Transcript: Nightly Business Report – January 5, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Strong start. The Dow and the
Nasdaq enjoyed their best start to a year since 2006. But what should
investors make of all that euphoria?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: We`re hiring. The
unemployment rate stands at a 17-year low. Jobs seemingly everywhere. But
there`s a shortage of labor in two critical industries.

HERERA: The new corner pharmacy and why that means never actually walking
into a store. It`s this month`s “Bright Idea”.

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

MATHISEN: Good evening, everyone.

What a start to 2018. Stocks are up a lot. The weather may be frightful,
but inside Wall Street, it is delightful.

Companies are hiring. Optimism is high. The Dow and the Nasdaq recorded
their best starts to a year since 2006. And today`s not too hot, not too
cold employment report helped drive all of the major indexes to fresh
records.

Again, the Dow Jones Industrial Average advanced 220 points to 25,295.
Nasdaq added 58. And the S&P 500 was up 19.

For the week, all of the major indexes posted solid gains, and with those
gains comes an increase in stock market optimism which we should point out
is not always a good thing.

Bob Pisani reports tonight from the New York Stock Exchange.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The December jobs
report was below expectations and the markets seemed relieved.

Now, why would they be relieved?

Because the economic reports have been so strong recently, the traders are
beginning to worry that the Federal Reserve might be more aggressive,
raising rates to slow down an overheating economy.

But today`s jobs report was just about perfect. It was still strong. It
wasn`t as strong as the experts thought it would be. So, it reduced the
chances the Fed would get concerned about an overheating economy.

The markets are at a critical juncture right now. The markets have had a
big start. The S&P is up 2 percent the first week of the year. Everything
seems to be up.

There are some signs traders are getting euphoric. A lot of people seem to
believe that the economy and wages and earnings are really going to take
off in 2018. That`s a little bit worrisome, because one of the best things
the markets had going for it in the last seven or eight years is just how
hated the rally has been. We`ve talked about this a lot.

So, now, people are starting to like the rally. And some people are
starting to like the rally a lot. And that makes a lot of people,
including me, a little bit nervous.

Now, next week, earnings season starts, and expectations are very high.
Traders aren`t just expecting earnings to beat expectations by a few
pennies. They want a lot more than that. They want more buybacks. They
want more capital investment. They want kind of like the whole enchilada.
You see what I mean?

With expectations this high, the markets will likely have some issues
delivering.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.

(END VIDEOTAPE)

HERERA: That December jobs report that Bob just mentioned saw the pace of
hiring slow in the final month of 2017. But it capped a strong year
overall for the labor market. In December, nonfarm payrolls rose by
148,000, which was below expectations. But the jobless rate remained
steady at 4.1 percent. That made last year the seventh straight year where
employment gains exceeded 2 million. It`s only the second time in recent
memory that the economy has produced jobs at that pace for that long.

Hampton Pearson takes a look at the nation`s employment picture.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: While there was a
winter chill to the pace of hiring in December, job growth in the last
three months of 2017 averaged more than 200,000 new workers added to
payrolls each month. At 4.1 percent, the unemployment rate is the lowest
since 2000. December even saw a slight increase in wages, average hourly
earnings up 2.5 percent year over year, now just under $27 an hour.

MIKE FEROLI, JP MORGAN CHIEF U.S. ECONOMIST: We think they continue to
grind higher, maybe a little closer to 3 percent by the end of this year.
But I would — you know, I think if you`re looking for a takeoff moment,
that`s probably not what we`re going to see.

PEARSON: It all adds up, leading economists predict, to a wait and see
approach from incoming Fed Chairman Jay Powell and monetary policymakers
when it comes to tracking interest hikes in 2018.

ALEX BRILL, AMERICAN ENTERPRISE INSTITUTE: I don`t think that this number
scares anyone and it makes them want a hike any faster than they otherwise
would. They`re going to try to err I think on the side of caution.

