Transcript: Nightly Business Report – August 30, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Showing growth. Thanks to
strong spending by consumers, the economy has its best showing in more than
two years. But with Harvey here and a government shutdown looming, can
that strength last?

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: This is the place where the
Main Street of America got its start and this is where America`s Main
Street will begin its big, beautiful comeback.

(END VIDEO CLIP)

HERERA: Tax push. President Trump hits the road, bowing to change taxes
and bring back Main Street. But can it be done?

And record storm. Harvey already has dumped more rain than any storm in
U.S. history. But now, his impact on the mortgage industry could lead to
more staggering numbers.

All that and more on NIGHTLY BUSINESS REPORT for Wednesday, August 30th.

Good evening, everyone, and welcome. Tyler Mathisen is off this week.

The economy rebounded sharply this spring after lackluster growth in the
first quarter. The push was led by strong consumer spending, particularly
on automobiles. Gross domestic product, which is the broadest measure of
economic health, grew a full 3 percent in the second quarter and that is
the fastest pace since the first quarter of 2015.

Steve Liesman has more.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: There`s some
excitement that maybe we`ve shifted to a stronger growth path after today`s
upward revision of second quarter GDP with a still healthy forecast for
this quarter.

Second quarter GDP revised up by 0.4 to 3 percent. That`s the best showing
since the first quarter of 2015. Consumers spent more than originally
reported and businesses invested more.

CNBC`s tracking of third quarter growth has estimates running at a healthy
2.8 percent clip on average so far. We also received some better than
expected jobs data today. The private ADP payroll company estimates
237,000 jobs created in August. That`s better than the 179,000 the street
expects in Friday`s payroll report.

Of course, a major cloud on the outlook is the impact of Hurricane Harvey
and it`s a reason at least one economist cited for not raising his growth
outlook today. Despite the widespread pain and devastation in Texas,
economists mostly expect modest GDP impacts at least from reports so far.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

HERERA: And while it is too early to estimate exactly how much Hurricane
Harvey might shave off the third quarter growth, risk analytics firm RMS
says economic losses from Harvey could be between $70 billion and $90
billion.

And S&P is warning any government shutdown will hit growth in the fourth.
The rating agency`s chief economist says if a shutdown started at the
beginning of the quarter, which it likely would, take off two tenths of a
percentage point from GDP for each week, it drags on that comes out to $6.5
billion a week.

So, let`s turn now to Beth Ann Bovino. She is the S&P chief economist who
issued that warning on how a government shutdown could impact economic
growth.

Welcome, Beth Ann. Nice to have you with us.

BETH ANN BOVINO, S & P GLOBAL EQUITY RESEARCH CHIEF U.S. ECONOMIST: Great
to be here.

HERERA: You know I`ve heard conflicting things out of Washington. I have
heard from House Speaker Paul Ryan. No one wants a shutdown. We`ll get it
done. We`ll get the funding in place.

But I`ve heard other things from the president who say that maybe a
shutdown wouldn`t be too bad because he wants to get some funding for the
wall to build with Mexico. That uncertainty has certainly roiled the
markets recently.

BOVINO: Correct. I mean we at sp global week certainly did not expect and
we don`t expect a shutdown. We have a slim risk of that. But because of
the talk on Capitol Hill by the White House, the president and his cabinet,
you can`t rule it out. So we`re keeping an eye on that.

HERERA: What do you think the impact would be immediately if indeed it did
happen? I know you don`t think it will at this point, but what might the
impact be?

BOVINO: Well. I mean, what actually I should say one thing when you were
talking about Hurricane Harvey, that`s another reason why it seems like it
would be crazy to have a shutdown right now. We got to get — we have to
get funds to these people to help that region and so, it just seems insane.

But in terms of what we could expect, well, the first thing — it`s going
to be — the government affects everything. You`d imagine right now about
a hundred — I guess a million people or so would be furloughed, federal
workers will be furloughed without pay. And so, that means lost
productivity and certainly lost wages. They`ll get paid back eventually
most likely, but that means they don`t have enough money — they don`t have
money to spend right now.

