Transcript: Nightly Business Report — April 1, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Big miss. Job growth in the private sector slows sharply last month. And after of a string of weak data, should investors be concerned?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Close the spigot. As the drought worsens, California’s governor issues unprecedented, statewide water restrictions and the impact on business could be big.

HERERA: Hefty toll. Thousands of bridges are in need of repair, but where’s the money to fix them?

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, April 1st.

MATHISEN: Good evening, everyone, and welcome.

We told you it could happen and today, it did. Business slowed its pace of hiring in March. Today’s weak report from the private payroll processer, ADP, has many on Wall Street and Main Street rethinking their expectations for the big government employment report out on Friday. Businesses added just 189,000 jobs in March, says ADP. That’s the first month of gains below 200,000 in more than a year and it was far short of the 225,000 that economists were looking for.

And it wasn’t just ADP’s report that disappointed today. Manufacturing activity slowed for the fifth month in a row and construction spending slipped as well. And all of that weighed on stocks. The Dow Jones industrial average fell 78 points to 17,698. NASDAQ dropped 20 and the S&P 500 gave up eight points.

Today’s reports add to a string of recent economic misses, but will there be better days ahead?

Our Steve Liesman has the answer.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Investors riding the market bull these days have been forced to hang on for dear life, as the economy and the market take them for a very bumpy ride. Freezing February temperatures in east have slowed economic growth and a strong dollar and weak overseas growth have flattened corporate profits. Add to that, a stock market that seems to buck up by triple digits one day and buck down by triple digits the next.

JIM LACAMP, UBS: Over the last four months, we’ve seen more economic misses than hits. We are moving forward to be sure. And certainly, companies have recovered to a great deal, but the economy is not getting the breakaway speed that many expected this year.

LIESMAN (on camera): The question for investors is whether they should look through the current weakness for smoother days ahead. Last year, riding the bull paid dividends, the economy sank by 2 percent in the first quarter and then came raging back to grow by nearly 5 percent over the next six months. So, is this another case where investors should hang for a rebound?

MARK ZANDI, MOODY’S ANALYTICS: I think the economy is going to reaccelerate. I do think weather played a big role, particularly on GDP in Q1. The port strike had a big effect. And I think the underlying growth in the economy is still 3 percent. That will become evident as the year progresses.

LIESMAN (voice-over): A big test comes Friday with the March jobs report. Wall Street looks for strong gains of 248,000 jobs, but there’s downside risk given the weak economic data and a miss in the ADP jobs report, and the ISM manufacturing survey.

All an investor can do these days is climb on the back of the bull and hold on, tight.

For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.

(END VIDEOTAPE)

HERERA: And now to California which today imposed unprecedented statewide water restrictions. Governor Jerry Brown, head of the country’s biggest state economy, has ordered residents, businesses and farms to sharply cut their water usage.

Jane Wells has more on California’s first ever mandatory water curbs.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The drought in California is about to get real. It has not been this dry in the Golden State since the 1860s when George Hearst, William Randolph’s father, bought this property. I’m at Hearst Castle, and while the hills behind me look green, the grass is low and so is the water table.

And after years of threats, the governor is taking several actions demanding the state water resources slashed use by 25 percent.

Among the orders: the governor wants to replace 50 million square feet of lawns on government property, with drought tolerant plants, create a temporary rebate program for consumers to upgrade their appliances with more efficient ones, require campuses, golf courses and other large facilities to significantly cut water use and ban new homes and developments from using potable water for landscaping unless they use drift irrigation.

Not yet in this order, water rationing. That is not happening statewide for consumers. However, it is happening in specific communities like the ones around Hearst Castle here and while the pool is empty is renovated due to a leak, it’s unclear whether it will be refilled. This castle gets this water from mountain springs, which are currently only producing 5 percent of their normal water.

Back to you.

(END VIDEOTAPE)

MATHISEN: All right. Jane, thank you.

Well, what do these new restrictions mean for businesses? Everything from wine makers in the north, to rancher and produce farmers in the Central Valley, to Disneyland in the south.

Kevin Klowden is managing director of the California Center at the Milken Institute.

Mr. Klowden, welcome. Good to have you with us.

What will these restrictions do for businesses of the sorts we just mentioned? What’s it going to mean for them?

KEVIN KLOWDEN, MILKEN INSTITUTE MANAGING DIRECTOR: Well, in short-term, it means you’re going to see an increase this costs. It means water, which is something that we normally associate as being very cheap, even here in California, is going to have marginal increases in costs and it’s going to be harder to get. And one would expect that the local water providers, because of the mandate to reduce usage, are going to start imposing penalties on anybody who’s previously been very free with their taps.

