Nightly Business Report – April 5, 2019

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Hiring bounce back.  Employers add more jobs than expected, easing some concerns of a coming recession at least.  

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Dislike button.  Most Americans say they have soured on social media and yet they can`t give it up and that may be exactly what the companies want.  

HERERA:  Everything is coming up roses, especially for one entrepreneur
that had the bright idea to give flowers a second life.  

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

GRIFFETH:  And we do bid you good evening, everybody, and welcome.

America`s job engine was back at work last month, hiring rebounded in March as employers added to their ranks, despite some concerns that the economy may be starting to slow a bit, 196,000 non-farm payroll jobs were created last month.  That was a bit stronger than was expected.  The unemployment rate held steady at 3.8 percent and wages ticked slightly higher.

Now, this report took on greater importance after February`s especially
anemic number had many asking if the hot economy had suddenly cooled off.  

Ylan Mui starts us off tonight.  

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Winter weakness melted away in March as America`s job market rebounded.  The strong showing is a relief to investors.  They were caught off guard when hiring dropped off in February, and today, President Trump cheered the bounce back as he left the White House for a visit to the southern border.  

DONALD TRUMP, PRESIDENT OF THE UNITED STATES:  The country`s doing really, really well.  We have a lot of very exciting things going on, a lot of companies will be announcing shortly they`re moving back into the United States.  They`re all coming back.  They want to be where the action is.  

MUI:  In March, the biggest job gains were in the health care sector.  It
added 49,000 jobs.  Hiring also picked up at restaurants and bars which
added 27,000 jobs, but some key industries did contract last month.  
Manufacturing lost 6,000 jobs and retail was down nearly 12,000, and the
share of people in the labor force also edged lower, falling from 63.2
percent to 63 percent.  

DAVID KELLY, J.P. MORGAN ASSET MANAGEMENT:  If you want the economy to grow faster, you have to do something to increase productivity and increase labor supply and one thing we saw in this morning`s employment report labor supply came down and that`s the critical shortage in the U.S. economy right now, we don`t have enough workers even if we have more demand.  

MUI:  The worker shortage is translating into good news for wages, though.  
Average hourly earnings rose 4 cents to $27.70, and it`s grown by more than 3 percent over the past year.  

DIANE SWONK, GRANT THORNTON CHIEF ECONOMIST:  We`re running out of workers. And so, that will put pressure on wages as well, which makes it better for workers.  

MUI:  Economists say the key question now is how much longer can this run last?  

For NIGHTLY BUSINESS REPORT, I’m Ylan Mui, in Washington.  

(END VIDEOTAPE)

HERERA:  Let`s turn now to Jeremy Zirin for more analysis on today`s job
report and the economy.  He is the head of investment strategy at UBS
Wealth Management Research.  

Jeremy, welcome.  Nice to have you here.  

JEREMY ZIRIN, UBS WEALTH MANAGEMENT RESEARCH:  Happy Friday, Sue.  

HERERA:  I think the — and to you, as well.  I think the key question that
Ylan left off with is also the key point in your report.  How long can we
keep generating this many jobs?  

ZIRIN:  Yes, we think that generally the labor market remains healthy.  
Demand for labor remains strong.  It was clear from the snapback we saw in March`s payroll that the very weak number we saw in February was a one off and if you look at the mosaic of economic indicators we saw this week regarding employment and employment trends, most were generally positive.

 
The ISM employment index for manufacturing rose.  We saw that initial
jobless claims reached 50-year lows at the pace of firing, or laying off
workers is at anemic levels.

So, in general, while I`m sympathetic of the view that we`re seeing a labor
shortage, demand for labor continues to improve and participation rates
particularly for those above 65 years old continues to increase and that`s
keeping a lid on overall wage levels.  

GRIFFETH:  With the shortage of workers, it just seems incredible that we
keep hearing about this even as the demand continues to grow.  At some
point, though, does that ultimately cap growth in the economy if we just
can`t find enough workers to keep the productivity going?  