JASON TRENNERT, STRATEGAS RESEARCH PARTNERS: I think right now, the Fed
doesn`t mind if inflation runs a little bit hotter and people get wage
gains.

PEARSON: Construction and manufacturing led the way in job gains in
December, adding 30,000 and 25,000 new workers respectively. The
unemployment rate for African-Americans reached a record low of 6.8 percent
last month, down a full percentage point over the last 12 months.

MARC MORIAL, NATIONAL URBAN LEAGUE: Eighty-seven months of continuous job
growth is an outstanding trend. And to see the African-American
unemployment rate down below 7 where it had been in the 15 percent range is
very good news.

PEARSON: The biggest job losses occurred among retailers, cutting more
than 20,000 workers last month, and 6,700 for all of 2017.

As 2018 begins, the jobs story is on two tracks. Will the pace of hiring
continue to slow down as the labor market nears full employment? Or could
job growth get a boost from the business-friendly $1.5 trillion tax cut
package signed into law by President Trump just last month?

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

(END VIDEOTAPE)

MATHISEN: And joining us now to discuss the report`s findings in more
detail is Michael Gapen, Barclays chief U.S. economist and a managing
director there.

Michael, welcome. Good to have you with us. This was a little bit of a
slowdown in job growth. But still, unemployment rates staying right where
it is, earnings coming up a little bit. Is there any nit to pick here?

MICHAEL GAPEN, BARCLAYS`S CHIEF U.S. ECONOMIST: Not really. I think I
agree with much of the lead-in that you just had. I think a lot of slowing
can be explained by a post-hurricane return to normal. If you just look
back a few months, when the large hurricanes hit the U.S., hiring virtually
stopped in the month of September, and we had some catch-up to do in
October and November. We were running at above trend in terms of hiring in
those two months. So, some slowing and a return to normalcy was expected.

I think that was part of the story. And then I think the other factor was
just an outsized decline in the retail sector as you just mentioned.

But that`s not a new story either. Online retailing has been taking an
ever-greater share of that type of transaction, and we`ve seen a reduction
in employment from traditional brick and mortar stores. That largely
accounted for the underperformance, but the rest of the report looked good.
I think hiring will continue at a robust pace through the remainder of this
year.

HERERA: Michael, how do you feel about the gain in hourly earnings?
Because with the unemployment rate as low as it is, and the fact that
companies are getting a big tax break, Americans are getting a tax break, a
lot of people feel as though wages will start to accelerate. We had a 0.3
percent increase.

How do you feel about that?

GAPEN: This has been a bit of a conundrum where the unemployment rate, as
you mentioned, is reaching 17-year lows. But wages have yet to pick up. I
think I would suggest to look at this in the slightly broader context that
more than just labor scarcity determines wage growth.

Inflation has been soft and productivity has been slow. When you account
for inflation and productivity, wage growth is about where it should be and
I agree it will move higher from here. I also think it will approach, say,
3 percent by the end of the year, so I think it`s just going to take a
little bit more time. But it will still be subpar relative to prior
recoveries.

MATHISEN: I know that veering you off into market talk is maybe not what
you do, but are you concerned at all that there is a little too much
euphoria in the economy right now, that things are a little too nice?

GAPEN: Things are quite good, both domestically and abroad. I mean, we
often focus on the U.S. exclusively, but growth outside the U.S. has been
quite good for the past four quarters and even accelerated. So, globally,
virtually every industrialized economy is growing. And we`re benefiting
from that as well.

I do kind of believe we`re priced to perfection here. The biggest risk to
asset markets or the equity market would be if wages picked up in a
meaningful way and inflation did begin to rebound. Then you would bring
the Fed into play.

MATHISEN: Right.

GAPEN: But right now, things do feel goldilocks, as you mentioned. It was
a not too hot, not too cold employment report and that`s what markets are
reacting to.

MATHISEN: All right. Michael, thank you so much. Michael Gapen with
Barclays.

