Transcript: Nightly Business Report – May 21, 2019

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  The stocks that led the market higher today were the same ones that let it lower yesterday.  The tech sector rebounded after the commerce  department eased restrictions against China`s telecom giant Huawei.  The  reprieve from trade penalties helped ease tensions between the U.S. and  China.

And investors seized on that positive news.  The Dow Jones Industrial  Average advanced 197 points to 25,877.  The Nasdaq was up 83 and the S&P  500 added 24.  

As one strategist put it, the easing of restrictions on Huawei is a ray of  hope that the worst-case scenario will be avoided. 
Eunice Yoon has reaction from Beijing.  

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The U.S. Commerce  Department is ordering a 90-day reprieve for Huawei after it put the  Chinese company on an export blacklist that could threaten Huawei`s  survival.  The move allows Huawei to maintain its current networks and  software updates including Google (NASDAQ:GOOG).  Google (NASDAQ:GOOG) had  suspended some of its business with Huawei, but Huawei`s founder told media  today his company is in talks with the U.S. tech giant on how to deal with  the ban.  

In an unusual move, Ren Zhengfei sat with a group of Chinese journalists on  state TV, saying that his team was already prepared for any disruption to  their supply chain so the U.S. reprieve didn`t mean much.  Ren said in  times of peace, the company`s sources half of its chips from the United  States but that it could also make its own.  He added that the U.S.  underestimates Huawei`s strength and that a class over technology is  inevitable, though he warned that it should not fan nationalist sentiment.  
Anti-American rhetoric, though, continues to rise in China.  The state  broadcaster has now aired six anti-U.S. films in a row and a TV show about  a Chinese family that moved to Los Angeles was yanked from programming and  the “Game of Thrones” finale still hasn`t aired here.  At first, Tencent,  the company airing the show, said that there was a transmission problem,  but then HBO blamed the trade dispute, and so do many Chinese.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.  

HERERA:  A Federal Reserve official today said the trade war is a big risk  for the economy.  Boston Fed President Eric Rosengren noted that the  tariffs could increase pressure on the overall economy and there`s a chance  it could take some time to be resolved for that reason he says policymakers  should remain patient until the uncertainty between the world`s two largest  economies resolves itself.
And one prominent manufacturer of baby products is hoping the trade war  between the U.S. and China is short-lived, because his business depends on  it.  
Ylan Mui is in Piscataway, New Jersey.

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Think about everything  that goes into a baby registry, a crib, a stroller, a highchair, maybe even  a baby walker.  There`s a good chance those products are made by Delta  Children, the country`s largest manufacturer of baby furniture and gear.   Right now, it`s in a trade tug of war.

JOSEPH SHAMIE, DELTA CHILDREN CEO:  In my showroom here, everything that I  sell can be affected and it is beyond the huge, huge issue.
MUI:  Nearly all of its products are made in China and shipped to the U.S.  to warehouses like this one.  These gliders just arrived and are being  packed into a container for delivery to Amazon (NASDAQ:AMZN) or even  straight to the consumer.  Delta has contracts with major retailers from  Walmart to pottery barn.  Ninety percent of the cribs at Target (NYSE:TGT)  come from Delta.

When President Trump rattled the industry with 10 percent tariffs on cribs  and baby furniture, Delta absorbed most of that cost, raising prices just  three to four percent.  But now, those tariffs are going up to 25 percent,  and if President Trump makes good on his threats, the rest of their  products could get hit to.

SHAMIE:  Moving the production out of China is not that easy because  there`s safety involved in that.  We have a whole infrastructure of  individuals, of test facilities set up in China, making sure that these  cribs are safe for that not just for the first child that`s in there but  for the second and the third child.  

MUI:  That means tough choices for everyone.  Delta has to raise prices.   Retailers are canceling orders.  And parents have to decide, is it worth  it?  
SHAMIE:  I don`t know how a mom living on thousand dollars a year is going  to afford it.

