Transcript: Nightly Business Report — March 6, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Out of patience? Stocks tumble as hiring surges and pressure ramps up on the Federal Reserve to possibly hike interest rates sooner rather than later.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: A taste for Apple (NASDAQ:AAPL). The world`s most valuable company will join the world`s most prestigious stock market index. What it means for you, the investor.

HERERA: And a bright idea. Meet the men who are finding a high-tech solution to an everyday problem and creating jobs in the process.

All of that and more tonight on NIGHTLY BUSINESS REPORT for Friday, March 6th.

MATHISEN: Good evening, everyone, and welcome.

A surprise addition to the exclusive Dow Jones Industrial Average, Apple (NASDAQ:AAPL) — the world`s largest company — will soon join the blue chip index.

But we begin tonight with the blowout February employment report and how stocks reacted to it — 295,000 jobs were created last month. Many more than expected, making it the 12th straight month in which at least
200,000 new jobs were added. The unemployment rate dipped to 5.5 percent a level not seen in nearly 7 years.

But sometimes, what`s good for Main Street isn`t welcome news on Wall Street. Many say the strong economic data could pressure the Federal Reserve to hike interest rates sooner than thought. That sent stocks tumbling and how.

The Dow Industrials off 275 points to 17,856 and NASDAQ down 55 and the S&P 500 fell almost 30 points. And for the week, all three indexes were lower.

Now, with stocks dropped on today`s job report, Treasury yields jumped with the dollar soaring to a new 11-year high against the euro for good measure.

And Hampton Pearson takes a closer look now at the labor market and what the Fed might do

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESONDENT (voice-over):
In February, the job market got stronger despite bad weather in much of the country, a major slowdown at West Coast ports, and layoffs in the energy sector. The 295,000 workers added to payrolls last month brings job growth over the last 12 months to 3.3 million.

At a town hall speech in South Carolina, President Obama called the job growth historic.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Our businesses have now added more than 200,000 jobs a month for the past year, and we have not seen a streak like that in 37 years, since Jimmy Carter was president.

PEARSON: Job growth was widespread. The leading sectors, hotels and restaurants, adding 60,000 new workers. Professional and business services up by 51,000 and retailers adding another 32,000 new employees. However, wage growth remains stagnant.

At just under $25 an hour, average hourly pay up just 2 percent in the last 12 months. But watchers believe job growth is strong enough for monetary policy makers to start sending signals preparing the markets for an interest rate hike as early as the June meeting.

JIM MCCAUGHAN: I think that the next rate rise by the Fed is probably out for June. I think that the job data confirms what we`ve been seeing from client data which said jobs are increasing and pay is beginning to increase. And I think it`s only a matter of time until pay rises come through the economy, which will be quite stimulative.

PEARSON (on camera): Market watchers won`t have to wait long for that first signal. The next Fed meeting is just two weeks away.

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson in Washington.

(END VIDEOTAPE)

HERERA: John Silvia joins us now to talk more about today`s jobs report. He`s chief economist with Wells Fargo (NYSE:WFC) Securities.

John, good to see you again. Welcome.

JOHN SILVIA, WELLS FARGO SECURITIES CHIEF ECONOMIST: Thank you.

HERERA: Let`s start, first of all, of what you think about this report, and whether or not you think it does up the timetable for the Fed.

SILVIA: Yes, I think there are definitely two parts to this story, Sue. First, yes, the job number was very good. It was broad based except for mining, which causing — incorporates a lot of oil drilling, the number was very strong. The unemployment rate did decline.

So, from the real size of the U.S. economy, it`s a good story. But I think early, you mentioned a change in timing and that`s why I think caught the markets off guard. It really does bring forward a lot of market expectations that the Fed could easily signal in June an increase in the federal funds rate. That would change as timing, I think, really impacted the equity market, as well as long-term interest rates. And that`s the second part of that interesting story.

MATHISEN: You know, John, the stock market reacted today as though stocks can`t go up if interest rates do. What does history tell us about stock market performance when rates rise?

SILVIA: Yes, that`s an interesting line, Tyler, because in fact, historically, the stock market has improved as interest rates have risen as long as the perception is the economy is pretty strong. It may be in this case the market over the last year or two has run up a little bit ahead of those interest rate increases and especially now when we think about the Federal Reserve surprising the market relative to expectations. They may raise in June, where as you know, many people were saying, no interest rate increase at all in 2005 — 2015.