ZIRIN:  I think, though, at some point it does, but we`re just not there
yet.  And if you look at the trends in hiring we`ve seen, we`ve been
hearing about the worker shortage for, you know, the last two to three
years.  And over the last six months, we continue to see an average payroll
gains of 206,000.  No different from the trend of the last eight years of
about 208,000 per month.  

HERERA:  What sectors do you think basically are going to lead us as we
continue to create all of these jobs?  Where are you most bullish in terms
of economic pockets?  

ZIRIN:  So, I think you have to think about the economic reality and also
from the market`s perspective and sectors related to the equity market.  
And from an equity market perspective, we`re most bullish on the technology sector where there`s lots of job creation and also the financial sector where we see very low valuations and we see an extension of the economic cycles surprising investors to the upside.  

GRIFFETH:  And one last thing here to underline there have been fears that
maybe we are slowing down and there had been talk, maybe we`d see a
recession later this year.  The Fed would have to cut rates.  You don`t
think that`s likely this year, right?  

ZIRIN:  It doesn`t seem that way, right?  I mean, I think — yes, you know,
the wage pressures aren`t terribly acute.  But overall, we are seeing
reasonably healthy demand for labor.  And more importantly, it does just
give us greater confidence that the softness that we saw in first quarter
economic data is likely to rebound in the second quarter and that should
take a Fed rate cut off the table for the remainder of the year.  

HERERA:  All right.  Jeremy, thanks so much for joining us.  

ZIRIN:  Thank you.

HERERA:  Jeremy Zirin with UBS Wealth Management Research.  

GRIFFETH:  And this morning`s not too hot, not too cold jobs report did
help lift sentiment on Wall Street today and it sent the S&P 500 higher for
a seventh straight session, making it the S&P`s longest win streak since
2017.  When we closed, the Dow was adding 40 points.  We`re at 26,424, the
Nasdaq rose 46 and the S&P added 13.  

And for the week, the major averages were all higher, making this two
straight weeks of gains.  

HERERA:  Boeing (NYSE:BA) will cut production of its 737 MAX aircraft by 20 percent over the next several weeks.  The world`s largest aerospace company is moving from a production rate of 52 airplanes per month to 42.  The company had been planning to increase production to 57 in June.  

The decision follows the global grounding of the jet in the wake of two
deadly crashes.  Boeing (NYSE:BA) says it`s also creating a committee to
review the design and development of the airplanes.  News of the production cut caused the stock to dip initially in extended hours’ trading.  

GRIFFETH:  And Samsung had a warning for investors this morning.  Its
profits may have plunged by 60 percent during the first quarter.  The
company says a glut of semiconductor chips and rising competition in the
smartphone market could lead to its lowest quarterly profit in more than
two years.  Samsung supplies memory chips and screens for its own
smartphones and for Apple (NASDAQ:AAPL) devices and its semiconductor
business is its main profit driver.  

HERERA:  Apparently, Americans hate social media, but they can`t give it
up.  That is the finding of an NBC News/”Wall Street Journal” poll.  
Thirty-five percent say social media brings people together, 57 percent say
it divides us, 31 percent say it helps spread news and information, 55
percent say it spreads lies.

But while adults across age groups and political ideologies have a negative
view of the effects on social media, 70 percent say they still use the
platforms at least once a day.  

GRIFFETH:  But why should someone want to invest in these companies if they hate them so much?  

Joining us tonight, our friend Erik Gordon, professor at the University of
Michigan`s Ross School of Business.  

What a dichotomy we have here, Erik.  I mean, this sounds like a business
program that would be studied there at your university.  So, what do you
make of this dichotomy right now?  We hate them, but we can`t let them go.  