It spreads further. It goes to all the shops and restaurants around
national parks that are closed. And, of course, private contractors that
have contracts with the government — well, you know there are going to be
put those on hold as well.

HERERA: Yes, businesses also don`t want to invest in a time of
uncertainty. They don`t want to hire in a time of uncertainty.

BOVINO: One of the things that what we could expect is, you know, when you
see that when you see this hit from the government — from a government
shutdown, you can expect jobs to be hit hard and one of the things that
we`re looking at, for example, based on — the based on the conference of
economic advisers, you — they had a guess about 100,000 jobs were lost or
not made during the 2013.

So, you`re looking at, you know, each week about 60,000 if that still
holds.

HERERA: Now, given — we have this obviously looming, but put that aside
for a few moments. Is the growth rate that we`re seeing in the U.S.
economy or even better sustainable?

BOVINO: The 3 percent that we saw —

HERERA: Yes.

BOVINO: — most recently? Look, I`m happy to see it. It`s wonderful.
It`s been a long time and it`s been a long time coming. I — we don`t
however think — we do think that that was a nice bump back from basically
every, you know, kind of offsetting what we saw in the first quarter and
we`re expecting growth to hold up.

But we`re still sticking around the 2 percent to 2-1/2 percent range, and
it`s a lot of factors in play, demographics. You know, the jobs market
while strong, you have a lot of people out of the market and that means a
slower productivity and slower growth down the road.

HERERA: All right. On that note, thank you so much, Beth Ann.

BOVINO: Thank you.

HERERA: Beth Ann Bovino with S&P Global Equity Research.

Those strong economic numbers we just talked about and a rise in tech
stocks which were bolstered by Apple (NASDAQ:AAPL) hitting an all-time high
led to gains on Wall Street, including a fourth straight winning session
for the S&P 500. The Dow rose 27 points to 21892, the Nasdaq rose 66, and
the S&P added 11.

And now to Harvey where the floodwaters in the Houston area began to
receive just slightly, but the storm is far from done, as it moved eastward
but continued to batter the Texas-Louisiana border. An additional 10,000
National Guard troops are being deployed to Texas, bringing the total to
nearly 25,000. And as Harvey moves east, the concern over the impact it
could have on the energy industry is starting to grow again.

Brian Sullivan is in Pasadena, Texas, with more.

(BEGIN VIDEOTAPE)

BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hurricane Harvey
may have left the Houston and Galveston area, but it sent another reminder
today that it is still active and it is still dangerous. The hurricane
swung to the east, smashing the Texas towns of Beaumont and Port Arthur,
along with southwestern Louisiana. Many residents there reporting rapidly
rising waters and asking for help.

In the meantime, it may add to concerns over gasoline supplies which have
already been slowed down because Beaumont and Port Arthur are home to four
big oil refineries, including the single biggest in the United States,
Motiva, 600,000 barrel a day facility, all are shuttered because of the
storm.

There is another concern as well, maybe one a little bit closer to your
kitchen cabinets. And that is the supply of ethylene. About 70 percent of
ethylene supplies come from Texas and by some accounts, 40 to 50 percent of
that supply may have been knocked off line. Ethylene, while not that
common of a name, goes into a lot of things you use including bottled
water, packaging, consumer products, auto parts and thousands of other
products, so suppliers and manufacturers are going to be watching the
recovery of the ethylene market as well.

In the meantime, as the water is clearly recede, Houston may have another
problem, which is the cleanup. No doubt, like you can see, the garbage
strewn along this path on the Buffalo Bayou, the cleanup will be long, it
will be messy and it will be expensive.

For NIGHTLY BUSINESS REPORT, I`m Brian Sullivan in Pasadena, Texas.