HERERA: As we reported, manufacturing was one of the industries that led
the way in job gains in December. In fact, that sector has added more than
200,000 jobs over the past year. It`s a remarkable turnaround for an
industry that was beaten and bruised not that long ago.

But there is another problem, and it is a worker shortage. And nowhere is
that more evident that in one manufacturer in Burns Harbor, Indiana.

Kate Rogers (NYSE:ROG) reports on where the jobs are.

(BEGIN VIDEOTAPE)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: I will be the greatest jobs
president that God ever created.

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Donald Trump
campaigned as a jobs creator with a promise to revive American
manufacturing. Since the election, manufacturers have added 171,000 jobs,
encouraged by deregulation and corporate tax cuts, as well as stronger
global growth and a weaker dollar.

But this job growth is facing one major headwind, a shortage of skilled
workers. It`s particularly evident in Indiana where reliance on
manufacturing is outsize relative to other states, with 20 percent of all
employees working in the industry.

BRIAN BURTON, INDIANA MANUFACTURERS ASSOCIATION CEO: We have had a record
number of job announcements over the last 12 months, but it also creates
issues in trying to get people to come to Indiana and work here.

ROGERS: On top of that, a population issue. The Indiana Manufacturers
Association has even floated the idea of creating financial incentives to
lure workers to the Hoosier State to fill vacancies.

BURTON: We need people to move to our state. It is estimated that our
workforce population is going to grow by 1 percent between now and 2040,
and the national average is going to be 18 percent.

ROGERS: It`s an issue steel maker ArcelorMittal (NYSE:MT) knows all too
well. The company employed 18,000 workers here in the U.S. and is looking
to add an additional 1,000 employees in 2018.

But attracting talent in a tight labor market can be challenging, which is
why the company created its Steelworker for the Future program.

KEITH HOWELL, COO, ARCELORMITTAL USA: It`s really a partnership of us with
high school graduates where we assist them with their college education and
also provide for them the opportunity for hands-on training in our
factories.

ROGERS: The steel maker has hired 90 participants and currently has 144
students enrolled.

Dantrell Brooks is a recent graduate.

DANTRELL BROOKS, ARCELORMITTAL USA WORKER: My senior high school
(INAUDIBLE) were talking about big name college universities, going there
four-plus years to get a degree. While in ArcelorMittal (NYSE:MT) has a
two and a half degree, less than half the time, guaranteed job, training in
a craft. I knew I had to go for it.

ROGERS: From engineers to technicians, to supply chain managers,
ArcelorMittal (NYSE:MT) is recruiting heavily and hoping to usher in the
next generation of talent like Brooks.

BROOKS: This job obviously is the number one job out there.

ROGERS: For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG) in Burns
Harbor, Indiana.

(END VIDEOTAPE)

MATHISEN: Still ahead, stocks that could benefit as Washington continues
to push deregulation. Our market monitor names names.

(MUSIC)

MATHISEN: The trade deficit rose more than expected in November to a six-
year high. The gap widened to more than $50 billion as imports of goods
surged to a record. Part of the rise due to price increases. The White
House says a smaller deficit along with tax cuts could increase economic
growth.

HERERA: The White House will reportedly ask Congress to approve $18
billion in funding for a proposed border wall along the U.S./Mexico border.
As first reported by “The Wall Street Journal,” the request would cover
construction of a wall over a decade. There are also reports that this
issue will be discussed at a Camp David meeting this weekend, attended by
the president, cabinet members and congressional leaders.

MATHISEN: Well, we just talked about the need for workers in the
manufacturing industry. And the same is true these days in construction,
where builders are looking to hire like mad to meet demand for new homes,
apartments and other buildings, all signs point to a very big year in
construction.

But as Diana Olick reports, there`s the major obstacle standing in the way.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Call it the year of
the crane. Both commercial and residential construction are set to soar
this year, and the hiring and spending has already begun.