HERERA: You know, John, one of the worrisome factors, though, is the participation rate, which is still stubbornly low, and the lack of wage growth as well. Does that worry you?

SILVIA: Oh, it has to, Sue, because basically it`s saying, well — as you know and probably have talked about significantly, is that there is this part of the economy that is catching on, moving ahead, growing, wages and salaries are improving. But there`s another part of the U.S. economy that either doesn`t have the skills, located in the wrong spot, perhaps still suffering from a little bit from the housing that isn`t catching on.
And that sort of income disparity continues to grow in the U.S. economy and does present social as well as political problems.

MATHISEN: John, there has been, as you Sue points out, and you referenced there a lot of labor force participation, but I wonder how much of that rise in the number of people dropping out of the workforce isn`t merely because they`re discouraged but because demographically, they`re ready to work out of the workforce.

SILVIA: Yes, Tyler. There`s a little bit of a challenge here in terms of analytically figuring out how much is the demographics. And we think, right now, it`s about one-third of the demographic. Two-thirds is just a lack of skills and there`s a little part of that that discouraged workers as well, Tyler.

HERERA: All right. John, we`ll leave it there. Thank you so much for joining us — John Silvia with Wells Fargo (NYSE:WFC) Securities.

SILVIA: Thank you, Sue.

HERERA: Ty?

MATHISEN: Well, now to Apple (NASDAQ:AAPL) — the world`s most valuable company, will join the 119-year-old blue chip Dow industrial index.

On March 19th, the iPad and phone maker, will replace AT&T (NYSE:T), which first entered the industrial average way back almost a century ago, 1916. Shares of Apple (NASDAQ:AAPL) rose a bit while AT&T (NYSE:T) stock fell.

Dominic Chu explains now what the shake-up may mean if anything for investors like you.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
After years of waiting, investors will now get to see Apple (NASDAQ:AAPL) as part of the Dow Jones Industrial.

The reason for the index change is pretty simple reason.

DAVID BLITZER: Traditionally, the Dow is big, major, large blue chip corporation, leaders in the industry sector and that kind of thing, and Apple (NASDAQ:AAPL) clearly fits that mold. It is the largest corporation in the U.S., in fact, in the world. It`s without question a leader in technology, clearly fits what everybody`s expectation is of a big, blue chip company.

CHU: But if Apple (NASDAQ:AAPL) goes in, another stock has to get kicked out and this time, it`s telecom giant AT&T (NYSE:T). That decision was a little tougher to come by.

BLITZER: Telecom is a bit overweight and there are two telecom companies. And we felt we could with just one, the other one being Verizon (NYSE:VZ). And when we look at the two of them, AT&T (NYSE:T) is slightly smaller and has a lower stock price, and that`s two items argue that AT&T
(NYSE:T) should be the one that was selected. But it was a decision we looked at for some time.

CHU: This move doesn`t fundamentally change how either company operates, or how it will operate in the future. But some investors note there can be a silver lining for getting kicked out of the Dow and others point that Dow inclusion isn`t all it`s cracked up to be.

BURNS MCKINNEY: Historically, companies that have been put into the Dow versus those taken out, it`s been a pretty reliable contrarian indicator going back through time. The Dow has tended to add the leaders, those that have been doing very well (AUDIO GAP) reversion of the mean.
Typically, those names that have been removed have done a lot better than those that have been added.

CHU: As for what it means for the Dow, Apple (NASDAQ:AAPL) has become the most valuable company in the world thanks to a huge gain in its shares.
If that trajectory continues, that can help drive the Dow higher.

(on camera): So, what does Apple`s inclusion mean for Apple
(NASDAQ:AAPL) stocks? Actually, not a whole lot. Unlike when stocks get added to the S&P 500, there aren`t a lot of mutual or exchange created fund managers that benchmark the Dow — meaning there won`t flood of funds to immediately have to go out and buy Apple (NASDAQ:AAPL) stock.

