Transcript: Nightly Business Report — March 4, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Down arrows. Stocks retreat further from record territory, after a softer than expected read on the labor market and the report from the Federal Reserve on the economy.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Sharp split. Supreme Court justices hear arguments over a centerpiece of the Affordable Care ct and appear very divided.

HERERA: Runneth over. The U.S. is home to so much crude. Is it running out of storage space for all of it?

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, March 4th.

MATHISEN: Good evening, everyone. And welcome. Glad you’re with us.

Investors took another step back despite a report this afternoon from the Federal Reserve that the U.S. economy continued to expand through most of the country. According to the Central Bank’s survey of regional conditions, consumer spending rose and hiring was broad and across a range of economic sectors, but today’s tone was set by this morning’s ADP labor report. The private sector added 212,000 jobs in February. Not bad but fewer than expected. Service sector activity edged up last month but wasn’t enough to get investors excited about stocks.

By the close, the Dow Jones industrials sank 106 to 18,096. The NASDAQ fell nearly 13 and the S&P off 9 points.

Steve Liesman has more on today’s reports and the state of the American economy.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Neither severe winter weather, nor West Coast port shutdowns, nor layoffs from lower oil prices have kept the U.S. economy from disappointing (ph) rounds of moderate and steady growth. The Federal Reserve’s so-called Beige Book, the collection of economic anecdotes from around the Central Bank’s 12 district, was full of troubles plaguing the U.S. economy, but concluded that growth keeps chugging along.

The Fed said consumer spending continues to rise and retailers are optimistic about the months ahead. Job gains reported across a broad range of industries.

ART HOGAN, WUNDERLICH SECURITIES CHIEF MARKET STRATEGIST: There is certainly going to be weather in all of this, but as we look at what’s more important, what’s going to drive Fed monetary policy, et cetera, it’s certainly going to be the jobs number and my guess is, we’re going to see something — you know, in line with what we’ve seen in the last few months, something north of 250,000 jobs created in the economy that continues to create jobs at a pretty good pace.

LIESMAN (on camera): Confirmation that we’re on track for another 200,000-plus jobs report, a streak that dates back to March 2013, came in the form of a report today from the private payroll company ADP. Based on its own data, ADP estimates the U.S. created 212,000 private sector jobs in February.

(voice-over): That’s a bit below the street’s estimate of 240,000 private and government jobs, but close enough that economists didn’t change their view on the report coming Friday from the government.

If accurate, job growth for the 12 months ended in February would soar to 3.3 million, a level not seen since 2000.

There are skeptics who worry the U.S. could succumb to some of the building pressure. For example, weak overseas growth, a Federal Reserve that seems intent on raising interest rates as soon as this summer or a winter that seems equally intense on overstaying its welcome through the spring.

But so far, the U.S. has faced those challenges, and like the postman, continue to deliver.

For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.

(END VIDEOTAPE)

HERERA: Mark Zandi joins us now with more analysis on the economy. He is chief economist with Moody’s Analytics.

Welcome back, Mark. Good to see you.

MARK ZANDI, MOODY’S ANALYTICS CHIEF ECONOMIST: Thank you, Sue.

HERERA: So, how do you interpret the data? We were saying, yes, job growth is good, but has it slowed down a little bit from what we’ve seen recently?

ZANDI: Yes, it has slowed but it’s off from a very torrid pace over the last three months we’ve created over a million jobs. That’s multi-average job growth over 300k. That’s not sustainable. But, you know, 200,000, 250,000, that’s I think where we are. That’s a pretty good number by any historical standard. So, I think the economy is in good shape.

MATHISEN: You know, as Steve just said, 3.3 million new jobs over the past year, best in a long time for that. Unemployment down in every single state. It’s been decades since that has happened. Why doesn’t it feel better, Mark?

ZANDI: I think it’s wage growth. You know, despite the very strong job growth, there are so many unemployed and underemployed. It’s just taking a while to absorb all of those potential workers but at the current, the good news is at the current rate of job growth, by mid-next year, I think we’ll be back to full employment which means everyone who wants a job will have it and at that point, we should have some pretty strong wage growth and I think we will feel a lot better about things at that time.

HERERA: Which may free up the Fed to make a move on interest rates. At the same time, the ECB and a lot of central banks around the world are either holding rates steady or cutting rates. What do you make of the data that’s coming out of Europe and what are your expectations out of the ECB, the European Central Bank?