MUI:  Delta says America needs a timeout from the trade war.  
For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Piscataway, New Jersey.

HERERA:  And now to housing which is in the middle of its key spring  selling season.  Today, we learned that sales of existing homes, the bulk  of properties on the market, fell in April, declining for the second  straight month.  

Now, this comes despite a pullback in mortgage rates, as well as an  increase in the supply of homes for sale, which had been a major headache  for that industry.
Diana Olick has more.

UNIDENTIFIED FEMALE:  This was built in the `70s.

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  There were plenty of  shoppers out looking for homes this spring but apparently not too many  buyers, at least not as many as last year.  Home sales in April fell more  than 4 percent compared with the year ago, even though the supply of homes  for sale was slightly higher.  The expectation was that lower mortgage  rates would help.  The average rate on the 30-year fixed really plummeted  in March when buyers would have signed the contracts for those April  closings.

LAWRENCE YUN, NATIONAL ASSOCIATION OF REALTORS:  The fundamentals for  higher home sales are improving.  Certainly, job creation, low interest  rates and also additional inventory coming on to the market, more choices  for consumers.  But it takes a little time for the consumers to actually  sign contracts and close the deals.

OLICK:  Prices are still rising but the gains are shrinking.  In the  Northeast, prices were barely up 1 percent annually.  Still, realtors say  today`s sellers have to get more realistic on pricing if they want to move  their homes quickly.

YUN:  On the upper end market, they need to be — sellers needs to be very  cautious about how they price their home, otherwise, they will not attract  buyers.

OLICK:  Sales continue to be weakest at both the very low and very high  ends of the market but for very different reasons.  At the low end, it`s  because there`s precious little for sale.  At the high end, it`s because  there`s a glut and prices need to reflect that.

HERERA:  Home Depot (NYSE:HD) is often seen as a barometer for the housing  market, because if people feel good about their finances, they often spend  on their homes, which is why today`s results from the home improvement  retailer sent some mixed messages.  Earnings and revenue were both better  than expected but its outlook was disappointing.
Courtney Reagan digs into Home Depot`s results.

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Home Depot`s first  quarter came up short due largely to a wet and cold start to spring and a  sharp drop in the price of lumber.  February was the second wettest on  record in the U.S., and that kept shoppers home.  Spring is a critical  selling season for home improvement retailers, it`s why they hold spring  Black Friday events.  But if it`s cold and rainy, consumers aren`t doing  outdoor home improvement projects or shopping for garden supplies.  

BRIAN NAGEL, OPPENHEIMER:  There`s a lot of data my team and I watch.  As  weather is turning more spring-like in markets across the country, sales in  this category are picking.  So I suspect that with Home Depot (NYSE:HD),  that`s going to imply a pretty strong second quarter.

REAGAN:  Home Depot (NYSE:HD) executives said big-ticket items those that  are $1,000 or more are coming back as the weather improves.  Professionals  like contractors and plumbers do a lot of big ticket buying and the  retailer said the pros have a backlog of business to catch up on.  
But even if the weather turns, the other big wildcard for Home Depot  (NYSE:HD) is the price of lumber which has fallen dramatically over the  past year.  During the quarter, Home Depot (NYSE:HD) sold more lumber but  at half the price of last year.  And according to CFO, Carol Tome, that  could turn into an million dollar hit for the full-year.

Tome told me because lumber is a project starter, it`s the first item a  consumer will buy.  So, when the price of lumber fluctuates, it can have a  meaningful impact on other parts of the business.  The good news for  investors is that Home Depot (NYSE:HD) still sees a healthy housing  environment and while higher tariffs aren`t incorporated into guidance, the  company has a plan to manage it with low impact to shoppers or  shareholders.


HERERA:  Joining us now to talk more about the health of the housing market  is Odeta Kushi.  She is the deputy chief economist at First American  (NYSE:FAF) Financial.
Welcome.  Nice to have you with us.