(voice-over): However, if Apple`s massive size means the highest growth days are behind it, then it might not affect the index at all.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

MATHISEN: Well, you might be surprised to learn the Dow will actually be less tech heavy once Apple (NASDAQ:AAPL) is added on March 19th. That`s because another tech company and Visa (NYSE:V) according to the Dow is a tech company, it`s a payments company, is splitting its stock 4-1. That cuts the price, it gets quartered.

And because the Dow is a so-called price weighted index, that means Visa (NYSE:V) and tech will have less influence in and on the Dow index.

HERERA: Our market monitor tonight is recommending Apple
(NASDAQ:AAPL) to his clients, along with some other names that you may recognize. He is Mark Luschini. He is the chief investment strategist over at Janney Montgomery Scott.

Mark, welcome. Nice to have you here.

MARK LUSCHINI, JANNEY MONTGOMERY SCOTT: Thanks, Sue.

HERERA: So, what do you think about Apple (NASDAQ:AAPL) going into the Dow? And what effect it might or might not have?

LUSCHINI: Well, we saw today, it reacted actually, pretty well in light of a market that was down 1 1/2 percent. So, it`s getting some short-term boost from that. There is, Dom said, a few ETFs that are proxy to the Dow Jones Industrial Average that are going to have to buy the stocks now that`s being entered into the Dow. And so, as a consequence that will help short term.

I think longer term, though, I wouldn`t buy it or not buy it. It`s being part of the Dow Jones Industrial Average. At the end of the day, I want to own for the stock`s own merit, the company`s own merit. For that reason, we do own it.

We think that they are doing a lot of good things in terms of the product cycle they`re in a midst of, and what they expect to be launching here shortly, read the iWatch that is, and possibly other products, including a car out toward the end of the decade.

So, you know, a cash flow rich company, paying a decent dividend that will likely increase. There`s a lot of other good reasons why we think we want you to own Apple (NASDAQ:AAPL) stock as opposed to it just being a member of the Dow Jones Industrial Average.

MATHISEN: You`re not concerned. Apple (NASDAQ:AAPL) can be a slightly lumpy company in terms of its earnings and, boy, there`d been some very lovely lumps lately. But the boost that it got from the iPhone 6 is relatively going to fade over time.

LUSCHINI: Well, I don`t disagree with you, Tyler. I mean, obviously, they did get a big boost from the six. They`re going to be coming out the way it`s likely in the second half of this year, a larger iPad to try to reflate activity surrounding sales of the iPad, which is recently started to decelerate. And, of course, the watch is going to have a splash. It`s obviously still open-ended as to how successful that product is going to be in.

But at the end of the day, the merits of the company in terms of evaluation of just 15 times, the fact that it generates about $15 billion of free cash flow in a quarterly basis, has about $150 billion of cash on its books — all together says that you can afford a little lumpiness in our earnings. It`s a good quality company that still has growth ahead of it.

HERERA: You also like McDonald`s, and I assume that you think that the new CEO is going to right the ship.

LUSCHINI: We do, Sue. I mean, that therein lies we think the opportunity in the stock, the chance to maybe remake the menu, make a little bit cleaner and as well attract the audience, mainly the millennials who drifted away from McDonald`s (NYSE:MCD) because they perceive it to be not highest quality food product relative to other options like Chipotle and so on.

And so, as a consequence, we think there`s a chance for a new CEO to step in and makes some immediate progress and in the meantime, for investors, today with where it closed, it yields 3.5 percent, which is a very attractive coupon in this interest rate environment.

MATHISEN: Give us 30 seconds on your third choice, Citigroup (NYSE:C).

LUSCHINI: Well, Citi, of course, is a much maligned institution, failed the last go around, the stress test. This time, it passed. Next Wednesday, we`ll know whether it can actually begin to reallocate some of its abundance of capital back to shareholders uniform of buybacks or raising its dividends, which is just a token amount at this juncture. It`s one of the most cheaply valued money center base in the market today. We think it`s attractive and a great value can be unlock in the share price.

HERERA: All right. Mark, thank you so much for joining us. Have a great weekend.

LUSCHINI: Thank you, Sue.

HERERA: Mark Luschini, with Janney Montgomery Scott.

MATHISEN: And still ahead, the rise of the machine as jobs become more and more automated and more manufacturers use robots, what happens to workers? We`ll give you the surprising answer after this.

