Transcript: Nightly Business Report – June 1, 2017

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Triple-header. All three
major indexes closed at new highs. And the investor optimism comes on the
eve of the jobs report, one of the most important gauges of the U.S.
economy.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Budget pain. Why the White
House` proposed budget has some in the heartland growing concerned.

GRIFFETH: Sky high. Insurers want to assess hurricane damage and cut
checks more quickly. And they`re going to new heights to do that.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for this
Thursday. It`s already June the 1st.

Good evening, everybody. I`m Bill Griffeth, in tonight for Tyler Mathisen,
coming to you this evening from the New York Stock Exchange.

Good evening, Sue.

HERERA: Good evening, Bill. I`m Sue Herera. Welcome, everybody.

Records were set on Wall Street today. The Dow, the S&P 500 and the NASDAQ
all closed at levels they`ve never closed at before. And the investor came
on the eve, as Bill mentioned, of the employment report for May.

So, let`s get to the numbers on this first trading day of June. The Dow
Jones Industrials Average advanced 135 points to 21,144. The NASDAQ gained
48. And the S&P 500 rose 18.

GRIFFETH: And Wall Street`s enthusiasm was due in part to the latest
reports on the labor market. Private businesses added more than 250,000
jobs last month. That was well ahead of estimates.

And payroll processor ADP said the hiring primarily came with companies
with fewer than 500 employees. It accounted for three-quarters of the jobs
that were added in May. And tomorrow, of course, the government`s monthly
employment report will be released. Expectations for non-farm foreign
payrolls to be increased by 184,000 and for the unemployment rate to remain
steady at its 4.4 percent rate.

HERERA: However, job cuts coming to one well known American company,
General Motors (NYSE:GM) will eliminate one of two shifts at a Michigan
transmission plant. The automaker won`t say how many workers are affected.
But there are reports it could be roughly 300 positions.

GRIFFETH: And those job cuts come amid lackluster sales last month at most
of the major automakers. In fact, it was the slowest pace we`ve seen in
more than two years. But amid the unimpressive numbers, there were signs
that may give investors hope that the auto industry can stay highly
profitable even as sales slow.

Phil LeBeau explains.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: There was mixed news
in America`s showrooms last month. Let`s start with the not so good news.
Sales were unimpressive. Only Ford posted slightly positive results among
the big four automakers. Once again, trucks and SUVs are driving demand
while car sales continue to slide, even with some models carrying huge
incentives. As a result, May was the third straight month with sales under
17 million vehicles, the slowest three-month period since 2014.

PAUL INGRASSIA, INSTITUTE FOR AUTOMOTIVE RESEARCH: It`s a cyclical
business. Some cooling-off was inevitable. And guess what? It`s
happening.

LEBEAU: While automakers are wrestling with slower demand, they appear to
be showing some discipline when it comes to incentives. That`s the good
news from last month. The amount of money spent to close a deal, even when
you factor in big discounts for some slow-selling cars, was relatively flat
compared to April.

Meanwhile, automakers are expected to curb production as they head into
summer, which would help ease bulging inventories.

One other piece of good news for the auto industry is the overall health of
the U.S. economy. The combination of low unemployment, along with high
consumer confidence should drive relatively strong sales as the industry
heads into the summer.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: But one part of the automotive industry that`s expected to see big
growth is driverless cars. A new report today says it could be worth $7
trillion by the year 2050. That figure includes industries that will
contribute to and be created by autonomous driving. The study adds that
it`s too soon to predict which companies are poised to grab the biggest
share of that market.

Bill?

GRIFFETH: Elsewhere, Sue, construction spending recorded its biggest
decline in a year. Investment in both private and public projects fell in
April. According to the Commerce Department, overall spending fell nearly
1.5 percent in that time.

HERERA: The president will withdraw the United States from the Paris
climate accord. In a speech in the White House Rose Garden, President
Trump said the agreement was harming the economy.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: The cost to the economy at
this time would be close to $3 trillion in lost GDP and 6.5 million
industrial jobs, while households would have $7,000 less income and in many
cases much worse than that.

(END VIDEO CLIP)

HERERA: The decision, though, goes against the advice of a number of
executives from America`s biggest corporations. That withdrawal process
could take up to four years.

GRIFFETH: As you know, the White House recently released its proposed
budget for the upcoming fiscal year. It includes sharp cuts in spending to
our nation`s heartland.

And as Ylan Mui tells us now, one Kansas farmer is growing concerned.

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Derek Sawyer`s family has
been farming in McPherson County, Kansas, for four generations. They grow
wheat, corn, and soybeans. They raise cattle, and they even have horses.
All of that is possible, Sawyer says, because of the federal crop insurance
program.

