Transcript: Nightly Business Report — June 2, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Fast lane. Auto sales remain on track for the best year in almost a decade, making this one part of the economy that seems toe firing on all cylinders.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Security failures. Despite billions being spent on our nation’s airports, a new report shows it’s way too easy to get past security.

HERERA: Raise the retirement age? Is that the best way to save Social Security?

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, June 2nd.

MATHISEN: Good evening, everyone, and welcome.

Auto sales are hot and that says a lot about a lukewarm economy. The industry is on track now for its second best year ever for car and light truck sales as attractive financing and promotions draw consumers into showrooms. Several top carmakers including Fiat, Chrysler, General Motors (NYSE:GM) and Ford reported better than expected results.

Shares of the Big Three were mixed in today’s session. GM rose a fraction, Fiat and Ford down just a bit.

Phil LeBeau takes us for a ride.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The American car buyer was out in force last month, with auto sales for the month of May coming in at their strongest pace since late 2005, early 2006. Almost every automaker reported better than expected sales, with the big four reporting sales that were 2 percent to 4 percent better than Wall Street estimates and in particular the Big Three had a big May.

Pickup trucks and SUV sales, very strong. On the pickup side of the business, not only there were higher transactions and modest incentives meaning dealers didn’t have to spend as much to close a deal.

The strong pace of sales in the month of May sets up the question of what we’ll see for the rest of this year. Inventories are lean because there is so much demand in the market right now. Will it continue? In the words of one person in the auto business, we’re not seeing any slow down any time soon.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: In contrast to auto sales, new orders for manufactured goods fell in April, the eighth decline in nine months. The Commerce Department reports that factory orders dropped 0.4 percent, a sign that a stronger dollar is still hurting manufacturing. And cheaper oil has also cut demand from energy firms for pipelines and equipment.

MATHISEN: Federal Reserve officials today said weak reserve economic reports raise doubts about the economy and whether it will snap back fast after the weak first quarter. In a speech to Central Bank Governor Lael Brainard said the data s far do not suggest a significant rebound.

(BEGIN VIDEO CLIP)

LAEL BRAINARD, CENTRAL BANK GOVERNOR: There may be reasons not to dismiss the recent soft readings entirely. First, the limited data in the second quarter do not suggest a significant bounce back yet. And second, it wouldn’t be the first time. The underlying momentum of our recovery has proven susceptible to headwinds, which has kept economic growth well below the average of previous upturns.

(END VIDEO CLIP)

MATHISEN: The headwinds she listed included a strong dollar and cheaper oil. Despite her downbeat view of the economy, she did say a rate hike this year is still possible. On Wall Street, those strong auto sales were not enough to send the major indices to the plus side. By the close, the Dow Jones Industrial Average lost 28 pounds to 18,011, the NASDAQ dropped six and the S&P 500 declined by two points.

Throughout the day, many investors had been paying very close attention to the situation in Greece. And signs that the standoff between that country and its creditors may been easing.

Michelle Caruso-Cabrera has more.

(BEGIN VIDEOTAPE)

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: A fairly significant development in the last 24 hours in the Greek debt negotiation, a real attitude shift when it comes to the European creditors.

There was a late night meeting hosted by the leader of Germany, Angela Merkel, but also had the president of France, the leader of IMF, the head of the ECB, and also the head of the European Commission. They came together because they are so dissatisfied with the fact that Greece has not brought forward their own reform program, or at least not one that they’re satisfied with.

Up until now, they’ve really wanted Greece to do that, because they didn’t want to look like they were imposing a program on the Greek people and they wanted the Greek government and the Greek people to own their own reform program.

Thus far, though, with no progress in the talks, they have decided the creditors have, that they’re going to put together some kind of suggested reform program. That was the first goal of this meeting.

The second goal of the meeting was into resolve the differences among the creditors themselves. The IMF had wanted to be tougher on the Greeks, whereas the European Commission had wanted to be easier on the Greeks.