ERIK GORDON, UNIVERSITY OF MICHIGAN`S ROSS SCHOOL OF BUSINESS PROFESSOR:  We hate them and we can`t resist it.  You know, it`s a form of addictive behavior where even though you know your behavior is bad, even though you know your behavior is killing you, you just can`t resist.  What, you know, Facebook (NASDAQ:FB) and Twitter and what these folks have come up with is something that is so addictive that we can`t help ourselves, what a great business model.  Even if people know it`s bad, 70 percent of the people still use it.  

HERERA:  But does that mean that an investor — how should an investor look at those numbers that we just rattled off?  Does it make the social media companies a good investment because we can`t live without them or a bad investment because we hate?

GORDON:  You know, I think it depends on your timeframe.  I think for the
time being, they`re going to continue to be a good investment, but I think
you`ve got to keep your eye open because I think the danger`s going to be
not that we stop our addictive behavior.  I mean, we`re just not very good
at it.  But the government will step in and the government will have
support from the folks who say, look, we know this stuff is bad, you`ve got
to do something about it and the business models that create the profits
could take a good whack.  

GRIFFETH:  And even Mark Zuckerberg came out this week with the op-ed piece where he outlined four areas where he feels the government should regulate their business, the social media business.  Does that necessarily mean that it will put a cap on growth, though, do you think?  

GORDON:  Well, Bill, you know, that`s a good point.  That shows that Zuck
is worried.  He`s trying to get the regulation channeled the way he wants
it.  It`s like a freight train is coming and he wants it switched to
attract something that doesn`t run him over.  That`s a sign that he`s
worried about regulation and he would like to channel it in a way that`s
benign, not deadly.  

HERERA:  You know, the numbers were pretty striking, but are there other
areas or other types of companies that we can compare where maybe people don`t think that products are good for them, but they still invest in the companies.

GORDON:  You know, think about the soda, think about cola.  We know it
leads to obesity and it`s bad stuff, it makes you crazy and can we help
ourselves?  I mean, you know, the cola companies have done really well and I guess the most horrible example and to some extent is tobacco has for a long time been a good investment, good company — not so much.  

So, you know, the dichotomy between what we know, social benefit and
returns to investors, you know, sometimes they go in the opposite
directions.  

GRIFFETH:  Indeed.  Erik Gordon with the University of Michigan`s Ross
School of Business.  Always good to see you, Erik.  Have a good weekend.  

GORDON:  My pleasure.  

HERERA:  Time to take a look at some of today`s “Upgrades and Downgrades”.  

Intel (NASDAQ:INTC) was downgraded to market perform from outperform at Wells Fargo (NYSE:WFC).  The analyst points to weaker semiconductor demand, along with increasing competition from AMD.  The price target is $60.  The stocks fell a fraction to $55.60.  

Fellow Dow component Dow was initiated with an underperform rating over at J.P. Morgan.  That`s making this the first bearish call on the newly
independent company.  The analyst says the stock trades at a premium to its peers and that creates risk for the shares.  The price target is $49.  The
stock fell 4 percent to $57.24.  

Boston Beer (NYSE:SAM) was downgraded to sell from neutral at Goldman Sachs (NYSE:GS).  The analyst cites concerns over growth and increased
competition.  The price target is $245.  The stock was down 5.5 percent to
$268.33.  

GRIFFETH:  Ford was downgraded to reduce from neutral at Nomura with the analyst there citing challenges in the European car market right now.  
Price target now $7.50 and that stock finished up one penny to $9.25.  

Bed, Bath & Beyond was downgraded from underweight in Morgan Stanley
(NYSE:MS).  The analyst cited activist investor interest in that company
which could result in a higher stock price over the near-term and that
price target is now $20.  Shares rose 4 percent today to $18.35.  

HERERA:  Still ahead, adding some retail stocks to your shopping list.  A
top-rated fund manager had some names to share.

(MUSIC)

HERERA:  The head of the world`s biggest hedge fund calls income inequality a quote, national emergency.  Ray Dalio released a report in which he links lower high school graduation rates to the widening wealth gap.  He says not educating young children is the equivalent of child abuse and is economically stupid.  He is advocating for an increase in investments in early childhood education per people`s spending, infrastructure and public health measures.  