HERERA: I was very surprised that 41 percent of the water usage goes to irrigation. What is this going to do not necessarily to the bigger farms but to the smaller farmers?

KLOWDEN: Well, the same thing that’s been happening actually for the last three years. California’s seen smaller farms take it in the ear because not only is the cost of marginal water, the water they can’t get from the regular allocations going up, but the number of these farms have actually had to rely on wells. And one of the problems there is that wells are very expensive to drill, especially deeper, and as they drain the water out of the upper level water table, a lot of these smaller farms are just simply running out of water. They can’t water their crops.

MATHISEN: Californians used 181 gallons of water a day by some reports. Do you think they’ll really cut it by 25 percent?

KLOWDEN: Well, they certainly will. The question is how quickly. The fact is that California in a per capita basis is more water efficient than we’ve been at any time going back over three decades. The catch is, is that our population keep up.

So, yes, it will happen. All we need to do is look at the Australian example. They survived a drought of over 12 years and they certainly learned how to conserve — so can we.

HERERA: What are businesses — what are you hearing from businesses out there about the drought? When I was last out in California, you know, some of e smaller businesses that I talked to, they were very worried about this situation. It’s been a four-year drought so far.

KLOWDEN: Well, the real problem is nobody can see the end of it. Even though the currents are supposed to have started to change early this year and the projection is that the drought won’t be as bad next year, it’s not going to be enough for us to get our water reserves and back and water table back.

And that means food is going to continue to cost more, that overall operations are going to cost more. And for a lot of small businesses, especially businesses associated with agriculture, their margins have shrunk considerably. They have reasons to be concerned.

MATHISEN: What’s going to happen to the wine growers?

KLOWDEN: Well, the wine growers are probably the best off, because the wine growers have had the ability to invest in technology for distributing water more advanced irrigation, more advanced means of recycling water. They’ve had the best margins. So, a lot of the wine growers are going to be in decent shape.

The catch is that if there’s not enough water around for all of their crops, it means that you’re going to have a few more years, possibly, down the road where there’s not as many bottles of California wine and they’re going to need the prices to go up.

HERERA: What does it do to California’s economy, overall, bigger picture?

KLOWDEN: Bigger picture, the interesting thing is that California has had one of the best years since the end of the recession over this last year in the middle of the drought, which makes one wonder how much better it would have been without it. Last year, the projection is that California lost over $2 billion in economic output because of the drought. This year, the speculation is that it’s actually going to be worse than that. We could be approaching $3 billion in losses.

MATHISEN: All right. Kevin, we have to leave it there. Thank you very much, very informative.

Kevin Klowden with the Milken Institute.

KLOWDEN: My pleasure.

HERERA: And Jane Wells, who you just heard from in California, will be back later in the broadcast with more on what Hearst Castle is doing with its land.

MATHISEN: Auto sales tapped the brakes in March after months of healthy growth of the big three. Ford sales dropped the most by 3 1/2 percent. General Motors (NYSE:GM) declined about 2 1/2 percent. Fiat Chrysler managed to avoid a sales drop off, posting a gain of 1.7 percent.

Still, the seasonally adjusted annual rate of sales from March came above 17 million and that was above the prior month. Ford and General Motors (NYSE:GM) both down 1 percent in the stock markets today. Fiat Chrysler up about a nickel.

HERERA: Dow component McDonald’s (NYSE:MCD) plans to raise the average pay for some of its workers. The world’s largest fast food chain will increase wages in company-owned restaurants, which make up about 90,000 employees. It does not include workers employed by franchisees, which run almost 90 percent of restaurants. The company says hourly pay will top $10 by the end of 2016.

MATHISEN: In an effort to revive slumping sales, Walmart is reportedly telling its suppliers to cut prices. “The Wall Street Journal” says one of the things that retailers is asking suppliers to do is to scale back on joint marketing with Walmart and put the savings into lower prices instead. Walmart has seen its market share erode over the past few years by other low cost competitors like Costco (NASDAQ:COST) and Kroger (NYSE:KR).

HERERA: Walmart, the country’s largest employer, is also taking a stand against religious freedom bills in its home state. As we reported last night, Arkansas lawmakers passed legislation similar to the one recently passed in Indiana.

Now, Mary Thompson has been reporting on this story for us from Indianapolis. She’s back in the studio now.

And Walmart issued its statement urging the governor in its home state to send that bill back, not to sign it. What was the response?