DEREK SAWYER, KANSAS FARMER: The crop insurance has always been a big part
of what we do. More for the assurance that if we have a disaster, that it
will help cover the costs of production. It`s definitely not a program
that we`re going to get rich over.

MUI: But President Trump`s latest budget axes agriculture programs, $28
billion from crop insurance, nearly $6 billion from conservation efforts,
$650 million from direct subsidies to farmers. The grand total: $38
billion.

White House Budget Director Mick Mulvaney agrees that crop insurance is
critical to farmers. But he says that`s exactly why they don`t need a big
subsidy to get them to buy it. He also recently told lawmakers that the
administration is helping small town America by rolling back regulations.

MICK MULVANEY, OMB DIRECTOR: Farmers are farmers. And they want to grow
stuff and they want to be productive. They don`t want to be paper pushers
who are trying to figure how the federal government is going to punish them
for doing something that they thought was right.

MUI: Still, some Republicans are crying foul. Senator Pat Roberts of
Kansas and Representative Michael Conaway of Texas oppose these cuts.
They`re the chairmen of the two agriculture committees in Congress. And
they pledge to protect the farmers` safety net.

The president`s budget is just the starting point for negotiations. Many
farm states voted for Trump. And Sawyer said he`s hopeful that means the
White House will listen to people like him.

SAWYER: We knew there wasn`t a perfect candidate. And honestly, there
never really is. But what I believe in is smaller federal government, more
local control, and fiscal responsibility.

And, you know, I feel that we can really work with the president through
his new secretary of agriculture, Sonny Perdue.

MUI: Yet the administration has already disappointed some farmers on
issues like trade and immigration. They`re hoping that cutting crop
insurance won`t end up being the final straw.

For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.

(END VIDEOTAPE)

GRIFFETH: By the way, on our website, you can read more about farmers and
the proposed budget. Just log on to NBR.com.

Sue?

HERERA: Bill, as we told you, the major indexes sit at all-time highs.
And while you might feel good about your holdings, a recent report suggests
that adding alternative investments to a traditional portfolio of stocks
and bonds has historically increased returns while also reducing your risk.
So, what are some alternative types of investments you might want to
consider.

Time for “Strategy Sessions” with Jeff Saut. He`s chief investment
strategist at Raymond James.

Jeff, good to see you as always. Welcome.

JEFF SAUT, RAYMOND JAMES CHIEF INVESTMENT STRATEGIST: You bet, Sue.
Thanks.

HERERA: You say that one of the things that you`re looking at to perhaps
add to diversify a portfolio are certain commodities, because you said
they`re in the bottoming formation.

SAUT: Yes. If you look at the CRB Index or the Goldman Sachs (NYSE:GS)
commodity index. It looks to us like they`re trying to form a bottom here.
It`s probably best represented by energy. Energy is out of favor. And
some of the stocks are off, in fact some of the stocks are off 40, 45
percent from their recent highs.

And, you know, I like to buy things that are out of favor, because they
tend to come back into favor.

GRIFFETH: You also like Mexico, Jeff. In fact you like it more than
China. Why?

SAUT: Well, what`s happened in China, the wages over the past five years
have gone up five-fold. And yet, the Chinese workers are still
disgruntled. And so, the quality of some of the things they are producing
has come down.

I don`t know if you saw this, Bill, but Foxconn, that was building the
iPhones for Apple (NASDAQ:AAPL), is going to build a plant in the U.S.
Mexico I think is going to be the new China. Their production standards
are up to U.S. quality standards. And the transportation costs are a lot
less, even if we do build a wall.

HERERA: How would you do that, how would you play Mexico or any other
country that you like around the globe?

SAUT: I would use the exchange created funds to do it, or a Mexican
centric mutual fund. I think active management, I prefer that over passive
management right here. Active managers have been outperforming for the
past couple of quarters, I think that`s going to continue.

GRIFFETH: You know, I was just looking at the statistics. Since the
election, the S&P is up about 13 percent. The Dow is up 15 percent. The
NASDAQ up 16 percent.

But you still think the U.S. is cheap. Make your case there, and where
would you put money to work right now?

SAUT: You have more high growth, high margin stocks in the S&P than ever
by definition. That means you should have higher valuations than historic.
You`ve got this changed from tangible assets in the `80s to intangible
assets on balance sheets.

Currently, by definition, that means valuation should be higher. If you
take out the aberrational low P/E`s in the `70s and `80s that occurred
because of double digit inflation and interest rates and started in 1990
and look at the P/E at the beginning of this year up until this year, you
find the average P/E is 23.85.