GRIFFETH:  Now to housing.  Imagine taking cash out of your home without incurring any debt and therefore, no monthly payment.  That`s what one business aims to do, but there is more to it than that.  

Diana Olick explains.  

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Greg Hart was house rich, but cash poor and he wanted to pay off some debt.  He did not want a home equity loan.  

GREG HART, POINT CLIENT:  To go with the regular hillock meant I was
trading one payment for another and I didn`t see that was going to get me
any further ahead or pay off.  

OLICK:  Instead, he went with a new idea from a new company, Point.  Point helped him to sell equity in his home to an investor, $50,000 cash.  

HART:  It was one of the easiest processes I`ve ever done, especially in
regard to a refinance for a mortgage.  

OLICK:  Eddie Lim had the same issue getting a loan which is why he started Point.  

EDDIE LIM, POINT CEO:  The irony is the biggest asset that I own, the
biggest asset that most of us own in our lifetimes, all we can do is add
more debt.  And that`s where point came in.  

OLICK:  Here`s how it works.  Let`s say the home is appraised at $1
million.  Point lowers that value, say by 15 percent so it`s now $850,000.  
That gives point a $150,000 cushion against risk.  Then, Point gives the
homeowner say, $100,000 cash.  The owner has up to ten years to return that cash, but can exit the contract at any time.  

When the owner does, Point gets the initial $100,000 back plus a
percentage, say, 30 percent of any appreciation in the home`s value.  And
here`s where Point can profit: since it lowered the value to begin with, it
automatically gets 30 percent of that $150,000 cushion or $45,000.  If the
value goes up, Point gets more.  

DAVID DUNN, KINGSBRIDGE CIO:  The homeowner gets liquidity and the investor gets a risk-adjusted equity investment.  

OLICK:  Kingsbridge Wealth Management has pledged $100 million to back
Point`s contracts.  

DUNN:  As an investor, we do expect equity-like returns because we`re
taking equity-like risks.  If the home price goes down, we participate in
that where your mortgage lender does not.  

LIM:  If the home goes up, and that`s when Point does well.  And if the
home goes down in value, nobody really does well.  

OLICK:  Lim says demand is very strong.  They`ve invested in 300 homes in
15 states so far and expect to do ten times that in the coming year with
the new cash from Kingsbridge.

Greg Hart says he understands that getting the money now is more expensive than a second mortgage because it will cost him more equity later.  But —

HART:  I can now see light at the end of the tunnel and I`ll be able to do
things that we`ve long needed to do.  Some, you know, it`s just like we`re
moving again.  We`re moving forward again.  

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

(END VIDEOTAPE)

HERERA:  Operational issues hurt Duluth Holdings and that`s where we begin tonight`s “Market Focus”.

The work wear retailer missed on both earnings and revenue.  The CEO said the company experienced inventory problems which led to distribution and sales issues.  That also increased costs in its most recent quarter. Duluth shares lost a quarter of their value today.  They fell to $17.60.  

Amazon (NASDAQ:AMZN) is making a dent in Google`s ad search dominance.  

According to “The Wall Street Journal”, WPP (NASDAQ:WPPGY), the world’S
largest ad buyer, spent $300 million on Amazon (NASDAQ:AMZN) search ads last year.  Seventy-five percent of that money came from Google`s search budgets.  Amazon (NASDAQ:AMZN) rose 1 percent to $1,837.28.  Google (NASDAQ:GOOG) parent Alphabet dropped a fraction to $1,211.45.  

GRIFFETH:  Greenbrier has lowered its earnings guidance for 2019 with the
rail carmaker also reporting profit that was below analyst estimates for
its most recent quarter.  The CEO described the quarter as underwhelming
and said he believes it is one off.  Greenbrier was off about 1 percent to
$33.01 today.