HERERA:  Now, the market did soften a little bit in April and the month  before, but you see a silver lining.  You see things improving.  Why?

KUSHI:  Absolutely.  Our outlook for 2019 is largely the same despite  softening April numbers.  We`re seeing that, you know, the market  purchasing power really benefiting from affordability tailwind from low  mortgage rates and a strengthening labor market with no signs of slowing  down.  And on top of that, you have slower house price appreciation which  is helping on the affordability side.

HERERA:  You also attract something called 10-year length which is the  amount of time that a homeowner spends in the home and it reached 11 years,  a 9 percent increase compared with a year ago.  Why is that?  Is that a  fundamental shift?

KUSHI:  So, what we see is before the recession, average tenure was  approximately five years.  But as homeowners were locking into 3, 3-1/2  percent mortgages, you know, they`re really feeling rate locked in despite  the fact that mortgages are flirting with about 4 percent.  So, as mortgage  rates continue to decline, we should see some loosening of that rate lock  in effect and then having that home that tenure start to decline a little  bit.

HERERA:  Well, as one who had her first mortgage at 16 percent way back  when, 3 percent and 4 percent sounds pretty good.
What about the trade situation that`s going on right now?  Could that have  a dampening effect on demand?

KUSHI:  Absolutely.  So, the trade effect, it could have — there could be  two sides to it.  Obviously, it could have the impact on mortgage rates,  declining mortgage rates which could be a positive for the housing market  but on the flip side of that, there`s the implication that about a 25  percent tariff would hit the construction industry by about $2.5 billion in  taxes.  So, obviously, another headwind to the construction industry.

HERERA:  Now, we did hear in the past two months that the elimination of  state and local tax deductions in some of the high tax states really  dampened sales.  Has that evened out at all?

KUSHI:  So, we haven`t really seen the impact of the tax change on the  national scale nor the state scale.  In fact, you have to get down to —  you know, very specific micro geographies, really high-cost markets to even  see any impact on sales and home prices.

HERERA:  Well, that`s a little bit of good news.  If mortgage rates decline  a little bit further, might that juice the home market a little bit more,  and also maybe get people to list those houses at more reasonable prices?

KUSHI:  Absolutely, that`s what we`re waiting for.  If mortgage rates  continue to fall, it`ll push those existing homeowners to move up into  another home and it`ll also really prop portability for that first time  homebuyer. 

HERERA:  Odeta, thank you so much.

KUSHI:  Thank you.

HERERA:  Odeta Kushi with First American (NYSE:FAF) Financial.  
It is time to take a look at some of today`s “Upgrades and Downgrades”.  
Kroger (NYSE:KR) was upgraded to outperform from market perform at  Bernstein.  The analyst points to the retailer`s short and long term  strategy.  The price target is $33.  The stock rose about 1 percent to  $24.30.
Trip Advisor was upgraded to buy from hold at Needham.  The analyst cites  the company`s return to modest use of growth in the fourth quarter.  The  price target is $63.  The stock rose more than one-and-a-half percent to  $45.74.

A different kind of call on Tesla.  Morgan Stanley (NYSE:MS) cut its bear  case valuation of that stock to $10 from $97.  The analyst cites Tesla`s  debt load, exposure to China, and uncertainty around the company more  generally.  His base case price target though is $230.  Shares fell a  fraction to $205.08.
Still ahead, drone delivery is put to the test.

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  I`m Jane Wells in Reno,  Nevada.  Drone deliveries to your home in an urban area, what better place  than the biggest little city in the world to test it out.  We`ll have that  coming up.

HERERA:  A New York jury says Johnson & Johnson (NYSE:JNJ) must pay $25  million to a woman who claims she got cancer by using some of the company`s  products.  The woman alleges that her cancer was linked to products that  contain talc.  The $25 million is for compensatory damages.  The jury will  meet next week to consider punitive damages.  J&J says that there were  legal errors at trial and that it`s confident there will be a reversal on  appeal.