So, we`re trading at about 18 times this year`s estimate, every one-point
drop in the corporate tax rate adds $1.31 to that estimate.

HERERA: On that note, Jeff, thank you as always. Jeff Saut —

SAUT: Always a pleasure. Always a pleasure, Sue.

HERERA: — with Raymond James.

Bill?

GRIFFETH: All right. Still ahead, assessing the damage. Why the sky`s
the limit for property insurers.

(MUSIC)

HERERA: It is June 1st and that means it`s the start of hurricane season.
This year, the National Oceanic and Atmospheric Administration is
predicting a 70 percent chance of 11 to 17 named storms in the Atlantic.

Morgan Brennan is in Windsor, Connecticut, with an inside look at how the
insurance industry is preparing.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Maybe we have damage to this roof, maybe it`s hail,
maybe it`s wind.

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: AT Travelers Claim
University, 7,500 adjusters come through each year. They learn how to
assess property damage using two model homes inside the 110,000 square foot
Hartford area facility.

Why did you choose these two model homes to use?

PATRICK GEE, TRAVELERS INSURANCE SENIOR VP OF CLAIMS: Really to reflect
the differences in complexity of properties that we see all around the
country.

BRENNAN: Patrick Gee is senior vice president of claims for Travelers.

GEE: This might be something that would be typical of tree damage.

BRENNAN: But this year, there`s something new to learn — drones.

The company began using the technology in an official capacity last year,
deploying drones to help assess damage from hurricane Matthew.

GEE: It can take days off the process.

BRENNAN: Meaning checks can be cut more quickly for repairs.

Travelers has 150 FAA-certified drone operators and hopes to have 700 by
next year. And they`re not alone. State Farm and All State are working to
expand their usage as well. It`s not just drones either.

During hurricane season, what does this room look like?

GEE: Well, if we have an event, this room is packed.

BRENNAN: During a storm, the catastrophe response center turns to weather
data, maps and locations of policy holders and even monitors social media,
which provides instant analysis as events unfold on the ground.

GEE: We`ve been able to recreate a tornado path just based on the images
that people put out on social media.

BRENNAN: Travelers and other property/casualty insurers say they prepare
for the worst all year long. Something the national oceanic and
atmospheric administration says is essential for everyone.

BENJAMIN FRIEDMAN, ACTING NOAA ADMINISTRATOR: There is a potential for a
lot of Atlantic storm activity this year. We cannot stop hundred
hurricanes. But again, we can prepare for them.

BRENNAN: For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in Windsor,
Connecticut.

(END VIDEOTAPE)

GRIFFETH: Communications equipment maker Siena tops expectations and
that`s where we begin tonight`s “Market Focus”.

The company reported profit and sales that rose, and called the quarter,
quote, outstanding. Siena sees this quarter`s revenue coming in slightly
higher than estimates. As a result, Siena shares popped by more than 15
percent to $27.19.

But clothing retailer Express (NYSE:EXPR) missed revenue estimates despite
seeing solid demand in its e-commerce business. The company also reported
a wider than expected loss and same-store sales that did not impress
analysts. Despite downbeat guidance for the year, Express (NYSE:EXPR) said
that it is confident it is taking the right steps to improve the company`s
performance. But investors weren`t buying it. Shares plunged by 19
percent to $6.27.

A rise in customer spending helped results at Dollar General (NYSE:DG),
though. The discount chain saw revenue increased, thanks to improving
same-store sales. Profit was also ahead of street targets and the company
said that it has the right strategy in place to bring more shoppers into
the store. Dollar General (NYSE:DG) shares rose more than 6.5 percent to
$78.19.

Machinery maker Deere said it is buying German`s Birken Group for nearly $5
billion. Deere said the deal will expand its current equipment
construction portfolio and also grow its footprint as it takes on a larger
customer base. Deere shares were up nearly 2 percent to $124.70.

The athletic apparel company Lululemon reported a rise in earnings which
topped forecasts. Same-store sales edged lower but the results were still
better than what Wall Street were looking for. The company also sees
revenue for the current quarter above estimates. Shares initially shot up
in afterhours trading and they ended the regular session up just a fraction
to $48.67.

And home furnishings retailer RH, formerly known as Restoration Hardware,
beat sales expectations while its earnings were in line. The company
raised its sales guidance for the year but slashed its profit outlook,
saying it remains cautious due to an uncertain environment and planned
investments. Shares initially got crushed in afterhours trading, losing
about a quarter of their value, and erasing an earlier 2 percent gain when
the stock closed at $57.25.