(END VIDEOTAPE)

HERERA: And back in Houston, some businesses began to open their doors and
the people came. Contessa Brewer is in Houston where there are signs of
slow progress being made.

(BEGIN VIDEOTAPE)

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): As
sunshine pierced the sky and floodwaters receded, businesses that could
open saw an immediate boom.

UNIDENTIFIED MALE: The community has been needing to get in, to get some
basic necessities and that`s what we`re here for.

UNIDENTIFIED MALE: I`m hoping the pharmacy is open. I have some
prescriptions. But I didn`t get a chance to get out before the storm hit.

BREWER: With limited staff and overwhelming demand, stores asked customers
to line up and take turns. In some cases, offering water and snacks for
the long wait.

UNIDENTIFIED FEMALE: I really don`t need anything, I was going to stare
crazy. So, I walked over here. We`ll probably get some eggs and bread,
but that`s about it.

BREWER (on camera): Getting those necessary supplies of bottled water and
fresh foods to the people who need it most despite flooded streets and
impassable highways takes logistical genius.

VICTOR PINA, WALMART MANAGER: Our bread vendors might be coming from a
different location that`s a different route to get in. Our milk vendors
might be having a different route to get in. So, right now, they are
working diligently to get us the supplies that we need and also keeping
safe at the same time.

BREWER: Walmart says it`s a challenge with more than 50 stores still
closed and two distribution centers flooded. In Galveston, customers
encounter nearly empty store shelves at a Kroger (NYSE:KR) grocery, with a
crucial supply chain cut off.

And then there`s the problem of doing business when so many employees were
flooded themselves.

TRESA MILTON, WALMART ASSOCIATE: My daughter came and picked me up and
unfortunately, my car — I lost my car and I lost stuff in my apartment.
So, she came by and picked me up and brought me up here.

BREWER: With limited staff, some McDonald`s (NYSE:MCD) offered only drive-
through service. Fifteen thousand workers typically staffed the 300
McDonald`s (NYSE:MCD) in the greater Houston area, but only half those
restaurants could open today.

MATTHEW KADES, MCDONALDS OWNER/OPERATOR: We are a big family here. We`re
going to help each other out. If I need to go and help out another owner
get up by helping them with their computer system, I`ll do that. If they
need people and I have more than I can spare, you know, we`ll share.

BREWER: Businesses in the same boat pulling together to get their city
back up and running.

In Houston, Contessa Brewer, NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

HERERA: And one company working hard to get supplies and deliveries to
Texas is home improvement chain Lowe`s. Courtney Reagan is in Wilkesboro
North Carolina, with an inside look at how the company is doing that.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is Lowe`s
emergency command center in Wilkesboro, North Carolina, where about 30
Lowe`s employees are working 24 hours a day, seven days a week, to make
sure that critical supplies get to the 90 or so stores most affected by
Hurricane Harvey in Texas. This command center opened on Thursday and will
remain open for several weeks.

(voice-over): The Lowe`s employees here are in constant touch with all the
nodes of low supply chain. So far, around 900 truck loads have made it to
Texas or are en route to the area. The flooding and road closures make it
difficult for the trucks to access the stores. So, Lowe`s works with FEMA,
Homeland Security, and the Texas Department of Transportation to get
critical supplies through.

RICK NEUDORFF, MANAGER, LOWE`S EMERGENCY COMMAND CENTER: The most critical
in the area right now is generators, water, tarps to cover rubes, bungee
cords to hold down the tarps, fans, air movers, air conditioners for people
that don`t have a power, they`ll use a generator to run the air
conditioner. It`s a very humid area of the country, so it`s prone to a lot
of mold and mildew.

REAGAN: Seventeen stores are still closed, but inventory was sent ahead of
the storm in preparation. More than of 160 of Lowe`s employees evacuated
or suffered some level of personal property loss. The Corpus Christi store
reopened on Saturday, despite a number of the employees being displaced
including the manager. Lowe`s said two truckloads of water and food just
arrived in Corpus Christi and more is on the way.