Even in December, with much of the nation frozen, the construction industry
added 30,000 jobs, according to the labor department. For all of 2017,
construction added 210,000 jobs, a 35 percent increase. Construction
spending is also soaring, rising more than expected in November to a record
$1.26 trillion, according to the Commerce Department. Spending increased
across all sectors of real estate, commercial and residential, with
particular strength in private construction projects.

Even contractor optimism is up, to the highest on record. Three-quarters
of construction firms said they will hire more workers this year. That`s
according to the Associated General Contractors 2018 outlook survey.

The only trouble will be finding those workers. There`s a severe shortage
of skilled construction labor for buildings, infrastructure, and especially
for residential housing. This as demand for housing heats up, supplies sit
at record lows, and builders are cash-strapped.

DIANE SWONK, DS ECONOMICS FOUNDER & CEO: The cost of construction is going
up rap because of repairs and the shortage of supply in the single family
market. So, I think those pressures are going to come through and you are
going to see some wage gains, minimum wage gains, as well as some wage
gains because of acute labor shortages.

OLICK: Expect those gains to be passed on to buyers in ever-higher home
prices.

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

(EN VIDEOTAPE)

HERERA: Brazil says no to a potential merger between Boeing (NYSE:BA) and
Embraer. And that`s where we begin tonight`s “Market Focus”.

Boeing (NYSE:BA) is working on easing Brazilian government concerns over a
potential takeover of its rival. Brazil`s government owns a golden share
in Embraer, and that allows it to veto any deal. Brazil said it would
welcome a partnership between the two companies but nothing involving any
change of ownership of Embraer. Boeing (NYSE:BA) shares took off, rising 4
percent to $308.84. Shares of Embraer fell 4 percent to $25.76.

An $80 million payout tied to an antitrust dispute caused Cal-Maine Foods
(NASDAQ:CALM) to post a quarterly loss. Those reports, along with revenue,
missed expectations, and the egg producer said it would not pay a dividend
for the first two quarters of 2018. Cal-Maine shares got crushed, down
nearly 7 percent to $40.80.

Constellation Brands (NYSE:STZ) reported a worse than expected drop in
sales as fewer customers bought wine and spirits. The company expects that
weaker demand to continue, saying sales for those products would be at the
low end of initial guidance. Constellation brands hiked its overall profit
forecast and said it was launching a $3 billion share buyback.
Nonetheless, shares were off 2 percent to $219.88.

MATHISEN: Deutsche Bank said it expects to report a small net loss for
2017 following new tax legislation and low levels of client activity in the
latest quarter. The bank initially expected to report a profit for the
full year `17. Investors disappointed, shares down 6 percent, $18.55 the
close.

Barnes & Noble (NYSE:NE) (NYSE:BKS) shares continue to fall today following
the retailer`s announcement late yesterday that its holiday sales weren`t
very merry. The company now expects store sales for the full year to be
down in the mid-single digit range. The bookstore giant also pledged to
keep its costs under control. Shares off nearly 14 percent to $5.60.

HERERA: Time now for tonight`s market monitor who has three stock picks he
says will likely benefit from deregulation. They all pay a decent dividend
as well. Last time he was on in April, he picked BCE (NYSE:BCE) Media, up
4 percent., PPL (NYSE:PLV) Corp., down 18 percent, and AbbVie, which was 57
percent higher.

He is Oliver Pursche, chief market strategist at Bruderman Brothers.

Welcome. Nice to have you back, Oliver.

OLIVER PURSCHE, CHIEF MARKET STRATEGIST, BRUDERMAN BROTHERS: Thanks for
having me.

HERERA: So, deregulation and good dividends, that`s the theme. Your first
stock is Royal Dutch Shell. What`s the dividend like?

PURSCHE: Well, the dividend is pretty good. It`s above 5 percent. And
more importantly, as President Trump just announced, that he is planning to
open up offshore drilling, explorers like Royal Dutch shell are really
going to win in this.