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Governor Asa Hutchinson didn’t veto the bill, but in a surprise move, he did ask the legislature to recall it, or pass an amendment that would make the state law more like federal law. This is a surprise as Hutchinson didn’t ask for the changes to the bill before it was passed but said he’d sign it anyway it came to his desk. Noting these laws are divisive and reflecting religious, cultural and generational splits in the U.S., Hutchinson even said his own son had asked him to veto it.

Now, Walmart applauded the governor’s decision, tweeting the firm supports religious freedom and did encourage the legislature in Arkansas to create a bill that doesn’t encourage discrimination.

MATHISEN: What changes does Hutchinson want?

THOMPSON: Well, he wants the state law to look more like the federal law. So, this might mean changing language to give businesses the same religious freedoms as individuals and tailoring language giving a business a person wide latitude in claiming something other than a core tentative religious belief is being infringed upon by a state or a local resolution.

Lastly, the Arkansas bill would now allow person to person lawsuits, meaning I could file a suit against you if I felt serving you impinged on my religious freedoms. And that would likely have to be removed itself.

MATHISEN: And vice versa, I could sue if I felt you were denying me service unfairly.

THOMPSON: Right. Usually in these cases, the government is a party to these claims. In the Arkansas law, the government doesn’t need to be party to the claim.

HERERA: So, what role, if any, did business have in prompting these changes?

THOMPSON: Well, clearly, there was an outcry in the company’s home state of Arkansas with Walmart and then a national level, a number of other companies out there denouncing these laws. It certainly caught politicians’ attention during the press conference. Hutchinson actually acknowledged that was one of his concerns. He had been concerned about it beforehand.

So, again, corporate America making his voice known and state responding to those concerns.

HERERA: Mary Thompson, great job.

THOMPSON: Thanks.

HERERA: Thanks so much, Mary Thompson.

MATHISEN: Good to see you, Mary.

Coming up, the startling number of nation’s crumbling bridges and where’s the money coming from to fix them?

(MUSIC)

HERERA: President Obama today authorized financial sanctions against cyber criminals outside the United States and against companies that knowingly benefit from cyber espionage. In a statement, the president called cyber threats one of the country’s most serious economic and national security challenges.

MATHISEN: Chinese stocks jumped to seven year highs after the governor reported surprise jump in manufacturing there. The rebound suggests that efforts to stimulate the world’s second largest economy may be starting to take hold. China today also took another step in freeing up its highly protected banking sector.

And as Eunice Yoon reports from Beijing, it’s a big shift for that country’s economy.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): China is creating its own version of the FDIC. The government has been talking about it for years and we finally have an actual launch date, May 1st. And that’s sending a signal to the markets that the government here is willing to make good on some of its pledges to reform the financial sector.

Now, under the new scheme, Chinese deposits will be guaranteed up to 500,000 yuan or US$81,000. The move makes formal and official to what extent the Chinese government is willing to protect Chinese savers.

The move is also seen as a way for the government to be able to close down troubled financial institutions without creating public panic, especially if the economy continues to slow down and put pressure on the banks.

The program is also seen as an important step towards even deeper financial reform, paving the way for the long awaited end of state-controlled interest rates.

For NIGHTLY BUSINESS REPORT, I’m Eunice Yoon in Beijing.

(END VIDEOTAPE)

HERERA: And while China is working to reform its banking sector, the way Americans bank and transfer money is also changing. And at the biggest electronic payments conference of the year, executives want to make sure they stay ahead of the trend, because as Josh Lipton reports, there’s a lot of money on the line.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Why write a check when you can just send money with the tap of a button? That’s the appeal of peer to peer mobile payment apps — technology that lets users send funds to one another with their smartphones. Users open the app, find friends to send money to and tap a button. Funds are then automatically transferred from a bank account.

This market is expected to more than triple to $17 billion by the end of 2019 according to research firm Forester.

PayPal is the dominant player in the space. Executives there see a lot of opportunity especially overseas.

HILL FERGUSON, PAYPAL SVP GLOBAL CONSUMER BUSINESS: We’re still in the early days of building our network around the world. You know, we launched in Russia last year. We’ve been in Brazil for a few years. We’re in India and China. So, we’re really starting to get more inroads to some really big markets outside the U.S. and growth rates are phenomenal.

LIPTON: PayPal doesn’t break down how much revenue it generates from these peer to peer services but says that it now conducts billions of dollars of transactions per year.

