Transcript: Nightly Business Report – August 3, 2018


economy added fewer jobs than anticipated last month, but the market looks
past the headline and the Dow climbs by triple digits.

trucking industry says there`s more freight than it knows what to do with.
One problem, though: not enough drivers and that could create waves through
the economy.

GRIFFETH: And chemical attraction. Meet two men whose quest is to make
chemicals better, safer and cheaper.

All that and much more tonight on NIGHTLY BUSINESS REPORT for this Friday,
August the 3rd.

HERERA: Good evening, everyone, and welcome. It is the first Friday of
the month and that generally means the monthly employment report is out,
and that certainly was the case today. The headline tells you it was a
miss, that the economy created fewer jobs than expected in July. That
would be true. The economy added 157,000 jobs last month, more than 30,000
off the mark. Wage growth, not all that great.

But unemployment broke back below 4 percent and it turns out May and June
were actually even stronger. So was the report really all that weak?

Steve Liesman has some answers.


expected July jobs report that was actually stronger than it looked. The
government reported that 157,000 jobs were created in July, down from
248,000 in June, and below the expectations from Wall Street. Both the May
and June reports were revised up by a strong 59,000 jobs.

So, the three-month average growth which makes a lot of noise is a very
strong 224,000. What`s more, the unemployment rate fell to a low 3.9

looking at here is a very strong job market, very rapid employment growth,
far above the underlying trend that`s needed to stabilize unemployment rate
which is in the low 100s, but wage pressure is still very limited.

LIESMAN: There was strong job growth in leisure and hospitality,
manufacturing and temporary health. Construction, retail was weak because
layoffs at the bankrupt Toys “R” Us brought it down by as much as 32,000.
It`s also a big one-month decline and an education employment that
economists said there could be some problems adjusting data for normal
summertime layoffs.

The one standout weakness in the report, wages are up just 2.7 percent year
over year, about the same as it`s been, but it`s all a muted gain given the
low unemployment rate and robust job market.

bottom line is that workers have lost the negotiating power that they once
had relative to the owners of capital, relative to the senior managers and
it shows in the distribution of wages. There also is this sort of change
in the structure of the job market that we`re seeing out there to more
lower wage jobs that is not helping as well.

LIESMAN: Most forecasters expect wages to climb eventually as the job
market tightens further, but for now as Schwab put it, everyone can get a
job, but no one can get a raise.



GRIFFETH: Let`s talk about that. Joe Davis is joining us tonight to
analyze more about the jobs data. He`s global chief economist at Vanguard.

Thanks for joining us tonight, Joe.


GRIFFETH: How much tighter does this labor market get, do you think?

DAVIS: Well, I still think we can get tighter still. You know, I think
with the unemployment rate ticking down below 4 percent, I would not be
surprised that a year from now if conditions hold globally, that we could
be potentially below 3 percent. Now, that would sound pretty sensational,
but given the slow increases we`re seeing in the labor force and continued
robust demand from employers, it would not shock me that a year or 18
months from now we would be 3 percent on the unemployment rate.

HERERA: I don`t want to throw cold water on it at all, but underemployment
was kind of an issue in this particular report. Could you address that?

DAVIS: Yes. Well, I think that still remained elevated, Sue. I mean,
that`s something that we`ve seen this ratio of underemployment, Sue, to the
actual official unemployment rate ever since the global financial crisis
ten years ago. I think part of that reflects structural mismatches in the
labor force, meaning there`s a critical demand for certain high-skilled
industries or education levels which currently we`re not able or at least
employers are not able to find those workers immediately.

And so, I think that is — that ratio or is going to — or that gap will
remain elevated for some time. Now that means that we can still say wage
pressures, but I think that is keeping a little bit of a lid down on some
of these measures.

GRIFFETH: Speaking of wage pressures as Steve Liesman pointed out, we`re
just not seeing it in the aggregate. I mean, I — back when I was in
school, we were always taught that 5 percent was full employment and that
that`s when you start to see wage pressures. We`re not seeing it right

So, when do you think we will at some point?

DAVIS: Well, our best estimate is roughly 3.5 percent on the unemployment
rate, which we`re not there yet and we`re slightly above that. Should we
drop below 3-1/2 percent, we`ll start more meaningful wage pressures. I
mean, there is — at some point, we will need to see higher wage pressures.
It is obviously very difficult to precisely estimate what so-called full
employment is, but I think it is lower than in periods in the past.

So, 3-1/2 percent, which would mean maybe towards the end of the year, we
could see greater wage pressures.

HERERA: What does that do to overall economic growth? You know, the
estimates are kind of all over the board on does it get much better than
this or do we have a little bit of a deceleration.