(MUSIC)

HERERA: Consumers increased their borrowing in January, at the slowest pace in more than a year. The Federal Reserve reports the borrowing expanded by nearly $12 billion in January, following an $18 billion gain in December as Americans cut back on their credit card use.

MATHISEN: Well, Sue, Staples (NASDAQ:SPLS) shares fell after the retailer reported mixed fourth quarter results. That is where we begin tonight`s “Market Focus”.

The office supply chain beat earnings estimates by a penny, but missed on revenue. Sales were hurt by a stronger dollar and decreasing demand for computers and computer peripherals. The company also saying sales for the current quarter are going to fail to match those from the same quarter last year. Shares were off almost 3 percent on this down day. They finished at $16.05.

Investors cheered Foot Locker`s results. The athletic apparel retailer easily beat on the top and bottom lines and its same store sales surged 10 percent. That`s all thanks to strong holiday numbers, by the way. The stock was 4 percent higher. It closed at $59.37.

HERERA: Big Lots (NYSE:BIG) also beating earnings and revenue estimates. Higher traffic helped bolster those results. Its guidance, however, came in below Wall Street`s forecasts for the current quarter and for the full year. The stock was 1.5 percent higher nonetheless to $48.52.

And the gym operator Life Time Fitness (NYSE:LTM) is in advanced talks with private-equity bidders. That`s according to “The Wall Street Journal”. The bidding, which is expected to close next week, is down to basically two firms. The shares surged, up 15 percent to $66.32.

MATHISEN: Well, some might call it the invasion of the job snatchers and others will say it`s just inevitable, as robots get cheaper and more sophisticated, more and more companies will employ robots over humans on the factory floor. It`s a trend that will cost some jobs but it will add many others.

Mary Thompson has our latest installment of where the jobs are.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): A pioneer in robotics, iRobot (NASDAQ:IRBT) says the industry is catching fire.

RUSS CAMPANELLO, IROBOT EXECUTIVE VP: It`s a very hard market.

THOMPSON: So too is iRobot`s neighborhood, Bedford, Massachusetts.
Eight years ago, you couldn`t find another robotics company for 150 miles.

Today, executive Russ Campanello says it`s a different story.

CAMPANELLO: From here, this location, you can probably touch about a hundred companies that are doing some form of robotics.

THOMPSON: The change reflecting a trend seen by Boston Consulting Group. It estimates robotic spending will hit $75 billion by 2025, up from estimated $27 billion this year. Company spending more as robots become easier to program and easier to afford.

Ten years ago, they cost $250,000, and now, some go for as little as $25,000. It`s an expense Boston Consulting Hal Sirkin says can lead to big savings for manufacturers who buy into the next 10 years of the robot revolution.

HAL SIRKIN, BOSTON CONSULTING GROUP: We`re thinking about something like a 16 percent drop in the labor cost for manufacturing plants over this time period.

THOMPSON: The industry`s driving adoption, computers, autos, electrical and machinery.

CAMPANELLO: Last year, we hired almost 100 people into iRobot (NASDAQ:IRBT). This year, we have plans to do about the same.

THOMPSON (on camera): How this impacts the labor market? Well, that remains the question. It`s expected that some manufacturers may bring work back from overseas if they find mixing robots and humans lowers cost enough. And then, of course, the industry is hiring too.

(voice-over): It seems strong demand for its products like PackBot, that`s used by security and defense firms, the Ava robot for teleconferencing.

UNIDENTIFIED FEMALE: Hey, Charlene. How are you?

THOMPSON: And the Roomba Vacuum.

Engineer George Tall is working on 3D mapping, which he says might be used in future household robots.

GEORGE TALL, IROBOT ENGINEER: 3D maps would allow the robot to scan your house. If you tell it to go find your keys, it could search through that map, find your keys, go and grab the keys and give them to you.

THOMPSON: Like George Tall, iRobot (NASDAQ:IRBT) intern Eric Peterson became interested in robotics, playing with Lego as a kid. Now a high school senior, he sees a future in defense.

ERIC PETERSON, IROBOT INTERN: I can see where robotics can come into play in the military.

THOMPSON: All this as robots start playing a bigger role in the global workforce.

