Transcript: Nightly Business Report – July 3, 2018

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue
Herera.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Cruise control. Auto sales
defy expectations and remain solid, despite rising interest rates and an
escalation in trade tensions.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Summer heat. Home prices
across the country are heading higher, except in the heart of the largest
city in the country.

HERERA: Rising risks. How Baton Rouge is battling extreme weather to keep
its property protected.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
July 3rd.

GRIFFETH: And we bid you good evening, everybody.

There was no shortage of news on this shortened holiday trading session.
We begin with auto sales for June. This key economic sector has proven to
be resilient despite growing storm clouds from those trade fights we`ve
been telling you about.

Americans are still buying cars and trucks at a strong pace, and that
helped automakers close out the first half of this year with another solid
month in the showrooms.

Phil LeBeau has details for us tonight.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Call it cruise
control. Auto dealers enjoyed steady demand in June, driven once again by
consumers looking for pickups and crossover utility vehicles. That helped
the largest automakers post positive sales last month.

KARL BRAUER, KELLEY BLUE BOOK: They look great, you know. Even as car
sales have kind of collapsed, truck and SUV sales have more than made up
for it. So, the overall impact is still growth, and truthfully, growth in
higher profit vehicles. So, it`s still great news for the automakers, at
least today.

LEBEAU: For General Motors (NYSE:GM), which reported second quarter sales,
the last three months show the automaker is succeeding in pushing pickup
trucks and crossover utility vehicles. In the second quarter, GM has been
able to push the average transaction price to a record high. The big
question weighing on the auto industry, what impact will President Trump`s
push for higher tariffs on steel, aluminum, and potentially imported
vehicles have on demand?

For now, Germany`s most popular brands are still seeing solid sales, but if
the U.S. puts a 25 percent tariff on imported BMWs, Audis, or Mercedes-
Benz, will buyers walk away instead of paying several thousand dollars more
for a particular model?

Overall, auto tariffs could be the biggest threat to one of the best runs
of strong sales the auto industry has ever seen.

But the second half of this year could be a bumpy one for the auto
industry, especially if new tariffs are put in place for imported vehicles,
which could drive up prices in the showroom.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: Let`s turn now to Jeremy Acevedo for more on the potential auto
tariffs and what it might mean for the auto industry and, of course, for
you. He`s an auto industry analyst at Edmonds.

Good to see you, Jeremy. Welcome back.

JEREMY ACEVEDO, EDMUNDS AUTO INDUSTRY ANALYST: Hello. Thank you so much.

HERERA: We certainly don`t know whether or not these tariffs are actually
going to go into place, but let`s for the sake of argument assume that they
do. What net/net do you think the bottom line impact would be for the
automakers?

ACEVEDO: You know, in all iterations of this, we`ve ran a forecast and it
does look like it`s going to be a severe blow to automakers if these
tariffs do come to pass. We`re looking at sales potentially in the
millions just because of how much that cost is going to be deferred to
shoppers.

GRIFFETH: Jeremy, I`m an old chess player. I`m always trying to think
ahead to the next move. What`s the next move in this whole situation here?
I mean, obviously the objective is to get more production here to the
United States. If there`s enough pain, do you think automakers would do
that?

ACEVEDO: You know, I mean, I think that`s one of those cases of this maybe
potentially achieving the opposite of its intention. Now, this policy here
that`s aimed at increasing American jobs actually could — if you look at
the cascading effects reduced — when you look at the reduction in sales
and the hit to not only production but also the dealer networks.

HERERA: Is there a number at which you think the consumer will pull back
and say, no, I`m not going to buy that car? I mean, is it $1,000, $5,000,
or do we know?

ACEVEDO: You know, I mean, shoppers right now are already operating at the
very end of their budget. New vehicles in 2018 are costing shoppers
upwards of $35,000. So, there`s not a whole lot of wiggle room they have
left.