These mobile payment services are described as quick and easy, but there are potential drawbacks. One can be security. That’s why tech companies are investing in biometrics — technology that allows consumers to use their own physical characteristics, their facial features and eye redness, for instance, to complete transactions.

Apple (NASDAQ:AAPL) Pay, for example, works with fingerprint scanning technology and Alibaba’s Jack Ma recently teased a new service which would allow users to pay by scanning their face with a smartphone. Some analysts, though, are skeptical.

JAMES WESTER, IDC GLBOAL PAYMENTS RESEARCH DIRECTOR: It’s taken some time to get comfortable with the idea of having their fingerprints scanned. So, I’m not certain that consumers are going to want to have their eyeballs scanned by their phones just yet.

LIPTON (on camera): Much of this biometric technology is still very much in its infancy, but some analysts do believe it’s the future of payments where passwords and pins become a thing of the past.

For NIGHTLY BUSINESS REPORT, I’m Josh Lipton in San Francisco.

(END VIDEOTAPE)

MATHISEN: We begin “Market Focus” with news that Kraft (NYSE:KFT) and Mondelez have been charged with trading manipulation.

The Commodity Futures Trading Commission is suing both of the food giants with the manipulation and attempted manipulation of cash wheat and wheat futures prices. Shares of Kraft (NYSE:KFT) were little changed after the close. Before the close, the stock was up 4 percent to $90.70. Mondelez’s stock also didn’t react initially, but before the close, it was up slightly to $36.29.

Monsanto’s second quarter earnings down 15 percent, missing estimates, as corn seed sales weakened and a stronger dollar weighed on its results. The seed giant also says its full year results will also take a hit because of the stronger dollar. Shares rose about 4 percent nonetheless to finish at $116.96.

Sears (NASDAQ:SHLD) plans to raise more than $2.5 billion from shareholders by offering rights to buy shares in a real estate investment trust, or REIT. That REIT will hold some of the company’s stores and is the latest attempt by the struggling retailer to shore up its finances. The stock was off a few cents today to $41.33.

HERERA: Simon Property withdrawing its $17 billion buyout offer for rival mall operator Macerich (NYSE:MAC). This after Macerich’s board decided not to hold discussions on that bid. Macerich (NYSE:MAC) was off more than 6.5 percent. Simon Property rose 1 percent.

And GoDaddy made its Wall Street debut today. The web hosting company priced its initial public offering at 20 bucks a share, above the expected price range. That values the company at an estimated $4.5 billion, including debt. Shares closed at $26.15, a gain of 30 percent.

MATHISEN: Well, America’s infrastructure is falling apart, as you probably know. A new report says thousands of bridges are structurally deficient and the biggest challenge may be finding the money to make the necessary repairs.

Hampton Pearson has more.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): There’s good news and bad news about the nation’s most heavily traveled bridges — 61,000 structurally deficient bridges are in need of repair, but that’s 2,000 fewer than at this time last year, according to the latest data from the Department of Transportation.

Not surprisingly, most of the heavy travel is on the interstate highway system with cars, trucks, and school buses, crossing those compromised bridges an estimated 215 million times daily. That’s according to an analysis from the American Road and Transportation Builders Association.

ALISON BLACK, ARTBA SR. VP & CHIEF ECONOMIST: (INAUDIBLE) inspect these bridges every year, every two years depending on the structure. And if there is a safety issue, they’ll usually post the bridge for load where you can’t have a certain amount of weight on the bridge. So, they will take steps and even close bridges if they’re really unsafe to the traveling public, but you don’t want to let it get to that point.

PEARSON: The report comes with federal highway and transit funding set to expire May 31st. Congress has been installed, when it comes to raising gasoline tax or another long-term revenue source to shore up the highway trust fund. That trust fund is the source of more than half the investments made by states to repair bridges and build roads. Right now, at least a dozen states have put projects on hold pending congressional action.

BLACK: People are certainly talking about how to address this issue. But it really comes down to how you fund it, and is there a political will in Congress to look at a gas tax increase? So far, they’ve said everything is on the table, but they really do need to come up with a long-term sustainable funding situation?

PEARSON (on camera): According to federal government data, the lack of infrastructure investment from all levels of government has created a nearly billion dollar back-up in highway and bridge projects.

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

(END VIDEOTAPE)

HERERA: Coming up, 82,000 acres of working ranch land and one man’s decision not to develop it. But he still gets paid millions. That story next.

(MUSIC)

MATHISEN: Here’s what to watch tomorrow. More jobs data out. The initial jobless claims report will be read. A read on manufacturing with the monthly factory orders report and the Fed will hold a two-day conference on economic mobility and the chair, Janet Yellen, will speak.