This is going to take some time. Through that speculative process, and as
to whether it happens or not, these shares are likely to climb solidly.
And it`s a strong company, good dividend, in a good environment where
growth is picking up globally.

MATHISEN: Verizon (NYSE:VZ) is your next pick. It is a very competitive
space in which Verizon (NYSE:VZ) operates, obviously. But you think the
repeal of net neutrality will make Verizon (NYSE:VZ) a winner. How and
why?

PURSCHE: Yes, amongst others, but Verizon (NYSE:VZ) is somebody that`s
pushing out content, and they`re able to raise prices. And they`re the
market leader out there, both in terms of cellular but also business
services that they offer.

And so, from our perspective, if we have to pick one, and we`re obviously
diversified in the telecom sector like all other sectors, we think that
Verizon (NYSE:VZ) is a strong bet, and it has a dividend, above 4 percent.
So, again, that dividend theme is very important to us.

HERERA: Speaking of competitive spaces, the retail industry, online and
brick and mortar, you like Wal-Mart (NYSE:WMT). Why?

PURSCHE: Yes, the tax cuts are going to benefit Wal-Mart`s key
constituents, key customers. We think they`ll pick up a pickup in sales
there. We also very much like their acquisition last year of jet.com. So,
that makes them competitive against Amazon (NASDAQ:AMZN) in certain areas.

So, we think that Wal-Mart (NYSE:WMT) is attractively priced, provides a
good value. The dividend isn`t great, but at 2 percent it`s not bad
either. So, again, we think that stock is going to do fairly well in 2018.

MATHISEN: These are real bulwark kind of companies, Oliver. Are you
worried at all that euphoria is getting a little out of control?

PURSCHE: I don`t know if I would use the term “euphoria”. I think there
are some strong fundamental reasons why the markets are trading where they
are today. That doesn`t mean they`re cheap by any measure.

What I`m worried about and what we are spending a lot of time looking at,
is where the performance divergence is going to come from next year. I
think you`re going to see certain sectors do very, very well, and other
sectors not do so well.

You know, you saw that last year with utilities. The first half of the
year, utilities did very well. The second half of the year, they did very
poorly. We think a similar type of performance metrics are going to come
through in various sectors next year.

HERERA: Oliver, thank you so much, have a wonderful weekend. Oliver
Pursche with Bruderman Brothers.

To read more about his stock picks, head to our Website, NBR.com.

Coming up, one startup`s new prescription in the pharmacy business is
tonight`s “Bright Idea”.

(MUSIC)

MATHISEN: An update tonight on a story we have been covering for you.
Apple (NASDAQ:AAPL) plans to release a patch for the Safari web browser for
its iPhones and iPads and Macs within days. This after chip makers
disclosed flaws that could make a lot of devices, including PCs, Android
phones and other devices vulnerable to hackers. Yesterday, we told you
that Microsoft (NASDAQ:MSFT) had updated its explorer browser and that
Google (NASDAQ:GOOG) had updated its public cloud service.

HERERA: Uber co-founder and former CEO Travis Kalanick reportedly plans to
sell nearly a third of his stake in the ride-hailing service. According to
Bloomberg, Kalanick will sell 29 percent of his Uber stock. He had long
boasted that he never sold one share of the company he started. The stock
sale comes as a Japanese firm Softbank prepares to buy a stake in the
company.

MATHISEN: Did you ever find yourself wondering how much your medicine will
actually cost when you go to the pharmacy or try to discuss health issues
with other customers when you`re there? Prescription drugs is a $400
billion-plus business in the U.S. but only 1 percent is conducted online
right now.

One New York City entrepreneur got the bright idea to relieve some of the
pain points with a digital full service pharmacy.

(BEGIN VIDEOTAPE)

MATHISEN: When Eric Kinariwala went to his drugstore to pick up a
prescription medication in January of 2015, his headache was just
beginning. He waited in line nearly an hour before speaking to a
pharmacist.