ZANDI: Well, they’re actually a little bit better, Sue, because of the decline in oil prices. A real big boost to the European economy because of the weaker value of the euro that’s helping and because the ECB is just about ready to start quantitative easing. That’s driven down interest rates all across the globe, particularly in Europe. And that’s helping.

So, it feels like the European economy is starting to gain some strength. Now, I’m not arguing the European economy is going to go anywhere real fast. This is going to be a slog for them. But at the least, the European recovery will remain in tact and they’ll move forward.

MATHISEN: What do you see for U.S. corporate profits and do you think that the profit growth, which some people are worried about, Mark, is going to be strong enough to support a rising stock market, a market that just a couple of days ago set records?

ZANDI: Well, I expect profit growth roughly equal to the growth in the economy. That the profit share should remain relatively stable.

So, the growth in the economy, the nominal growth, you know, if you include prices and sales growth and revenue growth should be about 5 percent to 6 percent. So, economy-wide, about a profit growth of 6 percent. You know, if that’s the case and given where interest rates are and the prospects of where they’re headed, I think stock prices where they are today are roughly where they should be, roughly appropriately valued.

HERERA: What worries you if anything at all about the economy, the economic data that we see out there? Is there anything you’d like to see look a little bit better?

ZANDI: Well, one thing that worries me, Sue, is the fact the Fed is giving us a forecast with regard where they’re going to take short-term interest rates the next couple of years. But the financial markets have a different perspective on things. They don’t expect the Fed to be as aggressive as the fed said they’re going to be. At some point, the circle has to square and it’s that point we could see a lot of volatility in the financial markets that could be disruptive to the recovery.

I expect that sometime later this year once the economy appears as approaching full employment.

HERERA: All right. We are forewarned.

Mark, thank you very much — Mark Zandi with Moody’s (NYSE:MCO) Analytics.

ZANDI: Thank you.

MATHISEN: Well, Sue, today, transcripts were released to Federal Reserve policy meetings during the heart of the financial crisis in 2009. During that time, when the economy was deep in recession and unemployment was 10 percent, the records show that Janet Yellen, who was then the Federal Reserve Bank of San Francisco, argued strongly for the Central Bank to ramp up its efforts to increase growth. She pushed hard for more bond-buying ahead of many members of the Fed’s open markets committee. Sometimes prevailing, sometimes not.

But the 2009 transcripts generally cement her reputation as an easy-money dove at that time.

HERERA: A surprise rate cut by the central bank of India. That was the second rate cut this year, joining other central banks easing monetary policy. The main repurchase rate was cut to 7.5 percent, citing economic weakness. About a dozen cut rates since January in an effort to stave off deflation.

MATHISEN: Hospital stocks rose today as the Supreme Court heard arguments challenging President Obama’s signature health care law. As we told you last night, the case focuses on a statute and whether some subsidies are illegal based of the law. Shares of hospital operators rose after Justice Kennedy raised concerns about the possible negative impact on states if the government loses the case and subsidies go away for many owners of health care policies.

Tenet, HCA Holdings, Community Health Systems (NYSE:CYH), all up more than 5 percent.

Hampton Pearson has more from the Supreme Court.

(BEGIN VIDEOTAPE)

PROTESTERS: Don’t take our care! Don’t take our care!

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): At the Supreme Court, it was a battle over tax subsidies that make health insurance affordable for millions of Americans that triggered the latest legal showdown over the Affordable Care Act. Opponents asking the high court to limit those federal subsidies only to residents of the 16 states with their own health care exchanges. That adheres to the exact text of the Affordable Care Act. And it’s a direct challenge to an IRS interpretation of the rule making those subsidies available to everybody.

PAM HURST, TAX SUBSIDY PLAINTIFF: What the Internal Revenue Service has done isn’t fair. It isn’t right. And it isn’t legal.

PEARSON: Inside the high court, justices tested the lawyers on both sides. The courts’ liberals challenged plaintiffs’ lawyer Michael Carvin over his argument to limit the subsidies. Justice Ruth Bader Ginsburg said cutting off subsidies in the 34 states with federal government only exchanges would be disastrous.

EZEKIEL EMANUEL, CENTER FOR AMERICAN PROGRESS: More people will exit the market because the premium will be too expensive for them and you will then again raise the premium because you’ll have very sick people buying insurance. The consequences are an unsustainable market.