And the judge who was reviewing the Justice Department settlement that
allowed CVS (NYSE:CVS) to merge with Aetna (NYSE:AET) last year is now
planning a week of hearings in May, and they will include live witness
testimony from critics of that merger.  Judge Richard Leon has been tasked
with deciding whether the merger settlement was in the public interest and
the lawyer for CVS (NYSE:CVS) called the request for live instances
unprecedented.  The stock rose 1 percent today to $54.06.  

HERERA:  It is time for our weekly market monitor who sees growth
opportunities in the consumer sector.  This is her first time on the
program, so we welcome Barbara Miller, a portfolio manager at Federated
Investors (NYSE:FII), where she manages the five-star rated Kaufmann Fund.  

Welcome, Barbara.  It`s a pleasure to have you here.

BARBARA MILLER, FEDERATED INVESTORS PORTFOLIO MANAGER:  Thank you for having me.  

HERERA:  You are a growth investor and you`re looking at the retail and
consumer sector because you say there`s been a lot of disruption there.  
Your first pick is TJX Companies (NYSE:TJX).  Why do you like that?  

MILLER:  Well, there has been disruption, but off-price retailers have
continued to take market share and TJX is the largest.  Off-price retailers
offer extreme value and if there is disruption in the retail channel, it
creates a lot of excess inventory in all over the place, different kind of
brands that the companies can buy.  TJX should grow mid-to-high single
digits, and it`s also very cash rich, so the company pays a dividend.  In
fact, just increased the dividend to 18 percent recently.  

GRIFFETH:  Lululemon, of course, they`re famous for women`s athletic, yoga pants and so forth.  But they`re finding more growth with men now, aren’t they?  

MILLER:  That`s right.  That`s a very difficult thing for a women`s brand
to do and Lulu has been doing it.  Men`s are now 20 percent of their
business and it should grow even faster than the whole.  They`re also
growing in Asia and in Europe, and their product development is terrific.  
Consumers will pay up for functional fashion and Lululemon definitely has
it.  

HERERA:  Now to the food sector, Wingstop.  It is a quick serve sector,
right?

MILLER:  That`s correct.  The quick serve sector is taking market share as
consumers are looking for convenience.  And Wingstop is really a unique
brand.  It`s growing rapidly we think from 1,250 units today, it can have
6,000 units in the U.S. and abroad.  Everybody eats chicken all over the
world.  

This is a company that is adding national advertising to boost the brand.  
They`re migrating their cut of customers from phone to digital ordering
which adds to the order size and is more efficient, and they`re growing out
delivery across the system in the U.S. this year and that`s also
incremental business.  So, this is a terrifically well-run company.  

GRIFFETH:  Briefly, are these three companies special situations, or do you
just like consumer-oriented companies right now?  

MILLER:  Well, we`re growth investors, as you said, and we look for
companies that are gaining market share either by virtue of a strong brand
or a channel as in TJX, where customers want to go for value, and in the
case of Wingstop, they have a unique brand.  So, we look at things from the
bottom`s up at Federated Kaufmann, and we look for companies that can gain market share on a sustainable basis, regardless of the overall environment or frankly, the overall economy.  

HERERA:  On that note, Barbara, thanks so much for joining us.  

MILLER:  Thank you.

HERERA:  Barbara Miller with Federated Investors (NYSE:FII).  

GRIFFETH:  And coming up, when the party`s over, what happens to all those beautiful flowers?  You can meet the entrepreneur not letting them go to waste.  It`s tonight`s “Bright Idea”.  

(MUSIC)

HERERA:  Here`s a look at what to watch next week.  On Tuesday, the Senate Finance Committee holds a hearing on prescription drug prices.  On
Wednesday, the Federal Reserve will release the minutes of the last
meeting, where policymakers left interest rates unchanged.  Also on
Wednesday, bank CEOs will testify in front of a House committee, and that
is what we`re watching for next week.  

GRIFFETH:  Finally tonight, flowers, of course, are perishable, but after
certain events, many are just tossed out even though they are still in
perfectly good shape.  And if they go to landfills and plastic gas they
create methane gas, and that potentially harms the atmosphere.  