DAVIS: Well, I think the job numbers, we`re going to see some
deceleration. If there`s any truth at all, and we believe there is to some
sort of more muted labor supply condition. In other words, the number of
workers or potential workers on the side, there are some demographic
constraints in the labor market. I mean, you mentioned trucking at the
onset of the program, that`s just one of a number of industries running
into supply constraints.

I think the good news is if we continue to see modest upward trajectory in
wages, that ensures a longer recovery — and a longer recovery of the
cycle. I mean, some are talking about potential elevated risk of recession
in 2020, but I think if we could see higher wages, some are associating
that with higher interest rates. I would also say, however, that would
ensure perhaps more resilient consumer spending going forward.

GRIFFETH: Joe Davis with Vanguard — again, thanks for joining us tonight,

DAVIS: Thank you for having me.

HERERA: It`s China`s turn. China is now threatening more tariffs on U.S.
goods just a couple of days after President Trump said he is considering
upping the tariff amount that could hit Chinese made goods.

Kayla Tausche reports.


more than 5,000 U.S. products with tariffs ranging from 5 percent to 25
percent, in retaliation for President Trump signaling he may more than
double the tariff level forthcoming on $200 billion in Chinese imports.
Some of the notable items in China cites 25 percent tariffs on aspartame,
communion wafers, tiles and textiles, and 20 percent tariffs on crayons,
pencils and pens, golf clubs and contact lenses. In all, the items
comprise roughly $60 billion in the U.S. goods, a smaller number than the
U.S.`s targeting of China, because China imports less in U.S. goods than
vice versa.

Chief White House economic adviser Larry Kudlow acknowledges the U.S. and
China are not engaged in trade talks.

the U.S.-China talks, but not recently, because there haven`t been any
talks recently. I don`t now what they`re doing.

TAUSCHE: But the White House says it`s open to further discussion.

KUDLOW: Talks have stalled, but in recent days, I can report there has
been some communication for the first time in a good while.

TAUSCHE: In the meantime, U.S. business groups are calling for a de-
escalation of a trade war, but that doesn`t appear to be in the cards.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.


GRIFFETH: And now, here`s another group concerned about trade escalation,
that would be the apple industry. Apple (NASDAQ:AAPL) farmers say that the
triple threat of tariffs from Mexico, China and India will cause serious
damage and take a bite out of their business.

Seema Mody is in Walden, New York, for us tonight. .


(NASDAQ:AAPL) Orchard in Walden, New York, harvested 20 million pounds of
apples last year and have been gradually increasing the amount of apples
they produce, partially thanks to growing demand from overseas. But the
onset of tariffs has put a number of apple orchards at risk.

JOEL CRIST, CRIST BROS. ORCHARDS MANAGER: If market pricing falls below a
certain point, we just can`t make a profit. The margins are already pretty
thin to begin with, razor thin in some situations, and if that pricing
falls a little bit, we could be looking at an unprofitable situation. And
if we`re looking at an unprofitable situation, we stop planting, we stop
investing, we stop buying equipment, we stop hiring good wage jobs, we stop
— and you know, we`ll suffer and if it goes on long enough we`ll
eventually go out of business.

MODY: If fewer apples are going overseas, farmers are worried the domestic
competition between producers will intensify.

Another farmer in Hudson Valley says the ongoing trade dispute and
confusion over whether tariffs will depress the price of apples has made it
hard to plan and predict how much demand they`ll see in the future.

CHARLIE HURD, M.G. HURD & SONS OWNER: It`s difficult in the apple industry
is that when we planted these trees, many of them were planted seven or
eight years ago and they were just getting into full production and those
decisions were made a long time ago and you can`t quickly pivot and rip
something out.

MODY: The U.S. exported roughly $890 million worth of apples from August
2017 to May of 2018, up about 20 percent during the same period last year.
And it continues to be a key export for top-producing states like
Washington, New York and Pennsylvania, plus a source of jobs.

JIM BAIR, U.S. APPLE ASSOCIATION CEO: U.S. apple industry is dependent on
our exports. We export one out of three apples, and that`s allowed us to
each year generate $15 billion in economic activity and create 71,000 jobs
and contribute a billion dollars to the U.S. positive balance of trade.

So, exports are super important and the tariffs are very concerning and we
would like to see these disputes get settled quickly and amicably.

MODY: With the apple picking season kicking off next week, farmers in the
Hudson Valley are under pressure to sell as many apples as they can.

For NIGHTLY BUSINESS REPORT, Seema Mody, Walden, New York.


