcome.

You know, record highs for the NASDAQ and S&P today, the Dow not far
behind. How much higher can this market go?

ALLEN BOND, JENSEN QUALITY GROWTH FUND CO-PORTFOLIO MGR: Yes, that`s
clearly the question. And it`s obviously been a very, very strong start to
the year. In many ways, really kind of a continuation of the rally we saw
in the fourth quarter of last year.

One trend that we have our eyes on is that as we look at leadership this
year, the market is being led by high quality stocks. That is a bit of a
change from last year. That`s a trend that we like, you know, the kind of
stocks that we like, stocks with consistent business models, high returns
on capital. And so, it`s a trend that we support and it`s been a favorable
backdrop for us.

HERERA: You also recommend strong emerging market growth, technology, and
you`re focused on aging demographics. With that in mind, your first pick
is Becton Dickinson (NYSE:BDX).

BOND: Yes. So, Becton Dickinson (NYSE:BDX) is a global health care
company that dominates the world`s market for needles and syringes. And
they get more than 20 percent of their sales from emerging markets. So,
it`s a great stock for that team as well.

These trades have allowed Becton to produce consistently higher returns on
equity, that`s a real key for us. They announced a large acquisition last
week. They`re going to buy one of their competitors, C.R. Bard (NYSE:BCR).
We think it`s a great strategy fit. We think they can take cost out of
Bard, but also accelerate revenue growth by expanding all their products
around the world.

And importantly for us, both these companies consistently generate higher
returns on capital and produce free cash.

MATHISEN: And a quick thought on Emerson Electric (NYSE:EMR), a kind of
mini-GE in a way.

BOND: Sure. So, yes, Emerson is a global industrial conglomerate with a
broad portfolio of businesses that are really all aimed at making other
businesses more efficient, more streamlined. And they have very strong
market positions across these businesses and we think that`s a real key for
them. About — a big chunk of their business is exposed to energy and
markets. And we think that`s interesting right now. We`ve seen
stabilization in those markets. We think that positions the company very
well for earnings growth here as we get through the year.

HERERA: And we`ll finish up with Oracle (NASDAQ:ORCL) enterprise software.

BOND: Right. So, Oracle (NASDAQ:ORCL) is one of the largest enterprise
software companies in the world with a real focus on database software.
That`s software that`s used by businesses to do things like manage human
resources and enterprise risk. And it`s a business characterized by very
higher customer switching costs, and we think that`s very important right
now.

Oracle (NASDAQ:ORCL) is transitioning their business to more of a cloud-
based delivery model. We think those switching costs will help them do
that. And as we looked at recent earnings reports, we see evidence of that
switch and that transition is working. We think that`s very good for the
long term health of the business and we also think it will bode well for
the stock.

MATHISEN: All right. Allen Bond, thank you. Bond is with the Jensen
Quality Growth Fund.

HERERA: Coming up, a powerful mission. Two sisters created a line of
accessories that do a lot more than just complete the outfit. Their bright
idea is next.

(MUSIC)

HERERA: The Department of Justice is reportedly investigating Uber.
According to “Reuters”, federal investigators are looking into the ride-
hailing company`s use of software that helped its drivers evade local
officials in cities where Uber was not yet approved. The probe is in its
early stages but it adds to Uber`s recent controversies which include
sexual harassment claims, high level executive departures and a trade
secrets lawsuit.

MATHISEN: The month of May is Military Appreciation Month, leading up to
Memorial Day. So, we introduce you this evening to two sisters living in
Denver. One, a former army captain who got the idea to make fashion goods,
bags, accessories and like out of durable, colorful, surplus military grade
material.

(BEGIN VIDEOTAPE)

EMILY NUNEZ CAVNESS, SWORD & PLOUGH CO-FOUNDER AND CEO: That`s lined with
the BDU camo.

MATHISEN: Imagine helping to launch your company while on active military
duty in Afghanistan. Then again, Emily Nunez Cavness makes finding time to
do the impossible fashionable.

CAVNESS: I actually designed our signature tote bag when I was a second
lieutenant in my base leadership course.

MATHISEN: Emily and her sister Betsy Nunez grew up in a military family.
But Emily, an ROTC student, was in her senior year at Vermont`s Middlebury
College in 2012 when she asked Betsy about making a tote bag using material
from an old army tent.

BETSY NUNEZ, SWORD & PLOUGH CO-FOUNDER AND COO: I could definitely see the
wheels turning. I just started asking her questions. What will it look
like? Why do you want to make one? Who is going to make it?

MATHISEN: Within days, they began shaping a business plan. Their mission:
repurposing military surplus materials to create a sustainable product
line, one that could also sustain careers for military vets.

CAVNESS: I also heard about challenges around veteran unemployment. Those
were memorable conversations.

MATHISEN: Betsy had already been working in e-commerce. But it was their
mom who stitched together the first prototype tote bag. Emily had deployed
to Afghanistan by July 4th weekend in 2013 when their company, Sword &
Plough, began selling three products, a tote, a rucksack, and a messenger
bag. They`re made in the U.S. products have used more than 30,000 pounds
of military surplus.

NUNEZ: Anything from tents to parachutes to canvas to aircraft felt and
insulation.

CAVNESS: This is the camouflage, the uniforms I started out wearing.

MATHISEN: Even material used to make American flags.

UNIDENTIFIED FEMALE: There was a lot left over.

MATHISEN: Five of their American manufacturers are either veteran-owned or
partly staffed by U.S. vets.

In Kentucky, army veteran and entrepreneur Shana Roddenberg (ph) makes
their line of hammered jewelry out of 50 caliber shell casings. Sword &
Plough supports 65 veteran employees.

LAURA KEENAN, MARKETING AND SALES DIRECTOR: For a lot of people, it is a
struggle to find where they`re supposed to be after they serve.

MATHISEN: Laura Keenan came on board after 11 years of active duty,
including 15 months in Iraq. The former army major still serves with the
National Guard, but since meeting Emily and Betsy at a White House event in
2015, she`s been helping them give civilians a better understanding of the
military. A gap many feel has widened over the years.

KENNAN: Someone complimented me on my jewelry. We had a thoughtful
conversation about my service in the Army.

MATHISEN: Each product, handbags, pouches, toiletry kits, camouflage
travel bags, priced from $19 up to about $360, has its own story.

CAVNESS: We just got some parachute material which I`m really excited
about, being a former paratrooper.

MATHISEN: An added bonus, Sword & Plough has donated 10 percent of hits
profits four years running to organizations that support vets.

NUNEZ: Every business does have an impact. We think there`s a way to do
things right and the right way to do things. And we`re really excited to
be living and working at that intersection.

(END VIDEOTAPE)

MATHISEN: In the Bible, the term “hammer their swords into ploughshares”
refers to the concept of putting military technology to peaceful civilian
use. And Sword & Plough, the company, just won a $25,000 grand prize in
the FedEx (NYSE:FDX) small business grant contest. Emily and Betsy say
that will help them hire another veteran, they`re looking for a logistics
expert, anybody out there, to help with inventory management.

What a cool —

HERERA: I love that story.

MATHISEN: What a cool story that one is.

HERERA: It really is.

MATHISEN: Love it.

HERERA: Good for them.

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

MATHISEN: I`m Tyler Mathisen. Have a great weekend. We`ll see you
Monday.

END

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