Lowe`s has donated a half a million dollars to the American Red Cross and
has a volunteer team from various Texas stores called Lowe`s Heroes,
working with the first response team of America to distribute five-gallon
buckets full of clean up supplies on the ground. The group also helps
clean up debris cut down trees or whatever homeowners may need.

NEUDORFF: It`s very important to the store managers they take it
personally. When they see there`s a problem in their community, they work
almost around the clock with their employees to help their friends and
neighbors that our customers get back to normal.

REAGAN: But normalcy for those hit by Hurricane Harvey may be a long time
from now.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in Wilkesboro, North
Carolina.

(END VIDEOTAPE)

HERERA: And coming up: why Harvey may be the costly a storm ever to hit
the mortgage industry.

(MUSIC)

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: If we want to renew our
prosperity and to restore opportunity, then we must reduce the tax burden
on our companies and on our workers.

(END VIDEO CLIP)

HERERA: President Trump making his case for tax reform, saying it is key
for economic and wage growth. But what did he say that we didn`t already
know? And can he get it done?

Andrew Friedman, principal at “The Washington Update”, joins us now to talk
about that.

Welcome back, Andrew. Nice to have you here.

ANDREW FRIEDMAN, PRINCIPAL, THE WASHINGTON UPDATE: Thanks, Sue. Great to
be here.

HERERA: When you listen to the president today, you know, he`s on the
stump trying to sell his tax package, was there anything new in there that
we didn`t already know what his goals were?

FRIEDMAN: No, I mean, the president addressed one important aspect of tax
reform, which is lowering tax rates. If you lower tax rates, people in
businesses keep more of their earnings. They spend that additional
earnings and that buoys the economy.

But there`s a second part of tax reform that`s harder than just reducing
rates and he alluded to that, which is simplification, which really means
getting rid of or curtailing tax deductions. And that allows tax reform to
be revenue neutral for the government. You have a lower rate, but you have
a broader base that brings in the same revenue.

Well, he didn`t tell us what tax deductions he wants to change.

HERERA: Right.

FRIEDMAN: We know — I`m sorry. Go ahead.

HERERA: No, no. Finish your thought.

FRIEDMAN: No, my thought was, we`ve heard a little bit that they want to
eliminate the deduction for state and local taxes. We`ve heard that from
the Hill in the White House. But then what do you do? Mortgage interest
deduction? Oil and gas depletion allowances?

Everything`s on the table, but we don`t have any details yet.

HERERA: So, would you divide it up into two parts of a pie? There`s tax
relief which is lowering the tax burden, but then there`s tax reform and it
seems to me the latter is going to be much more difficult for Congress to
achieve, because you have all these lobbying interests, for instance. You
mentioned the mortgage deduction the real estate lobby is going to be
actively pushing back against that.

What are the odds do you think that Congress will go along with the tax
relief, but not necessarily with the tax reform?

FRIEDMAN: Well, I think you really nailed it, Sue. That`s exactly right.
Whenever you identify a deduction that`s going to be changed, people come
out of the woodwork and object and that`s why we haven`t seen tax reform
since 1986.

The easy thing to do if you can`t get reform is to say, OK, we`re going to
reduce tax rates, have tax relief, everybody pays less or most people do,
and we go home. The problem with that is it adds to the federal deficit.
We`re already trying to increase the debt ceiling to allow the government
to borrow more money, we`re going to have to keep borrowing more and more
if tax receipts go down.

I think there`s a really good possibility this year we see a tax cut
without tax reform. That lets Republicans say well we cut taxes. We did
what we promised. But it`s — it really kicks the can down the road for
how are you going to deal with a government deficit.

HERERA: Right, exactly.

So, what does that do then for market volatility, because the market has
been counting on both parts of that pie the tax relief and also the tax
reform?