PEARSON: When it was the governor’s turn, Solicitor General Donald Verrilli was hit by questions from Justices Antonin Scalia and Samuel Alito who said the law of Congress wrote clearly talked about subsidies established by the state. Justice Alito even suggested it might be possible to delay the effect of a ruling to give the states and the federal government time to act.

(on camera): For much of today’s 90-minute oral argument, Chief Justice Roberts was silent. Three years ago, when the fate of the individual mandate was hanging in the balance, it was the chief justice who cast the deciding vote. A decision on this latest challenge to the Affordable Care Act is expected in late June.

For NIGHTLY BUSINESS REPORT, I’m Hampton Pearson at the Supreme Court.

(END VIDEOTAPE)

HERERA: President Obama signed a law today to fund the Homeland Security Department through the end of the budget year, formally ending the standoff. As we told you last night, the House voted to approve the bill after a fight in Congress as Republicans tried to use the legislation to repeal the president’s executive actions on immigration.

MATHISEN: The Senate’s attempt to override President Obama’s veto of Keystone pipeline legislation failed today. The tally came up five votes shy of the 67 needed to reverse the veto. The president vetoed the bill, not the pipeline itself, because he says the bill interfered with an ongoing executive branch review of the project by the State Department. That review is now in its final stages, after which a no-go decision could come from the White House.

HERERA: To energy now. And ExxonMobil (NYSE:XOM) which became the latest oil company to trim its budget. The oil major says that it will cut capital spending by 12 percent this year to $34 billion. However, the company still plans to increase production volumes and start a handful of new projects in the coming years. Shares of ExxonMobil (NYSE:XOM) fell just slightly today.

MATHISEN: And sticking with energy. A volatile day in the energy markets. Crude oil prices slid in early trading on another big build in inventories, making it the eighth straight week of record inventory levels, but prices then reversed, headed higher later in the day on comments from Saudi Arabia’s oil minister that prices ought to stabilize and Iran stressed that it is opposed to a nuclear deal with timelines attached. By the settle, prices for domestic crude were up a dollar a barrel or so to $51.53, Brent crude was fractionally lower.

HERERA: Well, Ty just mentioned those rising stockpiles of crude and all that oil has to be stored somewhere, of course. Well, that place is Cushing, Oklahoma.

But as Morgan Brennan tells us, there’s so much of it that storage space may soon run out.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Cushing, Oklahoma. Population: just under 8,000. But while maybe small, this town plays a big role in the energy market.

(on camera): So, as an oilman and as someone who’s been based in Oklahoma for a while, how important is Cushing to the overall oil and gas industry?

MIKE MCDONALD, TRIAD ENERGY CO-OWNER: Oh, Cushing is very important, because, you know, it’s called the crossroads — pipeline crossroads of the world.

BRENNAN (voice-over): Cushing is home to miles of tank farms where U.S. crude oil is priced and stored before heading to refineries. But with West Texas Intermediate hovering around $50 a barrel, there is more crude coming in to Cushing than going out.

(on camera): That’s because it can be more profitable to acquire crude at the current spot price and store it in tanks like these, locking in on a higher price to the futures market for delivery at a later date. Analysts say the returns can be big.

SKIP YORK, WOOD MACKENZIE INTEGRATED ENERGY VICE PRESIDENT: If I look at today’s forward market, you know, I’m looking at a forward curve where six to nine months from now, the crude is selling for $8 or $9 more. It costs me maybe $3 or $4 to sell that barrel. And so, there’s a $5 barrel to be made if I can secure that barrel today and then find storage where I can keep it.

BRENNAN (voice-over): But as more oil goes into storage, space is beginning to run out.

Data firm Genscape forecasts Cushing could reach full operating capacity as soon as next month, a scenario that could have bearish implications for the market.

BRIAN BUSCH, GENSCAPE DIR. OF OIL MARKETS & BUSINESS DEVELOPMENT: Once that Cushing becomes full, one thing that does happen is that 2.2 million barrels that we’ve seen going into storage since November now reenters the refinery supply market. That’s just extra barrels available to the refineries.

BRENNAN: That additional supply could pressure prices. Commodity analysts at Citibank warn U.S. oil prices could fall as low as $20 a barrel if supplies pushed out of storage into the market. But for now at least, there’s still room, in tank farms along the Gulf Coast and here in Cushing.