When you look at the potential impact of these tariffs, and we`re talking
thousands that`ll be passed on to the shoppers, anywhere from two to eight,
you know, that`s definitely going to dissuade shoppers from entering the
market. So, these will be significant, and it almost certainly will deter
shoppers.

GRIFFETH: Does this hit the automotive industry overall equally, or are
there certain automakers you could see being hurt more than others?

ACEVEDO: You know, everybody`s going to feel the brunt of this. Even the
domestic automakers will be impacted. They will be impacted less so though
than some of their Japanese and German counterparts. The German automakers
do produce the most vehicles abroad comparatively.

HERERA: Jeremy, thank you so much. Jeremy Acevedo with Edmunds.

ACEVEDO: Of course.

HERERA: Bill?

GRIFFETH: Well, on Wall Street, we had an early rally that fizzled by the
close. Technology shares declined, offsetting gains in energy. Not
surprisingly, trading volume was light during this shortened session ahead
of tomorrow`s Fourth of July holiday, when, by the way, the markets will be
closed. But by the close of trade today at 1:00 p.m. Eastern Time, the Dow
Industrial Average fell by 132 points to 24,174, the Nasdaq was down 65,
and the S&P 500 dropped by 13.

As for the price of domestic crude, it topped $75 for the first time since
2014 and then fell sharply on a report that Saudi Arabia is ready to add
more oil to the market to end the day little changed.

HERERA: Factory orders rose in May, easily exceeding an expected decline.
New orders for U.S. made goods increased 0.4 percent, pointing to a
strengthening of the manufacturing sector. But the report also showed
business spending on equipment is showing signs of potential slowing.

GRIFFETH: Meantime, the rate of job growth and wage increases at small
businesses dropped in June. This is according to a new study from payroll
company paychecks. Sixty-five percent of respondents said that they were
not planning on giving raises to their workers because profits were not
high enough. And this comes at a time when Main Street is having a hard
time finding workers.

(BEGIN VIDEO CLIP)

MARTIN MUCCI, PAYCHEX CEO: We`re seeing that these small businesses are
struggling a little bit more to be able to attract the employees that are
out there in this tight market. I do think it`ll give, but we have not
seen it yet. It`s still below 2.5 percent wage increase, which is very
interesting at this point given that market.

(END VIDEO CLIP)

GRIFFETH: The report did say that optimism is at elevated levels, but it
is just not yet translating into higher pay for workers.

HERERA: To housing now, where there seems to be no relief to the hot
summer market.

Diana Olick has the details of a new report.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: As the mercury soars,
so do already overheated home prices. The latest read shows values in May
jumped over 7 percent compared to a year ago, the biggest annual jump in
four years according to CoreLogic (NYSE:CLGX).

FRANK NOTHA, CORELOGIC CHIEF ECONOMIST: I don`t see us really slowing
appreciably over the course of the next year, a little moderation in
national home price but not much. We`re forecasting a 5 percent rise in
national home prices over the next 12 months. So, a little moderation but
not much at all. That`s still much better than inflation overall.

OLICK: The supply of homes for sale has been shrinking for three straight
years, and it`s not all the home builders` fault. They are increasing
production, although slowly. Part of the shortage is being caused by
current homeowners. About a quarter of potential buyers who already own
said they will not move if the interest rate they get on their next
mortgage is one percentage point higher than what they have now.

NOTHA: Half of all homeowners with a mortgage today have a rate of 3
percent and 3.25 percent or lower. So when they`re looking at a 4.6
percent rate, they say, maybe I`ll stay put in my home a bit longer.
That`s constraining some of the supply coming from the existing inventory.

OLICK: During the recession, the average rate on the popular 30-year fixed
fell well below 4 percent, and it`s now inching closer to 5 percent.
Millions of homeowners refinanced to those rock-bottom rates, and the idea
of not just a higher rate but a competitive pricey house hunt ahead doesn`t
exactly give those owners a push out the door.