GRIFFETH: Well, despite today`s robust ADP report we told you about
earlier, and Wall Street`s high expectations for the big jobs report coming
out tomorrow, there is still some concern and doubt about the lack of
skilled workers in our country.

Ben Casselman is chief economics writer for FiveThirtyEight.com. He says
the so-called skills gap is a myth.

But Nariman Behravesh believes the lack of skilled workers is a real
challenges for businesses. He`s chief economist at IHS (NYSE:IHS) Markit.

Good to see you both. Thanks for joining us today

BEN CASSELMAN, FIVETHIRTYEIGHT CHIEF ECONOMICS WRITER: Thanks for having
me.

GRIFFETH: Ben, what do you mean, a myth? I mean, the theory is there are
oftentimes just not enough skilled workers to meet the supply that`s out
there for many of the companies out there. You disagree with that. Why?

CASSELMAN: Yes, I mean, look, I hear this from CEOs and from executives
all the time. I don`t doubt that on an individual level, if you`re a
company, you`re trying to hire somebody. I`m trying to hire. It`s tough
to find people, right?

But in terms of sort of looking across the economy, is there a shortage of
people that is somehow holding back the economy, that is making it hard for
us to reach our potential? I don`t see the evidence. And the best
evidence I can point to there is look at wages. You just don`t see the
kind of wage growth you would think we would see if people couldn`t find
good workers.

HERERA: Nariman, you do think there`s a skills gap. So, take the other
side of that argument.

NARIMAN BEHRAVESH, IHS (NYSE:IHS) MARKIT CHIEF ECONOMIST: Well, let`s look
at soft data and let`s look at some hard data. I mean, a lot of businesses
and business surveys, whether it`s IHS (NYSE:IHS) market or the Institute
for Supply Management or the National Federation of Independent Businesses,
they`re all saying the skills shortages, the shortage of skilled workers,
is one of the top two or three challenges.

And by most estimates, something like 40 percent of businesses are saying
they can`t find enough skilled workers. So, I have to believe in those
numbers. I can`t just dismiss them and say well, you know, what are they
talking about?

This is pervasive. Let`s look at some of the hard numbers. I mean, Ben
raised the wage question. If you look at the Atlanta Federal Reserve wage
tracker, high educated wage earners are earning — their wage increase is
about 4 percent a year. Whereas low educated workers, they`re wage
increases are growing by 3 percent a year. So, that suggests there`s a
problem here in terms of just a growth in wages, forget the levels.

So I think there is a skills shortage. And a lot of the hard data sort of
point to that, including the unemployment rate. Unemployment rates of
people with a college education, 2.4 percent. Unemployment rates of people
without even a high school degree, 6.5 percent. That tells you something.

GRIFFETH: Ben?

CASSELMAN: Yes, although I mean, the gap in the unemployment rate has not
been widening, if anything, it`s been narrowing. If anything, we`re seeing
an economy that`s starting to put people back to work. I mean, I think
it`s important to distinguish here between a skills gap and an economy that
is doing better or a labor market that`s doing better.

Is it harder for companies to hire now than it was when the unemployment
rate was 8 percent, 9 percent, 10 percent? Absolutely. And we should be
glad that it`s higher for them to hire because that`s when you start to see
a bit of wage growth.

You know, I drilled down on a few of the specific occupations that I`m
always hearing are difficult to fill, whether that`s at the higher end
where you`re talking about software engineers and developers or the skilled
trades that I hear a lot about, electricians and welders. None of those
show the kind of really strong, aggressive wage growth that you would
expect to see if companies were really struggling to fill positions.

HERERA: But, Nariman, I think you would point to the competition to get
the H1-B visas as an indication that highly skilled workers are being
sought after and they`re not being filled here in the United States
necessarily.

BEHRAVESH: Absolutely. And I know there`s a lot of controversy around the
program, it`s been abused. I won`t deny any of that. But nevertheless,
the fact that these visas get snapped up basically within a day suggests
that in fact companies are desperate, maybe that`s too strong a word, but
really need high skilled, especially the high tech workers.

Now, in terms of conversations I have with CEOs of companies, they don`t
complain that they don`t have enough landscapers. They do complain they
don`t have engineers. So, you know, again, that`s anecdotal information,
but it`s there. And so, we hear it all the time.

CASSELMAN: I mean, look, I`m going to go after this and watch the NBA
Finals, right? I wish LeBron James were on my team, I think everybody
wishes LeBron James were on their team. That doesn`t mean there`s a
shortage of 6`8″ forwards, right? It means that he`s a singular talent.
And people with particular skills, there`s a demand for them and they`ll
always get paid accordingly.