So, while it may not look like much, the residents of this sleepy town have some $2.5 billion in black gold sitting in their backyards.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan in Cushing, Oklahoma.

(END VIDEOTAPE)

MATHISEN: Still ahead, what gaming companies are doing to find real money in a virtual reality world?

(MUSIC)

HERERA: Video game retailer GameStop announcing a 9 percent increase to its annual dividend. The company and its board approved raising it to $1.44 a share, giving it about a yield of about 3.3 percent. Shares of GameStop rose about 3.5 percent in today’s trading.

MATHISEN: The multibillion dollar gaming industry is converging in San Francisco where one of the largest developers’ conferences is taking place. Thousands of game makers, developers, and the industry’s largest companies are expected to attend.

And as Julia Boorstin tells us, those companies are battling for real money in an increasingly virtual world.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Virtual reality is front and center here at the game developers’ conference and also in Barcelona where Mark Zuckerberg talked on stage (INAUDIBLE) excitement over Oculus’s potential, when headsets readying for market and software which aims to be the operating system for a new virtual reality world.

MARK ZUCKERBERG, FACEBOOK CEO: That’s future technology in that it’s not a mainstream consumer thing today. But I believe that kind of continues this trajectory going from text to photos to videos to fully immersive scenes that you can be a part of.

BOORSTIN (on camera): And to continue that trajectory, Oculus’ challenge here is getting developers to create games for its platform. It’s up against a growing number of rivals from established giants such as Sony’s Morpheus, to newcomers like HTC’s theme announced earlier this week.

JUSTIN MORAVETZ, SOFTWARE DEVELOPER: You need games, you need apps, you need things that make it appealing to people who don’t know what virtual reality is.

BOORSTIN: Facebook’s new appeal to developers, this week announcing an app store for Samsung’s Oculus-powered virtual reality headset to enable developers to sell their games.

PATRICK O’LUANAIGH, NDREAMS CEO: Oculus has to get the hardware out there. With the theme headset, there’s going to be some real competition out there.

BOORSTIN: According to some industry predictions, the global market for virtual reality could be over a $5 billion business by 2019. Sony’s advantage right now, a built-in user base of its PS4 console.

RICHARD MARKS, PLAYSTATION SR DIRECTOR OF R&D: And so, we have a controlled ecosystem of people who own PS4 and content delivery mechanism. Actually, we have control of their own destiny which is a great thing and there’s competition maybe which platform you want to buy, but if you’re on a PlayStation 4, our Morpheus is the thing that you’d be using.

BOORSTIN: With Sony (NYSE:SNE) just announcing its plans to start selling its Morpheus headset in early 2016, the developers here are hard at work to prepare for the next wave of gaming.

MORAVETZ: I love virtual reality and I honestly couldn’t be more excited to be part of this explosive launch that’s coming over the next year.

BOORSTIN: And with most gaming hardware companies developing games and headsets, they’re counting on that excitement to turn virtual reality into real profits.

For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in San Francisco.

(END VIDEOTAPE)

HERERA: Abercrombie posts a big drop in sales during its holiday quarter and that’s where we begin tonight’s “Market Focus”.

The teen retailer said a strong dollar and weak demand for its logo-centric clothing weighed on its fourth quarter results. Its same-store sales also slumped. And that sent shares way down. It was off 15 1/2 percent to $20.27.

Another teen retailer’s earnings told pretty much the opposite story. American Eagle managed to beat on both the top and bottom lines as fewer promotions and improved merchandise helped lift revenues. The company also started experimenting with one-size-fits-all clothing, which helped it stand out. The stock popped more than 7 percent to $15.96.

Bristol-Myers Squibb (NYSE:BMY) saw its shares rally after securing FDA approval on a key drug. As of today, one of the drug maker’s treatments is the first approved to treat lung cancer. Shares popped about 6 percent to $65.67.

MATHISEN: A senator has called for the federal government to investigate Lumber Liquidators. This comes in response to a report on CBS’s “60 minutes” that alleged some of the company’s flooring products made in China contain higher-than-accepted levels of a known carcinogen, a charge the company disputes. The stock did slumped today, down more than 12 1/2 percent to $35.64.

Wayfair impressed the Street with its quarterlies. The online seller of home furnishings saw revenues soar in the fourth quarter, driven by customer growth. It also gave upbeat guidance for the current quarter. And the stock was up 14 1/2 percent to $28.90.