The Postal Service is testing its first long-haul self-driving delivery  truck.  The two-week pilot program will move mail between distribution  centers in Phoenix and Dallas.  A safety engineer and a driver in the cab  will monitor its performance and take control if there are issues.  The  postal service says it hopes the new technology can increase efficiency and  also savings.

And from driverless trucks to drones, many see a time when the unmanned  vehicles would deliver goods, conduct search and rescue, and even carry  commuters.  But first, a nationwide system is needed where they can operate  safely, and NASA is trying to put one together.  
Jane Wells is in Reno tonight.

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  If the future of drones  is delivering goods or people, most of that will be done beyond a drone  pilots line-of-sight.  So, NASA is figuring out an air traffic system to  keep potentially hundreds of thousands of commercial drones safe from each  other and from you.  

CHRIS WALACH, NEVADA INST. FOR AUTONOMOOUS SYSTEMS:  We`re testing out all  the various technologies that really hasn`t been tested out before from  collision avoidance, obstacle avoidance, remote identification and, Jane,  we`re doing this under beyond visual line of sight conditions.  
WELLS:  For testing, NASA has chosen Reno, Nevada, the biggest little city  in the world.  

HILLARY SCHIEVE, MAYOR OF RENO:  It were predominantly gaming city and we  think technology and infrastructure and drone policy to be at the forefront  is really pretty incredible.  

WELLS:  The city of Reno is so committed to this project, it`s actually  shutting down roads downtown in the middle of the week so the tests can be  conducted.  Challenges include what to do if communications are lost, or if  it gets too windy.  Battery power is a huge issue, but there`s also a  challenge on the ground.  

MARCUS JOHNSON, NASA AMES RESEARCH CENTER:  The biggest challenge ends up  being really socialization and understanding public acceptance of the  technology.  Privacy is an issue and locals are curious.  In today`s world,  you always have to be concerned. 

UNIDENTIFIED FEMALE:  I can see them flying out like right there when I`m  enjoying a glass flying after work on my deck.  So, that`s a little bit  weird but I`m not worried about anything else like that.

WELLS:  NASA`s traffic control system was developed at his Ames Research  Lab in Silicon Valley, and with many more drones than airplanes predicted,  a different system is needed.  Instead of a human controller giving a drone  clearance, NASA has created a peer-to-peer awareness system, telling a  drone in essence not where it can be but where it cannot.

PARIMAL KOPARDEKAR, NASA AMES RESEARCH CENTER:  Instead of saying that this  is what you are authorized to do, it says this is what you shouldn`t do  everything else you can operate by yourself.  So, we change the paradigm.

WELLS:  Goldman Sachs (NYSE:GS) estimates the business of managing drone  traffic will be worth nearly a billion dollars by 2025.  Companies like  Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOG) are working with NASA, and  later this summer, NASA will hand over its final decisions to the FAA,  which will create rules of the road for a highway a few hundred feet  overhead.
For NIGHTLY BUSINESS REPORT, Jane Wells, Reno, Nevada.

HERERA:  Sales at Kohl`s (NYSE:KSS) got crunched and that`s where we begin  tonight`s “Market Focus”.
The retailer missed Wall Street s earnings as estimates and also cut its  full-year profit forecast.  The company blamed promotions and a rise in  shipping costs and said it hopes its nationwide rollout of Amazon  (NASDAQ:AMZN) returns will help boost sales.  Shares tumbled today more  than 12 percent to $55.15.

JCPenney reported a bigger sales decline and a wider than expected loss in  the most recent quarter.  The CEO says the retailer has made solid progress  but that there`s no silver bullet and the company`s turnaround will take  time.  The small cap stock dropped nearly 7 percent to $1.07.
But it was a different story at TJX Companies (NYSE:TJX) which posted  better than expected earnings and boosted its full-year profit forecasts.   The parent company of T.J.Maxx, Marshalls and Home Goods saw solid same  store sales and an increase in customer traffic.  The stock was up a  fraction to finish at $53.26.

