Transcript: Nightly Business Report – December 8, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: You`re hired. Job growth is
strong. The unemployment rate, low. But Americans are struggling to get
bigger paychecks.

Real jobs in virtual reality. The fast-growing technology could change the
way a lot of industries do business and the way people work.

Small caps, big gains. If you think blue chips are pricey, our market
monitor says there are other alternatives that could pack a punch for your
portfolio.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday,
December 8th.

Good evening, everyone, and welcome. I`m Sue Herera. Tyler Mathisen is
off tonight.

The Dow and the S&P 500 closed at a record. We`ll have more on that in
just a moment.

But we begin tonight with what some are calling the strongest job market
since the turn of the century. The economy created a healthy number of
full-time positions last month across a broad range of sectors. Non-farm
payrolls rose by 228,000, making this the second month in a row that gains
have eclipsed 200,000. The unemployment rate held steady at 4.1 percent.

But closely watched wages fell short of expectations, rising just 0.2
percent.

Hampton Pearson takes a look at the unemployment picture and the mystery of
those stuck wages.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: November job
growth was widespread with professional and business services leading the
way, adding 46,000 new workers. Manufacturing continues to rebound, with
31,000 new hires. And repair work in hurricane-ravaged Texas and Florida
helped boost construction hiring by 24,000.

But solid hiring and an unemployment rate at a 17-year low is still not
boosting wages. Up just 2.5 percent year over year, now averaging just
over $26 an hour.

Even President Trump`s top economic adviser agrees wages are not where they
should be. He says tax reform is part of the solution.

GARY COHN, NATIONAL ECONOMIC COUNCIL DIRECTOR: We`re still not growing
wages in this country. We do believe that tax reform will help us drive
real wage growth in the United States which is something really important
for the administration.

PEARSON: The pace of hiring has slowed — 187,000 jobs per month last year
to 174,000 per month this year. A key factor, leading economists say, in
why wage pressures have remained low.

DAVID KELLY, JP MORGAN CHASE: I don`t think there`s any amount of pressure
you could put on this economy that`s going to generate really strong wage
growth.

PEARSON: The holiday shopping season is increasing the competition for new
workers. Retailers added 19,000 new hires last month. And the boom in
online shopping generated 10,000 new jobs in transportation and warehousing
businesses.

In Washington, D.C. and other major metropolitan areas, small business
operators are competing every day to find workers.

Kathleen Donahue runs a game shop near Capitol Hill.

KATHLEEN DONAHUE, LABYRINTH GAMES & PUZZLES: I need people who have
experience with kids, who can handle a room full of kids but also have a
deep understanding of gaming and how to teach strategy games.

PEARSON: A few doors down at a local Sprint outlet, there are plans to
double the workforce. But the store manager is having a hard time finding
qualified workers.

HEIDY RIVERO, SPRINT STORE MANAGER: Many of the persons apply online, you
know, every single day. They have to pass a test. And many other people
that apply online fail that test.

PEARSON: Meanwhile, the November job recovery has most watchers
anticipating monetary policymakers will raise key short term interest rates
for the third time this year at next week`s Federal Reserve meeting.

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

(END VIDEOTAPE)

HERERA: Beth Ann Bovino joins us now for more analysis on the jobs report.
She is the chief U.S. economist at S&P Global Equity Research.

Beth Ann, welcome back. Nice to you again.

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

HERERA: Take a look at this report specifically as it relates to wages.
You know, we listened to some of the sound bites in Hampton Pearson`s
report, and they`re having trouble getting qualified workers. Wouldn`t
that push up wages? What`s keeping a cap on that wage growth?

BOVINO: Well, we are — we`ve been puzzled about why wage gains seem to be
stuck at around 2.5 percent. It`s a lot better than it was three, or four,
or five years ago, when it was negative in real terms. But we think
there`s a couple of reasons.

One, you could say there`s sticky wages. Sticky wages meaning that wage
gains don`t usually — or usually follow with the lag when the economy
strengthens. But it`s been ten years since the recovery, the recession
ended. We think one factor is basically the skills gap.

One thing not mentioned here was job openings are at record highs. Yet the
unemployment rate is at a 17-year low. We think there`s a labor
inefficiency happening. Those vacancies aren`t meeting the supply that`s
out there.

HERERA: What about — does that also explain the participation rate, which
is at a 40-year low? And does that equate with the move that we`re seeing
down in the unemployment rate? It doesn`t seem to make much sense to me
sometimes.

BOVINO: Well, that`s the other lump of coal in this otherwise relatively
positive jobs report. Both wage gains being so low and, of course, the
labor participation rate, that`s still near a 40-year low. You mentioned
that the unemployment rate was about 4.1 percent. The good news in that
was we saw those people getting jobs and people joining the workforce.