And on top of that, those who should be heading out the door and
downsizing, that is baby boomers, are not. They`re taking their sizable
home equity and using it to stay put.

DOUG DUNCAN, FANNIE MAE CHIEF ECONOMIST: Boomers, on the other hand, have
been saying, look, we intend to age in place. And we`re going to remodel
the house because we want the kids to come home and bring the grandkids.
And they`re doing that. So, the ratio of existing homes for sale relative
to our demographics is at 30-year lows.

OLICK: Which means home prices really have nowhere to go but up.

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

(END VIDEOTAPE)

GRIFFETH: However, the opposite is true for one of the country`s bell
weather real estate markets. That would be Manhattan Island, in New York
City. It just turned in its worst second quarter since the financial
crisis.

Robert Frank explains why.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was the third
straight quarter of decline for Manhattan real estate. Prices fell, sales
declined, and inventory rose. The average apartment in New York City will
now cost you a mere $2.1 million. That`s down from around $2.2 million
last year, according to a new report from Douglas Elliman and Miller
Samuel.

Now, the number of sales fell 17 percent. The high end is still the
weakest, especially new condo buildings. Sales for new developments
plunged by 37 percent, and there`s now a 15-month supply of luxury units.

Now, there are three main reasons. The growing pipeline of new condos
coming on to the market, the new tax law, which makes buying a home in a
high-tax state a little less attractive, and fading foreign buyers. The
share of apartments being purchased by foreigners has fallen by 40 percent
since the peak in 2015. Overseas economies are slowing, and governments
are cracking down on using real estate for money laundering and offshoring.

Now, the most expensive sale of the quarter in Manhattan was a penthouse of
the new Getty Building on 24th Street off the highline. Private equity
billionaire Richard Smith paid 59 million bucks for a 10,000-square-foot,
two-story penthouse, plus the floor below. It`s got two masters suites,
four other bedrooms, seven baths, and two kitchens.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

HERERA: Meantime, U.S. retail vacancies are on the rise, and the reason is
not a surprise. Brick and mortar stores are closing as more people shop
online. But the trend is taking a toll.

According to a RES (ph), a real estate research firm, malls haven`t been
this empty since 2012. That`s creating headaches for the commercial real
estate market, even as the economy strengthens.

GRIFFETH: Time to take a look now at some of today`s upgrades and
downgrades.

We begin with Pepsi, which was downgraded to hold from buy over at Deutsch
Bank. The analysts there cited valuation, given the stock`s 12 percent
rise over the past two months. Price target now, $116. That stock fell a
fraction to $108.80 today.

A different analyst at Deutsch Bank downgraded a number of airline stocks,
including American Airlines, to hold from buy. The firm said that the
sector typically underperforms the market during periods of heightened
geopolitical risk. In this case, the trade tensions. Price target now $43
on American. Shares fell more than 1.5 percent to $37.75.

And that analyst also downgraded shares of Delta and United to hold for the
same reason, and separately, Delta today did acknowledge that rising fuel
prices will impact its second-quarter earnings.

HERERA: Roku was upgraded to outperform from perform over at Oppenheimer.
The analyst cites the rapid increase in time spent on its Roku channel,
just nine months after its launch. The price target is $50. The stock was
up about 5 percent to $45.54.

Square`s price target was raised to $74 at Susquehanna. The analyst cites
good fundamental trends, as well as the Weebly acquisition. Weebly is a
Website builder. The rating remains positive. The stock fell nonetheless
by 2 percent to $61.75.

GRIFFETH: Still ahead, should Medicare allow some patients to buy into so-
called concierge medicine? That`s coming up on NIGHTLY BUSINESS REPORT.

(MUSIC)

GRIFFETH: Glencore has received a subpoena from the Justice Department.
Officials are asking for documents related to potential corruption and
money laundering. Glencore mines commodities like copper and coal and then
trades those materials. Shares of Glencore trade in London where they were
down sharply today.