And that folks is what to watch tomorrow.

HERERA: Millions of Americans are unable to get credit cards, mortgages, and auto loans because they’re labeled too risky by lenders. But FICO has a solution. Fair Isaac, also known as FICO, is expected to announce a new credit scoring approach as soon this week. According to reports, that score will take things into account like your cable bill and your cell phone bill.

MATHISEN: Here’s a change, Sue. More than 70 percent, yes, 70 percent of actively managed open-ended mutual funds beat the total return of the S&P 500 in the first quarter this year. Here’s a look at the best performing U.S. equity funds so far this according to Morningstar (NASDAQ:MORN).

Top spot goes to Jacob Small Cap Growth, which up 15 percent. The Monteagle Informed Investor Growth Fund, as opposed to, and the uninformed growth fund, is up 13 percent. And the Oberweis Small-Cap Growth Opportunities fund is 12 1/2 percent higher for the quarter.

HERERA: Ty, imagine having 82,000 acres of land. Many might cash in and develop it. But one well-known family took another approach — kept the open space open but still got paid millions.

Jane Wells has more from San Simeon, California.

(BEGIN VIDEOTAPE)

WELLS (voice-over): It’s the crown jewel towering over California’s central coast. Hearst Castle built by newspaper mogul William Randolph Hearst, is now a state park, undergoing some renovations. But this spectacular structure is made even more dramatic because it’s surrounded by nothing but open space.

(on camera): How do you feel when you’re out here?

STEVE HEARST, HEARST WESTERN PROPERTIES GENERAL MANAGER: Home.

WELLS (voice-over): Steve Hearst is the great grandson of William Randolph, who runs the 82,000-acre privately owned Hearst ranch surrounding the castle, 128 square miles appraised at nearly a quarter billion dollars.

HEARST: This property is a show piece. It’s kind of a hood ornament on a Mercedes, so to speak.

WELLS (on camera): It’s quite a hood ornament.

HEARST: Yes, it is.

WELLS (voice-over): Originally, there were plans to put homes and golf courses here. That was unpopular. So, 10 years ago, Hearst managed to sell his development rights to the California Rangeland Trust, which paid him $95 million in public and private funds plus tax breaks to give up any plans to develop the land.

NITA VAIL, CA (NASDAQ:CA) RANGELAND TRUST CEO: When you do a conservation use, it’s a fraction of the cost of what it would cost the government to protect it outright, but you have landowner that manages the land, it saves them the tax and you have a private steward. It’s really a win win.

WELLS (on camera): The Hearst ranch is just the most extreme example of Rangeland Trust which exists in eight states. They allow ranchers to pull money out of the property in exchange for never developing it.

Daniel Sinton is fifth generation cattle rancher who’s on the Rangeland Trust Board, but the trust is running low on funds and there’s a waiting list of 100 families willing to sell their development rights to preserve the ranch land.

DANIEL SINTON, CALIFORNIA CATTLE RANCHER: It allows us to pull some money out of the ranch when it’s not, right now, it’s not a great time to be a rancher. It’s financially difficult to do that, and I think a lot of people are struggling with that.

WELLS: Even the Hearst ranch isn’t profitable, though it is now the nation’s leading producer of grass fed beef. Most of it sold at Whole Foods but $95 million paid 10 years ago has kept it looking like it always has and always will.

TY SMITH, HEARST CASTLE CHIEF OF MUSEUM INTERPRETATION: The fact that we look down at old California instead of a developed California really is quite remarkable.

HEARST: What would I give away? I gave away development rights, while valuable, I think it’s more valuable the way it is. So, we got to kind of sell it and keep it.

WELLS: For NIGHTLY BUSINESS REPORT, Jane Wells, San Simeon, California.

(END VIDEOTAPE)

MATHISEN: Boy, is that beautiful?

And finally tonight, those crazy pranksters at some big companies having fun with April Fools’ Day. They always do. Google (NASDAQ:GOOG) Maps is letting users punch in an address and the turn the game into a Pac-Man video. I played today.

Best Buy (NYSE:BBY) sent out a tweet promoting its new untangling service. Amazon (NASDAQ:AMZN) changing its Web site to make it look like it did back in 1999. And Groupon (NASDAQ:GRPN) has offer for a transportation service that lets you order a car driven by cats. A rival to Uber, I suppose.

HERERA: I’ll pass on that one.

All right. That’s NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for watching.

MATHISEN: I’m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody. 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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