HERERA: On Wall Street, stocks closed out the week with solid gains led
higher by Apple (NASDAQ:AAPL) and IBM. The market also shrugged off the
China trade threat and the soft jobs headline number. The Dow rose 136
points to 25,462, the Nasdaq climbed nine and the S&P 500 added 13.

For the week, the Nasdaq gained the most, up just about 1 percent. And
today`s triple-digit move saved the week for the Dow which barely broke
into the black.

GRIFFETH: And when you hear that Apple (NASDAQ:AAPL) is now worth a
trillion dollars or that a share of Amazon (NASDAQ:AMZN) is fast
approaching $2,000, you probably think, boy, these are high-priced stocks
and you would be right.

Remember, though, value may be in the eye of the beholder, but the fact is
that the average price of a stock in the S&P 500 is at a record right now.

Bob Pisani explains.


abuzz when Apple (NASDAQ:AAPL) hit $1 trillion in market value, but what
traders really want to see is higher volumes and sky-high valuations are
not helping in that department. Trading volumes have been stagnant for
years, but stock prices keep going up.

You know, the average S&P 500 stock is now $115. That`s the highest in
history. Five years ago, it was $78.

And it`s not just Amazon (NASDAQ:AMZN), by the way, which is approaching
$2,000 a share. That`s a level that would have been thought absurd five
years ago. In 1998, just to give you an example, no stocks were $150 in
the S&P. Today, there`s 30.

The first $1,000 stock appeared in 2013. Now, there`s four in the S&P.
You can thank the relentless rise of the stock market which was up 50
percent in the last five years, but the most important thing is the refusal
of companies to split their stocks. Why? Companies used to split their
stock because they felt the lower price could make it more appealing to
average mom and pop investors.

But in the last decade, we`d seen that institutional investors have become
more dominant in the market and generally, they don`t care that much about
the actual price. They buy by dollar amount, not stock price. That`s why
stock splits are now so few and far between.

In 1999, nearly 20 percent of the S&P 500 split their stock. It was so
common that Standard & Poor`s once had a business that would beat you when
the company announced a stock split. Only three companies in the S&P have
split their stock so far this year. That`s amazing.

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


HERERA: Up next, help wanted.


(NYSE:ROG) in Salt Lake City, Utah, and tonight on NIGHTLY BUSINESS REPORT,
we`re going to tell you how a massive labor shortage in the trucking
industry is impacting nearly every segment of the economy.


GRIFFETH: So as today`s jobs report show, the national unemployment rate
is back under 4 percent, but one area that could use more workers is the
trucking industry, with about 70 percent of freight in the country moved by
trucks, the demand for drivers has never been greater.

As you saw, Kate Rogers (NYSE:ROG) is in Salt Lake City with a closer look
at that issue.


driver shortage is so severe, it`s caught the attention of the White House.

representing the American Trucking Associations, and we are committing to
50,000 new opportunities over the next five years.

Dan. Thank you.

ROGERS: For Dan England, former president of the American Trucking
Association, the labor crunch isn`t just an industry problem. It`s
personal. As he looks to find drivers for his family`s fourth-generation
trucking company.

ENGLAND: We have right now about just a little under 6,500 drivers and,
gosh, if we had 500 more right now, we`d be — we`d be very grateful. We
were interested in growing. The business is there. We just need the
manpower or woman power to get it done.

ROGERS: Experts say the industry could use an additional 51,000 long haul
freight drivers as the shortage`s ripple effect impact industries from
retail to construction. There`s more freight than ever and last year,
trucks hauled 70 percent of it across the country, accounting for $676
billion in revenues.

Long hours, federal age restrictions and congested roadways all make
attracting new recruits a big challenge for trucking companies, also, the
driver population is ageing and lacks diversity, only about 6 percent of
truck drivers are female according to the ATA (NASDAQ:ATAI).

That means drivers like Johnshell Jenkins are a rarity. The 21-year-old
just received her commercial driver`s license.

JOHNSHELL JENKINS, C.R. ENGLAND DRIVER: I told them I can do it just
because it`s a man`s job, I can do the same thing as a man.

ROGERS: To attract workers in a tight market, companies are offering
signing bonuses in the thousands. Flexible schedules so that drivers can
spend more time with family, new trucks and loan repayments for training.

While starting pay can begin around $40,000 annually, it`s not uncommon to
see multiple raises in a year.

BOB COSTELLO: There is every reason to believe that the shortage is
getting worse, not better, right? As that happens and the demand for
drivers is so strong and the supply is limited, that means pay continues to
go up.

ROGERS: And while the industry grapples with the driver shortage, a
brewing trade war also stands to negatively impact the sector. The ATA
(NASDAQ:ATAI) says NAFTA trade generates over $6.5 billion for the U.S.
trucking companies alone and directly employs 31,000 U.S. drivers.