HERERA: Facebook (NASDAQ:FB) is facing a broader investigation into its
sharing of data with Cambridge Analytica. The social media company has
received questions from the SEC, as well as the FBI. The Justice
Department and the FTC are already looking into how Cambridge Analytica
purchased data on 87 million Facebook (NASDAQ:FB) users without their
consent. Facebook (NASDAQ:FB) says it is cooperating with officials. The
stock fell more than 2 percent in today`s session.

GRIFFETH: Amazon`s next Prime Day is going to run longer than ever. It
kicks off July 16th at 3:00 p.m. Eastern Time and it will go for 36 hours.
Last year, Amazon (NASDAQ:AMZN) generated an estimated $1 billion in sales
on Prime Day, which as you may know offers deep discounts on thousands of
items to its prime subscribers.

Meantime, others are also offering deals. Rivals like Target (NYSE:TGT)
and JCPenney will early up their back to school sales. And eBay
(NASDAQ:EBAY) plans to offer thousands of exclusive deals on July 17th.

HERERA: The second half of the year is a key time for the retail sector.
So, what can investors expect in the months ahead?

Courtney Reagan takes a look.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: For retail, it`s
all about the second half of the year. And in 2018, a trade war threatens
to curb a strong consumer spending trend. From the summer on is where
you`ll find the three biggest online shopping holidays — Amazon`s Prime
Day in July, and Black Friday and Cyber Monday in November.

Analysts predict Prime Day will play a big part in back-to-school sales for
many parents, though some wait until the fall. No matter when the spending
occurs, analysts predict the prolonged school spending season will continue
a strong retail cycle that began just after last year`s back-to-school
season ended. Then once school`s in session, it`s time to deck the halls
for retailers. But last year`s holiday spending was stronger than
expected, making the bar higher this year.

Plus, as President Trump, China, and Europe threaten tariffs, holiday sales
could end up a trade war casualty. Retail lobby groups say tariffs are a
tax paid ultimately by consumers because it increases the price of goods.
If Americans do pay more for goods in the second half of the year, that
could cut down on sales. So tariffs could be the Grinch that steals
Christmas.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

GRIFFETH: Pfizer (NYSE:PFE) is raising drug prices for the second time
this year, and that is where we begin tonight`s “Market Focus”.

After hiking prices back in January, the pharmaceutical giant is now saying
it plans to raise costs nearly 10 percent on more than 100 prescription
medicines. Pfizer (NYSE:PFE) also noted that a handful of its treatments
will see a price cut as well. Pfizer (NYSE:PFE) shares were up a tick to
$36.35.

Activist investor Dan Loeb is reportedly urging Campbell`s Soup to consider
selling itself because he believes that company is undervalued. “The New
York post” says that Loeb`s hedge fund Third Point is in talks with
investors and family members of Campbell`s who hold a minority stake.
Shares rose nearly 2 percent to $41.03.

And Colgate is reportedly seeking the help of a subscription service
company to sell its products. “The Wall Street Journal” says the consumer
products giant is nearing a deal to take a minority stake in online contact
lens company Hubbell. Colgate and Hubbell would then jointly offer a
subscription service for Colgate`s oral care products and then it may
expand into other categories at a later time. Colgate shares rose a
fraction to $64.67.

Finally, Unilever (NYSE:UN) said that it has completed the sale of its food
spreads business to global investment firm KKR (NYSE:KKR). That deal,
which was announced last year, is intended to help Unilever (NYSE:UN) focus
on its stronger growth areas. Shares of Unilever (NYSE:UN) were up more
than 1 percent to $55.77.

Sue?

HERERA: Bill, the lighting company Acuity Brand said strong demand for its
infrastructure and utility products helped sales rise and top estimates.
Profits fell, but they still came in well ahead of expectations. The
shares popped more than 12 percent to $132.05.