But that wasn`t enough to move the needle on the labor participation rate.
That means that if you imagine all those people, now, many of them won`t
because they`re retired, but those of working age, if they return to the
workforce, that unemployment rate would be a lot higher than what we see
right now.

HERERA: Does today`s report influence the fed in a way that allows them to
raise interest rates? Do you think they will when they meet next week?

BOVINO: I think the Fed has indicated on many accounts, on many accounts
that they plan to move next week. This just gives them one more reason to
say we`re full steam ahead. However, we would like to point out, they will
also be concerned about those soft wage gains. And one of the reasons why
is because their other mandate, not just job growth, but also inflation.

And when inflation gets lower and lower, they may have to reconsider what
they do next year. They have three penciled in, but let`s see if it`s less
than that.

HERERA: There are some people who are talking about disinflation. Do buy
that argument or not?

BOVINO: We at S&P Global are somewhat concerned about the lower inflation
readings that we have seen. In fact just in October, we thought the Fed
would wait a little while, not raise rates in December, because of the
inflation readings that are so low.

If you look at the personal consumption deflator reading, core reading,
excluding food and fuel, it`s near 1 percent. The Fed`s target is 2
percent. So, we`re kind of wondering why they`re moving so — moving right
now. So, one of the concerns, of course, is this low inflation reading
that we`re seeing.

HERERA: Well, we will wait and see what they do. Beth Ann, thanks so
much. Appreciate it.

BOVINO: Thank you.

HERERA: Beth Ann Bovino with S&P Research.

Despite job market gains, consumer sentiment cooled for the second straight
month. But even with the slight decline, overall sentiment remains near
lofty levels. According to the University of Michigan, stock market gains
and economic growth have underpinned consumer optimism. The report also
showed expectations about future inflation have firmed up a bit.

As we mentioned, the Dow and the S&P 500 both finished the week at records,
helped by that better than expected employment report. That suggests to
investors that economic growth remains on the upswing.

So, here are the closing numbers for this Friday. The Dow Jones Industrial
Average advanced 117 points to 24,329. The Nasdaq was up 27. And the S&P
500 added 14. But it was a volatile week for the Nasdaq, which was the
only major index to fall.

Hours before the deadline for a partial government shutdown, the president
signed into law a short term funding bill. The stopgap, which as we told
you, passed the House and the Senate last night, extends funding levels for
two weeks. It does not resolve the budget issues that exist between the
two parties. But the bill buys some time for negotiations between
Republicans and Democrats.

President Trump declared an emergency in California and ordered additional
federal aid to help with the fires that are quickly spreading through the
southern part of that state.

Aditi Roy is on the ground for us tonight in Ventura.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Day five of California`s
wildfires. And it`s still not over. In fact, they grew overnight, half a
dozen fires now burning throughout southern California. Tens of thousands
evacuated.

Rebecca Torres is the assistant manager at Barrel House 101, a local
watering home in Ventura, California, a seaside community that`s borne the
brunt of the impact of the latest wildfires. Torrez says with so many
people in town evacuated and so many downtown shops closed, their business
is down.

REBECCA TORRES, BARRELHOUSE 101 ASSISTANT MANAGER: We don`t have that
business right now. We do have the business of people coming in that need
that spot. So, are we making as much money? Probably not.

ROY: Still, she`s thankful she has a home to go back to every night.
Others weren`t as lucky. For the homes that didn`t make it, little
remains, the shell of a car, the twisted metal of a garage door, or the
charred remains of a washer and dryer.

Drive through this neighborhood, and you`ll notice some homes turned to
rubble, while others escaped Mother Nature`s wrath. The evacuated
neighborhood no longer a ghost town, as workers scurried about, making it
safe for anxious neighbors to come back.

We found about 200 utility workers gathered first thing in the morning
getting dispatched to cut gas lines to the homes. This as numbers pouring
about the economic impact of the wildfires in affected neighborhoods.

According to the online real estate site Zillow, nearly $10.5 billion worth
of residential real estate and more than 14,000 homes are in the evacuation
zone of the Thomas Fire. And in Los Angeles County, where the Skirball
Fire threatened mega mansions, nearly $6.5 billion worth of homes are in
that evacuation zone. For Torres, the devastation means a chance to turn
her business into a community center. They`re taking donations for the
weary neighbors who land at their doorstep.

TORRES: So, we just wanted to be a spot where anyone local, should they be
in need or have things to donate, we could be a little hub.