ENGLAND: Any interruption in that, anything in the dynamic or the
relationship between the countries that would affect that is going to harm
a lot of people and not just us. We`d like to see the status quo remain.

Lake City.


HERERA: Kraft (NYSE:KFT) Heinz sees sales getting better and that`s where
we begin tonight`s “Market Focus”.

The food company said profit and sales both fell last quarter, but results
still beat street targets. The key, though, is the company says increased
spending on marketing and new products should lead to stronger sales later
this year. Separately, “The New York Post” says Kraft (NYSE:KFT) Heinz
held preliminary talks with Campbell`s Soup, about acquiring the soup
maker, but no offer is currently on the table.

Kraft (NYSE:KFT) Heinz shares rose 8-1/2 percent to $64.48, while
Campbell`s Soup climbed 2-1/2 percent to $42.76.

Take Two investors are taking more today after the videogame publisher
easily topped street targets after the bell Thursday. The economy says the
results were due to strong sales of “Grand Theft Auto” online and NBA 2K18
game titles. Shares of Take Two rose 9 percent to $123.41.

And shares of GoPro posted one of their best days in a year after the
company posted better than expected results last night. GoPro also said
that it sees sales for this quarter above estimates and it plans to launch
three new cheaper cameras for the holidays this year. Shares were up 18
percent almost to $7.05 a share.

Discover Financial says its chief executive David Nelms is going to retire
early next year. He`ll be replaced by the company`s current chief
operating officer. Nelms has been CEO for 14 years now. Discover shares
were up 2 percent today at $73.34.

And Perry Ellis says it has received a new bid from Randa Accessories for
$28.90 a share. That works out to $444 million. That`s up from Randa`s
earlier offer of $28 which was rejected.

Now, the sweetened offer is another attempt by the privately held Randa to
upend Perry Ellis` previously agreed-upon deal with its larger shareholder.
That deal was worth $437 million, which works out to 27-1/2. What`s
interesting is today`s shares of Perry Ellis closed above all of those
prices, up nearly 5 percent to $29.10.

This week`s market monitor has some high quality growth names she says they
may give you some downside protection if economic growth slows. The last
time he was on was November in 2017 and he picked Nike (NYSE:NKE) which is
up 43 percent, MasterCard (NYSE:MA), up 36 percent, and Cognizant
Technology Solutions (NASDAQ:CTSH) is up 5 percent.

He is Allen Bond, co-portfolio manager of the Jensen Quality Growth Fund,
which is up 9 percent so far this year.

Welcome back.


HERERA: Congratulations on those previous picks.

BOND: Thanks.

HERERA: So, you are giving us a little downside protection in case the
economy turns a little bit south and there are interesting names. The
first one, basically we`re going go to Pfizer (NYSE:PFE) and it`s a global
play, as well.

BOND: Sure. So, Pfizer (NYSE:PFE) is a global biopharmaceutical company
with a wide-ranging drug portfolio and we think that`s a real key
distinction for Pfizer (NYSE:PFE). We think it limits their exposure and
their risk to any one specific drug. And as we look at the company`s drug
pipeline, we think it`s a bit underappreciated and we expect revenue from
Pfizer (NYSE:PFE) to accelerate if some of those drugs in the pipeline are
converted to sales over the next few years.

GRIFFETH: And then there`s Amphenol (NYSE:APH), which is an interesting
play. You know, we`re all going to fiber optics. We got cables and
everything. This does all of that, doesn`t it?

BOND: Right. So, you know, Amphenol (NYSE:APH) is a bit of an under the
radar company but there are real key part of supply chain for electronic
manufacturers around the world. They make electronic components that go
into mobile devices, into automotive electronics, into aircraft
electronics, and we only think that positions very well for the trend we`re
seeing in which electronics are really proliferating across the economy and
across the globe.

HERERA: And next, we go to your final pick which is 3M (NYSE:MMM), also a
global play. But you also point out the dividend. It`s paid a dividend
for more than 100 years. It`s raised the dividend payment for 60
consecutive years. So, it`s income play as well.

BOND: Yes. So, you know, 3M (NYSE:MMM) is generally thought of as an
industrial conglomerate and we think that`s a bit of a misnomer because
they get a meaningful amount of business from consumer and health care end
markets, and we think that really helps to dampen the earnings volatility
we might otherwise see.

The company has some longstanding competitive advantages, including the
strength of their brands and their manufacturing in new product development
expertise and like you mentioned, 3M (NYSE:MMM) is an excellent producer of
cash, and they have an incredible dividend history that we think is very
well-positioned to continue.