A shortage is, we can`t get enough NBA players to put a good product on the
court. We can`t grow the league. That`s what I don`t think we`re seeing,
the kind of shortages that are holding back the economy in any meaningful
way.

GRIFFETH: All right. Tell that to my Los Angeles Lakers. But that`s for
another discussion.

Ben Casselman, thank you. Nariman Behravesh, always good to see you.
Thank you for joining us tonight.

BEHRAVESH: Thank you.

HERERA: Speaking of the NBA, coming up, it`s game time. The newest
Silicon Valley players are on the court and in the boardroom.

(MUSIC)

HERERA: Two well-known retailers are closing more stores. Payless will
shut about 800 locations in total as its bankruptcy reorganization moves
forward.

Separately, RadioShack has closed more than 1,000 stores just since
Memorial Day weekend. Back in March, its parent company proposed closing
just 200. At its peak the electronics retailer had more than 7,000
storefronts and claimed it had a location within three miles of 95 percent
of all American households.

GRIFFETH: And Uber lost more than $700 million in the first quarter. Now,
that`s a lot of money but it`s actually narrower than the loss it claimed
for the final three months of last year. The ride hailing company also
reported a rise in revenue. And the company says it is on the path to
profitability.

But it wasn`t all positive. Uber`s head of finance is leaving, becoming
just the latest in an enough highly profile executive departures there.

HERERA: As Bill knows very well, this is one of the most intense rivalries
in basketball. For the third straight season, the Golden State Warriors
will take on the Cleveland Cavaliers in the NBA Finals. And for the
Warriors, it`s their work off the court that is really paying off.

Josh Lipton is at the Oracle (NASDAQ:ORCL) Arena.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Golden State
Warriors are one of the best teams in basketball. And the team is
different from any other in sports. It holds a distinct advantage. Some
of the stars are dedicated tech investors with a direct line to the most
influential people in Silicon Valley.

Newcomer Kevin Durant invests in things like an app to help low income
Americans manage their benefits, to food delivery startups. Andre Iguodala
who holds stakes in an electronic trading platform and health and wellness
companies. Not only does he invest, but he tries to educate other players
on the value of investing.

ANDRE IGUODALA, NBA PLAYER: We`re doing a crash course in the tech
industry and NBA players were directly involved with the tech world,
whether we know it or not.

LIPTON: And Steph Curry invests in Coach (NYSE:COH) Up, which connects
athletes with a network of local coaches. He also co-founded a small
company that sells marketing software called Slyce, whose CEO says Curry is
an invaluable recruiting tool in Silicon Valley.

BRYANT BARR, SLYCE CEO: The fact that Steph comes in to our office space
every once in a while or that we go to a game and talk to him afterwards is
not something that any other startup is able to do.

LIPTON: The benefits can be mutual. Players create portfolios of
investments that could generate returns long after they retire. Startups
get help from global superstars to promote their brands.

The Warriors` roots run deep in Silicon Valley. Joe Lacob, who bought the
Warriors in 2010 is a veteran venture capitalist from Kleiner Perkins. He
partnered with entertainment mogul Peter Guber, and formed an ownership
group that includes YouTube cofounder Chad Hurley and venture investor
Chamath Palihapitiya.

The Warriors` Draymond Green says that`s who he looks to for investment
advice.

DRAYMOND GREEN, NBA PLAYER: One of my mentors on the investor side is
Chamath. He`s amazing. He teaches me about so many deals. And it`s not
more even about investment, but just, you know, learning and then, all of a
sudden, you can kind of see trends and, you know, which companies are doing
well, which companies aren`t doing so well.

LIPTON: Professional athletes have long invested their millions in areas
like real estate, to build their savings for life after basketball. But
industry experts say today`s younger players tend to be more sophisticated
and personally involved with their investments.

In addition to money and prestige, famous players bring some pretty
attractive perks to young startups. For example, Brian Barr of Slyce will
be at the game here tonight, along with his parents, courtesy of his friend
and co-founder, Steph Curry.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, Oakland, California.

(END VIDEOTAPE)

HERERA: Love that story. That`s right up your alley, Bill.

GRIFFETH: Absolutely. It should be a great series. Looking forward to it
very much.

HERERA: All right. That does it for us tonight. I`m Sue Herera. Thanks
for joining us.

GRIFFETH: I`m Bill Griffeth. Have a great evening. We`ll see you
tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
broadcast at http://nbr.com. The program is transcribed by ASC Services II
Media, 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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