ROY: As to why we`re seeing such an explosion of wildfires in the middle
of December, fire officials tell us it`s because the extended drought here
in the state made things so dry and high winds certainly don`t help
matters. But looking forward to the weekend, winds are definitely calmer.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, Ventura, California.

(END VIDEOTAPE)

HERERA: Still ahead, we`ll take you where the jobs are.

(BEGIN VIDEO CLIP)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Kate Rogers
(NYSE:ROG) in New York City. And tonight on NIGHTLY BUSINESS REPORT, we`re
going to tell you about virtual reality. It`s more than just fun and
games. It`s actually creating real jobs.

(END VIDEO CLIP)

HERERA: President Trump had something to say today about Wells Fargo
(NYSE:WFC) and dismissed reports that the Consumer Financial Protection
Bureau will go easy on the bank. In a tweet, he said the, quote, fine and
penalties against Wells Fargo (NYSE:WFC) for their bad acts against their
customers and others will not be dropped as has incorrectly been reported
but will be pursued and if anything, substantially increased. I will cut
regs but make penalties severe when caught cheating, end quote.

Wells Fargo (NYSE:WFC) has been accused of wrongdoing related to consumer
practices.

Well, when you this of virtual reality, you probably think of videogames.
But most virtual and augmented reality will likely have a big impact on
numerous industries. And the fast growing technology is creating a lot of
opportunity.

Kate Rogers (NYSE:ROG) shows us where the jobs are.

(BEGIN VIDEOTAPE)

ROGERS: Jesus Noland grew up with a love of gaming and computers. At 30
years old, he`s found an opportunity to combine the two, working as a
developer in virtual and augmented reality.

JESUS NOLAND, EON REALITY FULL STACK DEVELOPER: It`s a lot of fun
actually. The best thing about working in this field is being able to
solve creative problems on a daily basis.

ROGERS: Noland is a developer at Eon Reality in Irvine, California. The
company designs applications to help train workers in varying industries.
For example, ExxonMobil (NYSE:XOM) has used Eon`s immersive virtual reality
platform to train operators and engineers in oil and gas production.

NOLAND: The VR and AR industry is really young. And so, there`s a great
potential for new applications that need to be built by content creators.

ROGERS: Virtual reality replaces your reality, whereas augmented reality
bridges the gap between the physical and the virtual world.

The U.S. is on track to spend some $3 billion on VR and AR this year. And
the industry is seeking talent as the application of this technology
spreads to medicine, transportation, education, energy and other field.
Eon has grown from 90 workers in 2015 to nearly 250 today and is looking to
hire an additional 100 workers like Noland.

DAN LEJERSKAR, EON REALITY FOUNDER: We`re looking for people who have
programming skills, who know how to build these rather sophisticated
applications. On the other hand, we`re looking at people who know how to
do modeling, that know how to create this sophisticated 3D environment.

ROGERS: Finding workers with these skills is challenging, as the
technology is still in its early stages. That is why Eon has teamed up
with several colleges across country to help educate aspiring workers.

LEJERSKAR: We hope, as we do this ourselves, that universities will pick
up our curriculum and start expanding this new workforce.

ROGERS: Tina Cheng is part of a training program at Lehman College in New
York. Her prior experience includes broadcasting and work in an
architectural firm, but she felt it was time for a change.

TINA CHENG, LEHMAN COLLEGE VR PROGRAM STUDENT: I found this opportunity to
be able to reeducate myself.

ROGERS: Her coursework at Lehman includes coding, animation, 3D graphics
and web design.

CHENG: I think the opportunities for augmented reality and virtual reality
are huge.

ROGERS: The 11-month program costs under $600. Prior experience in
computer science or coding isn`t necessary to succeed.

RONALD BERGMANN, LEHMAN COLLEGE CHIEF INFORMATION OFFICER: There`s a
tremendous opportunity for people who are entrepreneurial. The most
important thing is passion and creativity, because you can learn these
skills.

ROGERS: And with the global VR and AR industries set to grow by 100
percent each year through 2021, that opportunity is only expected to become
bigger.

For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG) in New York City.

(END VIDEOTAPE)

HERERA: A unit of caterpillar are paying tens of millions of dollars in
fines. And that`s where we begin tonight`s “Market Focus”.

A subsidiary of Caterpillar (NYSE:CAT) is getting hit with $25 million in
fines after admitting to cheating customers for years by intentionally
damaging rail cars in order to perform costly repairs. The unit was also
charge with dumping the damaged parts into the ocean to hide evidence.
Caterpillar (NYSE:CAT) said it is taking corrective action against those
employees involved. Caterpillar (NYSE:CAT) shares rose fractionally to
$143.86.