ERIC KINARIWALA, CAPSULE FOUNDER AND CEO: He said I`m so sorry, we`re out
of stock of Z-Pak. I`m thinking to myself, it`s January, like this is the
only thing that pharmacies should have, I can`t believe that this is an
experience that exists on every street corner in America.

MATHISEN: It`s a problem that`s getting worse. Forty-two percent of the
respondents in a 2016 survey said their pharmacy was out of stock at least
once, causing them to make a return trip, up from 33 percent back in 2013.

Struck by his own frustration and pulling on his background as an investor
in the health care, retail and technology fields, Kinariwala came up with a
concept for an online pharmacy. He refined for more than a year with an
old friend, pharmacist Sonia Patel.

SONIA PATEL, CAPSULE CHIEF PHARMACIST: Most pharmacies are built on
technology that was founded from 20 years ago and it didn`t work for the
pharmacies and didn`t work for the consumer. And also, it didn`t work for
the doctors and insurers.

MATHISEN: They found these healthcare players need better communication
tools, that pharmacies have to improve inventory systems and that customers
want transparent pricing.

Aiming for solutions, they opened Capsule in the spring of 2016. Available
only in New York City, customers can order online or ask their doctors to
do it for them. The company says tens of thousands of people and thousands
of physicians are using Capsule.

Like other pharmacies, Capsule negotiates prices with wholesalers and takes
a cut from the retail sales. Capsule does not discuss whether it`s
profitable just yet.

Customers can pick up in person in Manhattan, but most opt for free
delivery. A team of 60 couriers, staff employees, braving the elements,
deliver anywhere in New York`s five boroughs.

DR. JEFF DOBRO, ONE MEDICAL CHIEF MEDICAL OFFICER: Business opportunities
are huge. I`m looking at our prescriptions.

MATHISEN: Dr. Jeffrey Dobro, chief medical officer at One Medical, isn`t
just telling patients to shop for medications these days, he`s doing it
himself, because he`s finding better prices online for his won medications,
sometimes less than half the price his pharmacy benefits manager or PBM
gets at CVS (NYSE:CVS).

DOBRO: Two out of five were wildly mispriced. I just cannot imagine what
the average consumer has to deal with.

MATHISEN: Why the difference?

DOBRO: What the independents do is try to find the cheapest price they can
across the market for each individual medication. The PBMs are looking at
a bundle of medications. It may be several thousand medicines. For the
insurance company, the bundle is less expensive. But for an individual
consumer, one particular drug may end up being much more expensive.

MATHISEN: Capsule alerts customers when it can beat their insurance
company`s price. But the company prefers not to be called an independent
pharmacy. It has big plans.

KINARIWALA: We will absolutely expand the business nationally and
internationally over time. We think the business works everywhere.

MATHISEN: Confidence that comes from experiences like the one Sonia Patel
had, texting with a customer only weeks after Capsule opened.

KINARIWALA: She said, hey, Sonia, can I take iron supplements while I`m
pregnant? And then there was this dot, dot, dot, by the way, is it weird
you`re the first person I`m telling I`m pregnant? My husband doesn`t even
know yet. And we just had this amazing moment of, wow, we built this
experience that people have an incredible degree of trust in.

(END VIDEOTAPE)

MATHISEN: Well, pharmacists have long ranked high in surveys of the most
trusted professionals. But Capsule views health care as an ecosystem and
it`s hoping to help doctors, insurance companies, drug makers, and patients
work more effectively together.

HERERA: Before we go, here`s a look at today`s rally on Wall Street. The
Dow advanced 24- points. The Nasdaq added 58 and the S&P 500 was up 19.
Weekly gains were strong and the Dow and the Nasdaq had their best start to
a year since 2006. That`s a good way to start the weekend.

MATHISEN: Very nice start to the year.

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

MATHISEN: I`m Tyler Mathisen. Thanks from me as well. Have a great
weekend, everybody. We`ll see you on Monday.

HERERA: Stay warm.

END

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