Micron Technology (NASDAQ:MU) says it has not yet received an injunction,
halting sales in China. Earlier today, Bloomberg reported that its rival,
United Micro Electronics, said a Chinese court had temporarily banned
Micron from selling hard drives and memory sticks after United Micro filed
a patent infringement lawsuit. Shares of Micron Technology (NASDAQ:MU)
fell 5-1/2 percent to $51.48.

We told you last night that Axiom was close to reaching a deal with ad
company Interpublic Group. Now, it`s official. Interpublic will pay
nearly $2.5 billion for Axiom`s marketing solutions business. Axiom said
it would use the money to trim debt and to add to its stock buyback
program.

Axiom shares jumped 15 percent to $39.45. Meanwhile, Interpublic fell 3
percent to $22.33.

And Tesla shares continue to fall today after a report the carmaker
eliminated a brake safety test during production of its Model 3 vehicles.
Tesla said it felt the so-called brake and roll test was redundant as it
already puts each car through a rigorous quality check. Shares nonetheless
were off 7 percent to $310.86.

GRIFFETH: Last night, we told you about concierge doctors. This is a
growing trend in health care where physicians charge customers a fee up
front for unlimited access to primary care. Such a service has long been
considered a luxury for the rich, but as Bertha Coombs reports now, the
Trump administration is considering whether Medicare should allow some
patients to buy into these kinds of practices.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tim O`Connor
dedicates his time in retirement to teaching English and keeping on top of
his health.

TIM O`CONNOR, MDVIP PATIENT: I don`t have a great cardiac family history
in my family.

COOMBS: When his doctor converted to a MDVIP concierge practice with a
$2,100 annual fee per person, Tim and his wife decided to buy in.

O`CONNOR: Is money a consideration? I don`t want to say it`s not a
consideration, but you know, I do believe in preventive medicine.

COOMBS: The fee gives them unlimited access for same-day appointments,
longer visits, and a comprehensive annual physical. For their doctor, it
means being able to provide more personalized care to about 500 patients,
about a quarter the size of his old practice.

DR. PETER ZEALE, MDVIP PHYSICIAN: If somebody has three, four, five
different conditions, it`s almost impossible to see them within a 10-minute
period. So you have the time to sit down with them, direct them in the
right direction, and I don`t know how you can do that in the traditional
model.

COOMBS: Concierge medicine has been around for decades, but the membership
model makes up less than 10 percent of physician practices because many
patients can`t afford it. But now, the Trump administration could give
some of these fee-based practices a boost.

Health Department Secretary Alex Azar has proposed possibly giving some
Medicare patients a stipend to help them gain access to fee-based practices
with more personalized care. Medicare has been looking for ways to pay
doctors for better outcomes rather than for the number of procedures they
perform.

The CEO of MDVIP, the nation`s largest concierge medicine business with
nearly 150,000 Medicare patients, is watching the proposal closely.

BRETT JORGENSON, MDVIP CEO: We save Medicare hundreds of millions of
dollars a year by avoiding things like ER visits, hospitalizations,
readmissions to hospitals. So, the elements of a more, you know, direct
provider contracting model certainly works and works well.

COOMBS: Tim O`Connor is convinced paying for prevention has paid off in
better health.

O`CONNOR: We have saved more over the years if we were to sit down and try
to figure out the economics of this by staying with Dr. Zeale.

COOMBS: It`s not clear how the administration would structure a stipend
program. Some critics worry it could just drive up costs for primary care.
Right now, the health department is just asking the industry for comments.

In the months ahead, it will likely propose a pilot program to test the
concept.

For NIGHTLY BUSINESS REPORT, I`m Bertha Coombs, in New York.

(END VIDEOTAPE)

HERERA: Coming up, rising risks to real estate. How one city emerged from
devastating floods to lead the battle against extreme and costly weather
damage.