Honeywell is launching an $8 billion share buyback program. The industrial
conglomerate said the new purchase includes more than 1.5 billion remaining
from a previous share repurchase. Shares were up slightly to end the day
at $153.66.

Radius health said it`s seeing positive results for its breast cancer drug.
The company said it now plans to launch the second phase of the study
trial. Shares of Radius Health jumped 15 percent to $31.60.

Denali Therapeutics, which specializes in developing treatments for
neurodegenerative diseases, went public on the Nasdaq, pricing about 14
million shares at $18 apiece. Denali`s IPO raised $250 million. The
shares climbed 19 percent in their first day of trading, closing at $21.45.

And Pepsi is moving its stock listing from the New York Stock Exchange to
the Nasdaq on December 19th. The beverage giant said that move will give
the company greater cost effectiveness and access to the exchange`s
services. Pepsi`s shares were off 16 cents to $116.57.

Well, need more evidence of ETFs` growing popularity? According to new
research, more than $600 billion flowed into exchange traded funds globally
in the first 11 months of the year, that is 54 percent more than in all of
2016. The growth stems from the preference among investors for funds that
track the performance of large parts of the market but at a cheaper price.

And our weekly market monitor says investors filing into ETFs have made
large cap stocks overvalued. So, he has the names of some small cap
companies you may want to consider owning over the next five years or
longer. He is Lamar Villere and he is the portfolio manager of the Villere
Balanced Fund.

Lamar, welcome. Nice to have you here.

LAMAR VILLERE, PORTFOLIO MANAGER, VILLERE BALANCED FUND: Thank you. Glad
to be here.

HERERA: You also make the point that some of these small caps tend to have
less debt.

VILLERE: That`s right. That`s right. You know, generally speaking, these
companies are in growth mode. Rather than like a mature company that sort
of takes out a lot of debt, starts paying a dividend, these companies are
aggressively reinvesting in their businesses. So, generally, they`re not
taking on a heavy debt load.

HERERA: Let`s get to your picks. The first one, you say they all have
strong recurring growth revenues, and you want to own them for about five
years, as we mentioned.
First one is Axon Enterprise. Why do you like it?

VILLERE: Sure. So the name that probably — you probably would recognize
what it used to be called, which is Taser. They initially made their name
in the nonlethal weapons, the Taser guns. The real growth engine here that
we like is the Axon Business, which is their body-worn cameras and more
recently their fleet automobile cameras.

So, they sell these cameras to municipalities and then manage the data,
because there`s a massive amount of content created by this, and so they
have long term contracts with these local police forces. In fact, New
Orleans, where we are, Villere and Companies here in New Orleans, New
Orleans was just one of the first customers for the fleet vehicle cameras
as well as the state of Louisiana separately just signed on.

So, we think there`s a massive amount of growth opportunity there.

HERERA: Little bit of a recreational play here, Pool Corp. is the next one
on the list. What is attractive about that?

VILLERE: Sure. So the great thing, now, when you buy a pool or when you
have a pool put in your house, you`re not signing any long term contracts.
But you`re basically signing off on a long term spend. So, Pool is bigger
than its next 52 competitors combined.

So, if you own a pool, you`re a customer of pool corp. They`re a
distributor of all products. They`re — what they say is we sell
everything but the water.

So, they will sell you, you know, chemicals, a new pump, all those sorts of
things. Once you own a pool, it`s very unlikely you`re going to let it
turn green or fill it in. So, there`s a very long life, very long term
revenue stream for these guys.

HERERA: Next, and I hope I`m reading this title correct, 2U? That`s the –

VILLERE: 2U is exactly correct. So —

HERERA: I`m not familiar with this. Tell me what they do.

VILLERE: OK. So, 2U partners with universities in offering online degree
programs, graduate degree programs. So, while you haven`t heard of 2U, you
have probably heard of Yale, Northwestern, Georgetown, University of North
Carolina. They partner with all these schools and more to offer fully
online versions of their graduate programs.

The nice thing about it is, these are 10 or 15-year contracts. 2U, if
you`re a student, you pay full tuition just like you were in the bricks and
mortar university. 2U keeps 65 percent of your tuition, which sounds crazy
until you realize from these universities` perspective, they`re not —
they`ve never made money on anything before, they`re actually making money
even though they`re only getting 45 percent of the tuition dollars.

HERERA: Right.

VILLERE: The universities actually profit off it, which is a crazy thing
for them. So, they love it, very long contracts. They`ve never lost a
customer. They`re adding on schools every day.

HERERA: OK. Lamar, we have to leave it there. Have a great weekend.
Thanks very much.

Lamar Villere —

VILLERE: Thank you very much.