Apple (NASDAQ:AAPL) and HBO are reportedly in talks to team up. HBO is gearing up for its highly anticipated HBO now video-streaming service and Apple (NASDAQ:AAPL) might be its partner. No details yet on how Apple (NASDAQ:AAPL) would be involved. The service is expected to launch next month, giving customers access to HBO with only a broadband connection.

Shares of Apple (NASDAQ:AAPL) were off a fraction, $128.54 the close there. Time Warner (NYSE:TWX), the parent of HBO, also down a few cents at $83.08.

Shares of Netflix (NASDAQ:NFLX) fell today after the company told a Morgan Stanley (NYSE:MS) tech and media conference that it sees some slowing in subscriber growth. The stock off 1 percent to $469.77.

HERERA: Coming up, retails revolution. Why a big retailer like Target (NYSE:TGT) is setting up a technology lab right in the heart of Silicon Valley and we have a rare look.

(MUSIC)

MATHISEN: Auto loans are getting longer. New data from Experian found that auto loans with terms of six or more years surged in the fourth quarter, while the length of the loan grew, so did the total amount financed for a new vehicle of more than $28,000.

HERERA: A judge in a battle over hiring practices among Silicon Valley tech giants has tentatively approved the settlement worth about $400 million. In the major class action suit, workers accused Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) and other tech companies of making an illegal agreement not to hire each other’s employees, thereby limiting wages.

MATHISEN: Far from Target’s Minneapolis headquarters is a state-of-the-art technology lab in the heart of Silicon Valley. It’s how Target (NYSE:TGT) and other retailers try to stay one step ahead of fast-changing trends and the competition.

Courtney Reagan got a rare look inside Target’s tech lab.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): When you think about business in the Bay Area, retail likely isn’t top of mind. But perhaps, it should be. A number of retailers from Target (NYSE:TGT) to Walmart to American Eagle are planting flags in San Francisco and Silicon Valley.

Why? To be close to the social media and tech titans. They’re increasingly influencing shopping, and to attract top talent and fuel innovation to be at the forefront at the future of shopping.

At Target (NYSE:TGT) San Francisco lab, where David Newman and his team are innovating to stay ahead of the competition, I was virtually transported to Target’s express store near the University of Minnesota using Oculus goggles.

UNIDENTIFIED MALE: Part of what we’re working on is the ability to actually pick up one of the items and be able to play with it. There are different devices. You would hold it almost like the joy stick controller. But eventually, it might even just get to using your actual hands.

REAGAN: While it’s not mainstream to virtually shop now, it could be soon and Target (NYSE:TGT) wants to be ready to personalize that experience.

UNIDENTIFIED MALE: Imagine if in the cereal aisle, you only wanted cereals that were gluten-free, and so that’s all that would be on the shelf. You can reach, grab it, read about it, read reviews, and put it in your cart and press a button and when you got home, it could all be waiting for you.

DAVID NEWMAN, TARGET TECHNOLOGY INNOVATION CENTER DIR: For our team, it’s about the future. What are these things outside of the core and the daily operations of target where we think there’s a business opportunity? We’re really trying to see around the corner and think about the next 12 months, 18 months, what’s that going to bring and how could we position growth and revenue by being there?

REAGAN: The connective home is the frontier that many think is just around the corner and Target (NYSE:TGT) is prototyping ideas to get a piece of the market.

UNIDENTIFIED MALE: When you remove this, it sends you a text message.

REAGAN: Making reordering diapers a snap.

While the group is working on a dozen ideas at any given time, the goal is to bring two to market per year.

For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan.

(END VIDEOTAPE)

HERERA: Finally tonight, did you use all your vacation time? Well, according to a new report, Americans are throwing away more than $50 billion every year because they don’t take days off from work. That’s according to Oxford Economics. Workers on average fail to use nearly five vacation days a year. For businesses, all that unused vacation time could result in employee burnout and lower productivity. I think I used all of mine.

MATHISEN: I used all of mine, routinely.

HERERA: That’s why we’re so productive.

(LAUGHTER)

HERERA: That does it for NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera.

And we want to remind you this is the time of year your public television station seeks your support.

MATHISEN: And I’m Tyler Mathisen, on behalf of your public TV station, thank you for your support and we hope to see you right back here tomorrow night.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, 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) 2015 CNBC, Inc.

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