FRIEDMAN: I actually think the market, at least in the short term, would
be satisfied with tax relief. It means businesses keep more of their
earnings. I think that`s what they`re really looking for.

The concern about the deficit which will be a problem for the market down
the road probably doesn`t hit that much this year. So, it seems to me one
way or another, we get tax relief. That satisfies the markets.

Yes, it will be volatile until then, we got to deal with the debt ceiling
and keeping the government open. But one way or another, we`ll get through
that. We`ll see a tax cut. I think the markets will be happy with what
happens.

HERERA: On that note, let`s the optimistic Andrew Friedman, thank you very
much.

FRIEDMAN: There you go. Thanks for having me.

HERERA: Appreciate it. He`s with “The Washington Update”.

And spirits are on the rise at Brown-Forman, and that`s where we begin
tonight`s “Market Focus”.

The maker of Jack Daniels raised its full-year earnings outlook for the
first time in more than six years as sales were better than expected on
strong demand for tequila, vodka and premium whiskey products. And the
stock rose by nearly 4 percent to $53.14.

Last month, we told you that an FDA advisory panel voted in favor of
recommending Novartis` gene-altering leukemia treatment. Well, today, the
regulatory agency approved the cutting-edge therapy. That`s the first of
its kind in a new of treatments. The drug which is intended for a specific
patient population also carries a very steep price tag $475,000. Novartis
shares were off 1 percent to $82.74.

Last night, we told you Warren Buffett`s Berkshire Hathaway (NYSE:BRK.A)
became Bank of America`s top shareholder after he exercised his right to
buy 700 million common shares of the bank. Bank of America (NYSE:BAC)
shares rose on the news.

Mr. Buffett says he continues to back the company and is happy with the
investment.

(BEGIN VIDEO CLIP)

WARREN BUFFETT, BERKSHIRE HATHAWAY CEO: We`re very happy. We got 700
million shares and, you know, I like the business, I like the valuation and
I like the management very much. So, that — I think you`ll see that for a
long time in our holdings.

(END VIDEO CLIP)

HERERA: B of A shares rose more than 1 percent to $23.87.

And H&R Block (NYSE:HRB) shares were lower after the tax preparer reported
a wider than expected loss late yesterday. Revenue did beat expectations.
The company did note that it usually reports a first quarter loss due to
the seasonality of its business, but the shares remain pressured falling 8
percent to $26.81.

The Federal Emergency Management Agency, which runs the government-run
flood insurance program, says that it has already received thirty five
thousand claims as of noon today as a result of Harvey. And Warren Buffett
weighed in, saying he thinks the uninsured losses will be something to
watch.

(BEGIN VIDEO CLIP)

BUFFETT: There will be a high proportion of uninsured losses to insured
losses compared to most events, because there`s just a straight hurricane
everybody clicks on their owners insurance. But, fortunately, they did
have some warning — a fair amount of warning on this so there was a lot of
evacuation that took place. But it`s just got to be devastating.

(END VIDEO CLIP)

HERERA: And Houston homeowners don`t know what they`ll find when they
return to their flood-stricken homes and what they do find may determine if
they actually stay there.

If Katrina is any guide, a lot of mortgages will go unpaid. Diana Olick
has some numbers.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): All that
water may as well be ice to the Houston housing market, because everything
is frozen in place. Banks from Wells Fargo (NYSE:WFC) on down have stopped
all closings on home sales and mortgage refinances as the houses have to be
assessed and potentially reappraised, and paying your mortgages is about
the last thing you`re thinking about if you`re a Houston homeowner.

GEORGE FORESMAN, FORMER UNDER SECRETARY OF HOMELAND SECURITY: And a lot of
these homes and given the level of flooding, you may have individuals will
be out of their homes for weeks or months.

OLICK: In the Houston area today, there are more than twice as many
mortgaged properties with nearly four times the unpaid principal balance
than there were in the Louisiana and Mississippi counties hit by Katrina in
2005. The majority of these Houston homes do not have flood coverage.