Late today, Nordstrom (NYSE:JWN) reported sales that were weaker than  expected and it cut its full-year forecast.  The retailer blamed softer  trends and execution issues related to its loyalty program.  That sent the  stock lower in initial after-hours trading after rising one percent in the  regular session.

AutoZone (NYSE:AZO) topped Wall Street`s earnings and revenue estimates.   The CEO says industry fundamentals remain strong and the company`s market  share is improving.  The stock revved higher more than five and a half  percent to finish at $1,032.25.

PPG Industries (NYSE:PPG) says it will not split up and that keeping the  company intact is the best strategy.  This despite pressure from an  activist investor who said a split would accelerate sales and profit  growth.  The stock was up more than 1 percent to $109 even.

And Merck (NYSE:MRK) will buy the cancer drug maker Peloton Therapeutics  for $1 billion.  The acquisition comes as Peloton was preparing to go  public.  This deal helps Merck (NYSE:MRK) bolster its portfolio of cancer  treatments.  Shares of the Dow component rose a fraction to $79.50.

Well, if you were planning to fly this at this summer, get ready for a lot  of company.  An industry trade group expects this to be a record travel  season and it comes despite the grounding of Boeing (NYSE:BA) 737 MAX  planes.
Phil LeBeau joins us from Chicago.
Good to see you as always, Phil.
The airports are going to be crowded.  How many people are we talking about  here?

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  An estimated $257  million people.  Now, that`s between June 1st and the end of August,  basically you`re looking at between Memorial Day and Labor Day.  It`s going  to be about 4 percent more crowded overall than compared to last year.  

The good news is that the airlines are adding more flights, especially on  the busiest routes, so it`s not like we`re all going to be squeezed into  smaller spaces in elbow-to-elbow like it`s Christmastime, but it will be a  little bit more crowded.

HERERA:  But airfares are low compared to what they have been recently.   Why is that?

LEBEAU: Well, you`ve got more competition, especially on the low end, from  Spirit, and the low cost carriers, they continue to expand.  And as they  put pressure on the established airlines to come up with basic fares, you  see more people who maybe they`re flying United, maybe from Hilton Head,  South Carolina, to Minneapolis.  So they get a basic fare.  That`s what  we`re seeing more of and that`s what`s keeping the fares under pressure.

And overall, you have a strong economy, Sue, so you`ve got a lot of people  who have said, you know what, I`m going to take a trip this summer.
HERERA:  All right.  What about the grounding of the 737 MAX planes?  How  is that going to impact the airlines?  The availability of flights?  
I know you said that they have added some flights certainly.

LEBEAU:  Right.

HERERA:  But what kind of impact, if any, will we see?

LEBEAU:  A few fewer planes for, say, Southwest, American and United.   Those are the ones who have 737 MAXes that have been grounded.  But it`s  not a huge amount.  We`re talking about a low percentage of their overall  fleets.  So what`s an airline like Southwest going to do?  They`re going to  make sure that they`re meeting demand on the busiest routes.

Now, does that mean that perhaps they may pare back their service on some  of the less popular routes?  That`s a possibility and you might see fares  go up a little bit there, but we`re not talking about a huge spike in  prices and that`s how the airlines, especially United, American and  Southwest, they`re going to adjust to this situation until they get the MAX  back, which they hope might happen by the end of August.

HERERA:  That was going to be my next question but you anticipated it  beautifully as always.  Thanks, Phil.

LEBEAU:  Thanks, Sue.

HERERA:  Phil LeBeau.

Coming up, the quest to build a home that can stare down a hurricane.