So, that`s why one New York City entrepreneur got the bright idea to touch
some hearts while giving flowers a second life.  

(BEGIN VIDEOTAPE)

GRIFFETH:  When the lights go off and the guests go home, what happens to the flowers?  Well, usually they`re tossed in the garbage bound for a
landfill.  

JENNIFER GROVE, REPEAT ROSES FOUNDER AND CEO:  I was pushing cart after cart of flowers to the loading dock, and I realized this is ridiculous, and it just broke my heart.  I couldn`t do it anymore, and I decided I was
going to be the person to do something about it.  

GRIFFETH:  Jennifer Grove spent seven years as an event planner.  She`s
seen flower budgets that cost tens of thousands of dollars.  

GROVE:  What else would you spend that kind of money on and throw it in the trash after two or three hours?  

GRIFFETH:  Her thinking became, why not donate them to hospitals, patient residences, nursing homes, anywhere they might provide a lift?  By 2015 with her dad helping out, a customer paid her to deliver her flowers to a hospice.  Soon, her company Repeat Roses was making donations and then returning to bring old flowers to a composting site.  

GROVE:  It makes everyone feel really good any they`re making a charitable tax credit.  If they got that return on investment, it`s worth it to them.  They`re a value there.

GRIFFETH:  Her fee starts at less $2,000.  It`s still a family affair.  
Grove`s daughter Calista helps out, but their midtown Manhattan office is a command center.  Repeat Roses connects contractors and handles logistics
for thousands of events per year, from small to celebrity.  

One week in February was especially busy.

GROVE:  On the East Coast, we were working on behalf of the Duchess of
Sussex to repurpose all the flowers from her baby shower.  Simultaneously,
we were on the West Coast repurposing flowers from the “Vanity Fair” Oscars party, and we were in the news for Gwyneth Paltrow`s wedding.  

GRIFFETH:  The Blossom Bar is becoming Repeat Roses` biggest revenue
driver, giving the employees at community minded companies a chance to
rescue flowers.  

GROVE:  It`s leftover excess inventory that otherwise would have left in
the trash.  

GRIFFETH:  The Regal Deal, a real estate news outlet, gave employees a
chance to share some line and create arrangements.  

GROVE:  You`re going to cut your stem on an angle.

GRIFFETH:  Repeat Roses has conducted 100 Blossom Bars.  Costs range from $5,000 to $100,000.  

AMIR KORANGY, THE REAL DEAL FOUNDER AND PUBLISHER:  We get invited to balls and galas and stuff like that.  But it`s not really hands-on.  You know, you`re just writing a check.

Here in this case, you actually have the people in the office, you know,
coming together, giving back to something that makes everybody feel good.

GRIFFETH:  That evening, Groves` team brought the arrangements to the Hope Lodge, an American Cancer Society residence for patients and caregivers.  

And they collected the previous week`s delivery for composting.  A
sustainable cycle that Grove hopes can bring a spring-like renewal to the
industry.

GROVE:  Our mission is to really figure out how to make it more efficient
and how to make it more feasible for people to participate.  It`s just a
touching moment, and we`re able to deliver that to somebody else and create some happiness in the world.  

(END VIDEOTAPE)

GRIFFETH:  Repeat Roses says it has repurposed almost 50,000 bouquets since 2014, while diverting 80 tons of floral waste away from landfills, a little something to think about there as we approach Earth Day which, by the way, is coming up April 22nd.  

HERERA:  All right.  Before we go, here`s a look at the final numbers on
Wall Street.  The Dow Jones Industrial Average added 40 points at 26.424.  
The Nasdaq rose 46 and the S&P 500 gained 13.  

For the week, the major averages were all higher, making this two straight
weeks of gains, a good way to go into the weekend.  

GRIFFETH:  Indeed.  

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

GRIFFETH:  I`m Bill Griffeth.  Have a good weekend.  See you Monday.  

END

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