HERERA: — with the Villere Balanced Fund.

And to read more about Lamar`s top picks, you can find them on our Website
at NBR.com.

Coming up, affordable luxury. Fashionable jewelry without breakdown the
bank. It started as a bright idea. It turned in a lot more.

(MUSIC)

HERERA: The surge and volatility in bitcoin was one of the week`s biggest
stories. Today was no different. The price fell today after having risen
more than 40 percent in the preceding 48 hours. Some have attributed the
crazy moves this week to the coming launch of bitcoin futures on major
exchanges.

Bitcoin futures start trading on the CBOE (NASDAQ:CBOE) on Sunday and on
the CME the following week.

Jewelry is often described as an accessory. And jewelry, especially
trendier and cheaper fast fashion jewelry, is usually treated as an
accessory business. As Tyler Mathisen tells us, that`s changed since two
young entrepreneurs from New York City got the bright idea to start a
company that makes fast fashion jewelry its primary business.

(BEGIN VIDEOTAPE)

AMY JAIN, BAUBLEBAR CO-FOUNDER AND CEO: We knew this was going to be
successful within the first 48 hours of it going live.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Amy Jain and
Daniella Yacobovsky do their homework. How else could they have sold
millions of on-fashion, hip, in the moment bangles, earrings, and
necklaces, for $30 to $250 apiece?

DANIELLA YACOBOVSKY, BAUBLEBAR CO-FOUNDER AND CHIEF BRAND OFFICER: Within
a few days, we`ll have an idea for what she wants within that trend.

MATHISEN: “She” is BaubleBar`s typical customer. Someone not unlike New
Yorkers Amy and Daniella.

YACOBOVSKY: We`re looking for that 25 to 40-year-old woman who wants on
trend, novelty fashion jewelry.

MATHISEN: The two begin shopping together with abandon, soon after meeting
on the job, in finance, a little more than 10 years ago. They moved on to
business school, at Harvard, continuing their forays to places like Sax
Fifth Avenue, where they found themselves in the summer of 2009.

YACOBOVSKY: Amy turned to me out of nowhere and said, would you ever buy
jewelry from this place? I sat there for a minute and said, huh, no.

JAIN: The two of us had never gone out to buy a pair of statement earrings
or bracelets made us question who was.

MATHISEN: Aiming to figure out who she is, they began quizzing fellow
students on their shopping habits and talking to wholesalers about turning
product around, building a case to create a business, a brand around fast
fashion jewelry. They put up about $20,000 each to build a website and
began testing it after they graduated in 2010.

JAIN: We started getting all of these orders from women that we didn`t
know. And a few weeks later, they were coming back and making another
purchase.

YACOBOVSKY: It meant we were doing something right. She`s loving the
experience.

MATHISEN: Tens of thousands of pieces sold that summer, convincing Jain
and Yacobovsky to open a real business. But pitching venture capitalists
more than 90 percent of whom are male wasn`t easy.

YACOBOVSKY: They like really didn`t get it.

MATHISEN: The two kept at it, though, eventually finding women who not
only got it, but invested too. BaubleBar opened officially in January of
2011.

ELLIE WHEELER, GREYCROFT: You`re going to be told no a million times, but
you really only need one yes.

MATHISEN: Greycroft`s Ellie Wheeler was an early investor. BaubleBar
won`t say whether it`s profitable yet, but Wheeler says its performance has
exceeded her expectations.

WHEELER: They`ve done a fantastic job building a business. And it`s a
completely different business today, which it should be.

MATHISEN: Different because BaubleBar, an online jewel, is now sold at
Bloomingdale`s, Nordstrom (NYSE:JWN), Anthropology, and some 200 retailers
around the world. They`ve expanded, too, on the lower end with Sugar Fix,
sub-30 dollar items sold in 1,800 Target (NYSE:TGT) stores. And on the
higher end with a new line every day fine.

YACOBOVSKY: We do also have one that has letters in diamonds. That`s
$1,000.

MATHISEN: And a lucrative new chunk of the business is coming from other
fashion companies, hiring BaubleBar to design products they sell under
their own names.

YACOBOVSKY: That element of the business now is about 20 percent, 25
percent.

MATHISEN: Quite a nod to these shopping buddies — industry outsiders who
have really worked their way in.

(END VIDEOTAPE)

HERERA: Since 2011, BaubleBar has undergone several rounds of funding.
Included on the list of investors is the venture capital arm of Comcast
(NASDAQ:CMCSA) (NYSE:CCS), the parent of CNBC, which produces this program.

And that is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks
for watching. Have a great weekend, and we will see you on Monday.

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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