(MUSIC)

GRIFFETH: Two years ago this summer, a massive rainstorm stalled over
Baton Rouge, Louisiana. It flooded the areas and caused billions of
dollars in damage to both residential and commercial real estate.
Ironically, Baton Rouge, which is on the edge of the Mississippi River, is
now fast becoming a research hub for the study of rising water.

Diana Olick is back with us tonight with the next part of our series called
“Rising Risks”.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was a freak storm,
dumping over two feet of rain on the Baton Rouge area. Rivers swelled,
flooding more than 100,000 homes, nearly $4 billion of residential property
damage alone according to Louisiana Economic Development.

Justin Ehrenwerth is CEO of the Water Institute of the Gulf.

JUSTIN EHRENWERTH, WATER INSTITUTE OF THE GULF: What we`re doing now is to
be better prepared, using science to better prepare ourself for that next
flood.

OLICK: Ironically, as the rain came down in 2016, a $60 million project in
downtown Baton Rouge was going up, a water research center called the Water
Campus, home to the just opened Water Institute of the Gulf.

EHRENWERTH: There are ways to use the best available science to better
prepare, to better respond, and to be able to get assets and people out of
harm`s way.

OLICK: And also to better build.

EHRENWERTH: And to better build.

OLICK: This as Baton Rouge is in the midst of a building boom. The number
of construction permits nearly doubled in the last five years, according to
the downtown development district.

John Davies is a local developer and also CEO of Baton Rouge Area
Foundation, which is helping to fund the Water Campus.

JOHN DAVIES, BATON ROUGE AREA FOUNDATION: If we don`t deal with the issue
of water rise and the loss of land in South Louisiana, there will be no
South Louisiana.

OLICK: Davies claims the institute is already paying off, not just for
Baton Rouge, but for communities, infrastructure, and economies up and down
the Mississippi River.

DAVIES: What we didn`t realize what would happen as a result of the floods
is that the Water Institute of the Gulf developed a methodology to predict
inland flooding. And they have the sole model to do that in the country.

OLICK: And just next door, another unique weapon in the battle with water.
A giant Mississippi River simulator, the size of two basketball courts.

EHRENWERTH: We harness the power of science to figure out how can we build
structures, how can we build new wetlands and new barrier islands that will
help protect properties and infrastructure along the coast so that when the
next storm comes, you`ve got buffer.

OLICK: Jeff Hebert was the chief resilience officer in New Orleans before
joining the Water Institute.

JEFF HEBERT, WATER INSTITUTE OF THE GULF: The flooding that happened in
Baton Rouge happened in areas that are more newly developed and areas that
were built on what`s probably you would call the natural drainage system of
a community.

OLICK: It is a risk repeating itself in growing urban centers anywhere
near water.

HEBERT: I do think that with Hurricane Harvey in Houston and all the
destruction you saw in Puerto Rico and the threats that Florida faced and
had near misses every time last summer, I think that really woke people up
a lot. And you see more discussion about what can we do to prepare for
what`s happening today.

OLICK: In May, the campus hosted its first International Conference on
Water, drawing more than 200 experts.

EHRENWERTH: The science is taking place in baton rouge, we`re exporting it
around the state, across the Gulf of Mexico, and all over the world.

OLICK: Do you expect to see more of what we saw in Baton Rouge two years
ago?

EHRENWERTH: We are preparing ourselves for the worst.

OLICK: For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Baton Rouge.

(END VIDEOTAPE)

GRIFFETH: And to read more about the rising risk to real estate in Baton
Rouge there, you can head to our Website at NBR.com.

HERERA: And before we go, let`s take a final look at this shortened
trading day on Wall Street. The Dow fell 132 points. The Nasdaq was down
65. And the S&P 500 dropped 13.

And that will do it for NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera.
Thanks for joining us.

GRIFFETH: I`m Bill Griffeth. Have a great evening everybody. Be sure to
join us tomorrow for a special Fourth of July edition of NBR. Good night.

END

Nightly Business Report transcripts and video are available on-line post
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