HERERA: On that note, Allen, thank you so much. Have a great weekend.
See you again soon.

BOND: Thank you.

HERERA: Allen Bond with the Jensen Quality Growth Fund.

Up next, how a pair of entrepreneurs are trying to prevent chemical
disasters like this, one drop at a time.


GRIFFETH: There is currently roughly a $4 billion global market for
hydrogen peroxide or H2O2. You might use it to clean cuts or to rinse your
mouth, or to bleach your hair among other things it is used for. Now,
since the 1940s, it has been made with highly flammable, petroleum-based
solvents. But two Houston-based entrepreneurs got the bright idea to
change the production process.


GRIFFETH: Explosions at Arkema`s chemical plant outside Houston in the
aftermath of Hurricane Harvey last summer put a noxious odor in the air.

Sean Hunt and Gaurab Chakrabarti recognized that more than 30 miles away,
hydrogen peroxide.

UNIDENTIFIED MALE: I smelled it everywhere.

GRIFFETH: Plant accidents are only too familiar in Houston, the world`s
biggest petrochemical manufacturing market. In 2016, an explosion at a
different hydrogen peroxide plant there killed one worker.

flammable. It`s kind of like a bomb waiting to happen.

GRIFFETH: At their company, Solugen, Hunt and Chuck, his friends call him
G, use a new process to make hydrogen peroxide, the same stuff we use to
clean cuts and countertops. G is also a doctor. He learned pancreatic
cancer cells often contained high levels of hydrogen peroxide.

Seven years of research led him to an enzyme, a protein, that aids in the
production of hydrogen peroxide. He won`t say how, but G figured out how
to create an enzyme which does just that.

A med school classmate introduced G to her husband, who turned out to be
Hunt, who was at MTI studying ways to make hydrogen peroxide with metals
like platinum.

SEAN HUNT, SOLUGEN CTO AND CO-FOUNDER: I`m like, it`s unbelievable. It`s
like, you know, muscle milk, like a protein powder.

GRIFFETH: Hunt had been taught that enzymes were weak and unreliable.

CHAKRABARTI: The secret sauce to it all is in this fridge.

GRIFFETH: But with machine learning, it extended its life span from
minutes then days to weeks.

CHAKRABARTI: We`d able to engineer those enzymes efficiently and for low
costs, a slow competing power was not possible five years ago.

HUNT: Most people from a petrochemical background, they have no idea that
this has occurred.

We are Solugen.

GRIFFETH: They pitched the idea in 2016 and received immediate requests to
buy their bio peroxide. So, Hunt built a reactor using parts that he
bought at a Home Depot (NYSE:HD).

Now, a bigger version of their mini mill which mixes sugar, air and water
with the enzyme took their hydrogen peroxide to market in the form of
cleaning wipes.

HUNT: It`s called Ode to Clean. It`s the first cleaning wipe made 100
percent from plant.

GRIFFETH: In just a few weeks, at four to five bucks a pack, they were on
track to sell $4 million worth in a year. No wonder a major commercial
wipe maker has already bought the brand. That deal may be announced this

But G and Hunt have even bigger plans. Solugen has an expensive setup to
concentrate its peroxide, taking out the water makes it easy to ship, but
Chakrabarti and Hunt believe their mini mills can be built anywhere,
decentralizing production.

HUNT: They`re still fairly large, but they`re nothing compared to an oil

We sell them the mini mill. We sell them the enzyme. They make their own
hydrogen peroxide. And there`s no shipping involved.

GRIFFETH: Fifty years ago investors, looking for a tip heard the word
plastics. Now, they might hear enzymes or plant sugars.

CHAKRABARTI: I think we already are, and I guarantee you, in 50 years,
we`re going to be using plant sugars for many of our chemistries. If you
can make chemicals from plants, plants are everywhere. You don`t need to
have this big, centralized facilities.


GRIFFETH: Isn`t that fascinating?

Now, entire communities use hydrogen peroxide to purify their water. G and
Hunt see a day when those communities will make their own H2O2 and there
may be a therapeutic application. Dr. Chakrabarti`s work helped lead to a
drug aimed at fighting pancreatic cancer that is in phase two testing right

HERERA: Wow. Amazing story.

Before we go, here`s a final look at the day on Wall Street. The Dow rose
136 points to 25,462. The Nasdaq climbed nine. S&P 500 added 13.

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

GRIFFETH: I`m Bill Griffeth. Have a wonderful weekend. I hope to see you
back here again on Monday.


Nightly Business Report transcripts and video are available on-line post
broadcast at 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) 2018 CNBC, Inc.


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