If you take Katrina as the model, over 75,000 Houston borrowers could be
unable to make a mortgage payment within the next two months and 45,000
could become seriously delinquent on their loans within the next four
months, all according to Black Knight Financial Services.

Fannie Mae, Freddie Mac and FHA which backed the majority of loans in the
area have already said they will offer loan forbearance for at least 90
days, which means you don`t have to pay the mortgage but the interest does
accrue, and it doesn`t solve the problem long term if the house is totally
destroyed or a borrower loses income because of the storm.

(on camera): Houston homeowners today have more equity in their homes than
Katrina homeowners did just because of stricter underwriting today and
higher home prices. So, they should have the incentive to stay and pay.
But if the amount of losses they suffer on their homes is higher than the
equity they have, they could still walk away.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

HERERA: And coming up, Uber has a new CEO, but the challenges are mounting
before he even begins. We`ll explain.

(MUSIC)

HERERA: Here`s a look at what to watch for tomorrow. It is a big data day
starting with weekly jobless claims. We get a sense of how the consumer is
faring when personal income and spending data for July is released, and a
snapshot of housing demand with July pending home sales. That`s what to
watch for on Thursday.

Ford is reportedly looking at putting self-driving technology into its
commercial trucks and is working with multiple partners at getting its
driverless vehicles on the road. Ford`s vice president of autonomous
vehicles told “Reuters” the goal is getting them on the road by 2021,
including things like delivery and ride-sharing services.

And speaking of ride-sharing, a day after saying he would take the job,
Uber`s new CEO got a chance to meet his troops and an all-hands-on-deck
meeting at the company`s headquarters, and he told employees Uber could go
public in 18 to 36 months.

Deirdre Bosa tells us what else is next for Uber`s chief who seemingly has
a lot on his plate already.

(BEGIN VIDEOTAPE)

DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s official. Dara
Khosrowshahi will be Uber`s next CEO, starting the job this following
Tuesday, after a fraught selection process that saw candidates re-enter the
running and drop out in the 11th hour, Uber`s board telling employees they
voted unanimously to appoint Khosrowshahi to lead the company forward after
a difficult year.

Yet before he`s even had time to settle in, fresh challenges are emerging.
Just a few hours before Uber announced its new CEO to employees, it
confirmed the existence of a preliminary investigation led by the
Department of Justice into possible violations of bribery laws.

And today, as Khosrowshahi meets his new team at Uber headquarters in San
Francisco at an all hands meeting, the battle between one of Uber`s biggest
investors, Benchmark Capital, and former CEO Travis Kalanick heads to
court, a fight that early Uber investor Shervin Pishevar says could stymie
a major investment round for Uber and obstruct the company`s much-needed
turnaround.

SHERVIN PISHEVAR, EARLY UBER INVESTOR: Filing a lawsuit against the
founder and the company in the middle of a CEO search, in the middle of a
major strategic investment rounds, is not a — is not prudent, and it could
— that`s not the way they should have acted.

BOSA: And there`s the role of Kalanick himself, who was pushed out of his
CEO role about two months ago. In a statement, he said, he, quote,
couldn`t be happier to pass the torch to such an inspiring leader. But
does he mean it? Reports say that he`s been reluctant to give up control
of the company he founded and grew into a nearly $70 billion ride-hailing
giant. A source familiar with Kalanick`s thinking tell CNBC that he will
be at Khosrowshahi`s service.

Khosrowshahi will have to decide if he wants the help from Kalanick or from
meddling board members or if he wants to distance himself from some of the
people who presided over a company that has faced crisis after crisis over
the past year.

For NIGHTLY BUSINESS REPORT, I`m Deirdre Bosa, Vancouver.

(END VIDEOTAPE)

HERERA: And that is NIGHTLY BUSINESS REPORT for tonight, I`m Sue Herera.
Thanks for joining us. Have a great evening, and we`ll see you right back
here tomorrow.

END

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