From Bedford, Massachusetts, I`m Mary Thompson for NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

HERERA: And coming up, keeping office space clean. It`s a real world problem two men believe the digital world can solve, and they`re turning their bright idea into a fast-growing business.

(MUSIC)

HERERA: Intuit (NASDAQ:INTU) out with news it has been contacted by Congress, the Federal Trade Commission, and the Department of Justice, about its fraud issues. About a month ago, the TurboTax maker abruptly suspended the online filing of state tax returns for a day because of a surge in fraudulent claims for refunds.

MATHISEN: A lot of small businesses are looking to solve real world problems using modern technology. Most though don`t have the time or the staff needed to do the basics like keeping the office clean, restocking supplies or finding a plumber.

That`s why two New York City entrepreneurs got the bright idea to find iPads equipped with a system they built to help take care of the physical space.

(BEGIN VIDEOTAPE)

MATHISEN (voice-over): In just four months, Jose Lara has been promoted from operator to supervisor @managedbyq, a startup aiming to take care of the office space using a web-based iPad app.

Q, remember the character that supplied James Bond`s high-tech toys?
In the office, Q brings a techie solution to cleaning, restocking supplies or finding a handyman, and Jose Lara is hoping Q can be a career builder, not just a job.

In its opening last April, Q has hired 175 employees. Wages start at
$12.50 an hour and Q is taking cues from the likes of Starbucks
(NASDAQ:SBUX) and Traders Joe`s, providing benefits.

JOSE LARA, MANAGED BY Q SUPERVISOR: A lot of the jobs that they had, it wasn`t providing none of that. When it comes to Q, they`re getting paid at a higher rate than they would normally, and now, they`re getting benefits on top of that.

MATHISEN: Cofounder Saman Rahmanian and Dan Teran quickly realized hiring their own employees rather than contracting out makes it easier to train them, easier to offer them incentives and easier for clients to communicate with them.

At their homes in Brooklyn, both had issues with all of the above.

SAMAN RAHMANIAN, CO-FOUNDER, MANAGED BY Q: The service was terrible.
I had no experience in maintenance, but as a board member of my building, I knew what type of experience and service I would want.

DAN TERAN, MANAGED BY Q COFOUNDER: We are having the exact same pinpoint. The space needs to be run and the way it`s done and unique in every case, and often like pretty broken and fragmented.

MATHISEN: Developing the site was the easy part. Rahmanian has been doing that since he was a preteen in the early 1990s. He met Teran while both worked at a New York business incubator pre-hype. They pitched the idea to about 20 residential buildings, but found no buyers until another pre-hype business signed on.

WHITNEY DONALDSON, BARK & CO.: The schedule was here and different people from the handyman to the cleaner, like all the different players you need to help keep an office running smoothly.

MATHISEN: Whitney Donaldson (NYSE:DCI) was managing the office, among other things at Bark & Company, one of thee many thousands of small businesses in New York City which tend to be tech-friendly and understaffed.

RAHMANIAN: Companies want to focus on running their business.

TERAN: Nobody gets into business to run an office.

MATHISEN: Getting face time with Q is probably easier for its 200 clients than it was for James Bond.

UNIDENTIFIED MALE: Starting today, every one of you guys can download the app.

MATHISEN: There`s also a brand new phone app Q operators used it to check schedules and find directions to their next job.

Q won`t win on price at $25 an hour. They`re on par with other New York services. Instead, Q is about setting a new standard for its employees and for its customers.

RAHMANIAN: We have actually added a technology layer that makes the relationship to the cleaner more personal. They can provide feedback and say this was great or this was not so great.

TERAN: It`s transparency and its communication, and when it doesn`t exist, it becomes increasingly painful, where like a generation ago, people would just assume that`s the way it is. You know, it`s not just the way it is.

(END VIDEOTAPE)

MATHISEN: Apps are changing everything.

At the moment, Q is a fast grower. The client list has doubled to 200 in the past four months, and they expect to begin offering the service in major markets beyond New York City later this year.

HERERA: Good for them.

MATHISEN: Cool, right?

HERERA: Great to end on a good story like that.

MATHISEN: An Uber for cleaning.

HERERA: And that`s exactly what it is. It`s Uber for cleaning. We could use that around here.

All right. That`s it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera, and we want to remind you that 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, thanks for your support. We`ll see you on Monday.

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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