HERERA:  Here`s a look at what to watch for tomorrow.
The minutes of the Fed`s last meeting will be released, giving investors  insight into the central bank`s thinking on the direction of interest  rates.  Amazon (NASDAQ:AMZN) hosts its shareholder meeting which will  include voting on proposals related to its use of facial recognition  software.  President Trump is expected to meet with Democratic leaders to  discuss infrastructure.  

And that`s what to watch for on Wednesday.
Andrea is the first named storm of the 2019 Atlantic season.  It is the  fifth year in a row that a system has been named before the season  officially begins on June 1st.  And as you know, recent storms in the U.S.  brought record destruction.  That has some looking to fortify their homes  against the next storm.

Diana Olick is back with us tonight with another installment of her series  on the rising risks to real estate.

OLICK:  The destruction from category five Hurricane Michael was  breathtaking.  But this one image had homeowners and builders alike in awe  — one home left relatively unscathed on Florida`s Mexico Beach.
RUSSELL KING, FLORIDA BEACH:  Total devastation for miles in every  direction.

OLICK:  Russell King built this two-story house a few years ago with  hurricane winds not just in mind but in every aspect of the design.  It`s  12 feet above the ground and is anchored 28 feet into the ground.

KING:  I felt like I have a better chance of fighting the storm.

OLICK:  Now, seven months later, King says it is not enough.

KING:  The storms are in my opinion from what I`ve seen are getting  stronger.  

OLICK:  He learned from Michael and is upgrading his home yet again.

KING:  All this cross bracing is new that wasn`t there.  All that foam was  new, that happened last month.  All these light fixtures here, they`re all  going away, every one of them.  We`re best in this up to make way to put in  something else probably pavers, where we don`t have concrete that will  shift against these columns.

OLICK:  King is fortifying the House well beyond any current building  codes.  His next door neighbor built to the highest local code two years  ago but the home is a total loss.

New mandatory building codes adopted after Hurricane Andrew have improved  hurricane resistance in Florida`s new construction.
Nationally, the Insurance Institute for Business and Home Safety created a  hurricane fortified standard a decade ago, meant as a guideline for  builders and owners.  But so far, only 8,000 homes have that designation.   Those that do sell for 7 percent more according to a University of Alabama  study.  

The technology to fortify homes has advanced dramatically but the demand  for it actually really hasn`t, and that may be because homeowners  mistakenly believe that it`s wildly expensive.

LANCE RETTIG, HABITAT FOR HUMANITY:  I wouldn`t describe it as cost  prohibitive.  we actually focus on low to moderate income homeowners and  this is built balancing that, along with safety.

OLICK:  Lance (NASDAQ:LNCE) Rettig is the local executive director with  Habitat for Humanity which has built homes in the Panama City area.   Habitat builds beyond the latest hurricane codes and can do that even on  the lowest priced homes.

RETTIG:  We have this rod here so then you don`t need to theoretically have  these other connectors on what we do.  The steel roofs does add an  incremental cost that would be about 10 percent to the home.  The rest of  the things that I`m talking about is almost negligible maybe $1,000 on a  $75,000, four-bedroom house.

OLICK:  There are levels of protections just as there are categories of  hurricane strength.

The latest Habitat homes fared better than their neighbors in Hurricane  Michael, but Russell King isn`t taking any chances.

KING:  Will spin easily another hundred thousand dollars.

OLICK:  Do you believe that there`s such a thing as a hurricane-proof  house?

KING:  No, no.

OLICK:  For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Panama City,  Florida.


HERERA:  And before we go, here`s a look at the final numbers on Wall  Street today.  The Dow advanced 197 points to 25,877.  The Nasdaq was up  83, and the S&P 500 added 24.

And that is NIGHTLY BUSINESS REPORT for tonight.  I`m Sue Herera.  Thanks  for joining us.  Have a great evening and we`ll see you tomorrow.

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) 2019 CNBC, Inc.

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