For them to craft a suggested program they were going to reconcile those differences, and that was part of last night’s meeting as well. The next step is to present this suggested program to the Greek Prime Minister Alexis Tsipras. They are trying hard not to make this look like an ultimatum, a take it or leave it. But ultimately, it may look like just that.

The next step is the formal presentation of this program and then after that, we wait to see the Greek’s response. What is the prime minister going to do? Is he going to hold some kind of a vote within his own party? Is he going to hold the vote within the parliament? Will he call for an entire referendum?

We don’t know what happens from here, but certainly, we are starting to get down to crunch time.

The key issues are the fact that the Greeks owe the European Central Bank a lot of money in July and August, $3.5 billion and $3 billion respectively each month. As a result, these are big payments and if they don’t get a disbursement before that, it’s going to be real trouble, possibly a real default. That’s why it’s getting down to crunch time.

Right now, we wait to hear from the Greeks.

For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera.

(END VIDEOTAPE)

MATHISEN: The retirement age was thrust to the spotlight once again this weekend when Florida governor, former Florida Governor Jeb Bush said on CBS’s “Face the Nation” this weekend that the threshold should be pushed back.

(BEGIN VIDEO CLIP)

JEB BUSH (R), FORMER FLORIDA GOVERNOR: We need to look over the horizon and begin to phase in over an extended period of time going from 65 to 68 or 70, and that by itself will help sustain the retirement system for anybody under the age of 40.

(END VIDEO CLIP)

MATHISEN: Ross Eisenbrey, vice president of the Economic Policy Institute, joins us now for more on this.

Mr. Eisenbrey, thank you very much for being with us.

What do you think here? Is raising the retirement age is what we need to do to help the system stay solvent longer?

ROSS EISENBREY, ECONOMIC POLICY INSTITUTE: You know, raising the retirement age will make the system solvent a little longer but it is not the biggest problem. The fact that people are living longer accounts for about 20 percent of the long-term shortfall in Social Security.

The much bigger problems are that we have uneven wage growth — most of it going to the very top of the income scale. And the fact that hitch people don’t pay the same tax rate that everyone else pays so that if you earn up to $118,500 you pay Social Security tax on every penny that you earn, but everything one earns over that is not taxed. So, a millionaire or someone let’s say making $10 million a year is only taxed on $118,500 and isn’t taxed on the rest of the earning.

HERERA: So, is that — it sounds like you say that is the solution, is to tax those who make more money.

EISENBREY: That would be a much bigger solution. If you scrap that cap, that giant loophole that lets the rich pay a lower tax rate, that would be three — that would cure 75 percent of the long-term shortfall in Social Security. Whereas it is only about 20 percent to 25 percent by raising the retirement age to 70.

MATHISEN: So, $118,000 a year is the current cap. Would you argue that you need to tax all earnings, no matter how high they go or only earnings up to an elevated level above $118,000?

EISENBREY: I’m in favor of scrapping the cap. We tax for Medicare purposes, the FICA taxes on all income, there is no limit on how much. And I think the same should be the rule for Social Security.

HERERA: What is the political appetite though in Washington for that type of a solution, especially given the fact that we’re in a campaign season? It doesn’t seem like there is that kind of appetite to discuss tax increases like that.

EISENBREY: Well, you know, if you ask the America people, would you rather have your benefits cut by 20 percent, which is what raising the retirement age to 70 would do or would you rather have rich people pay the same tax rate that you pay, not surprisingly they are overwhelmingly in favor of that.

And I think that there is a growing appetite among politicians in Washington to actually not cut Social Security benefits, but raise them since the average benefit is only $16,000 a year right now. It is not really very much, it is not enough to live on and half of Americans depend on social security for most of their retirement.

MATHISEN: And one fact that I’m always reminded of, when Social Security began, full retirement benefits kicked in at age 65, a time when the average American male’s life expectancy was something like 64.

Ross Eisenbrey, thank you very much. Ross is with the Economic Policy Institute.

EISENBREY: Thanks for having me.

HERERA: Still ahead. Corporate perks, the life changing benefit one CEO is offering his employees.

(MUSIC)

MATHISEN: A surprise resignation today from FIFA president Sepp Blatter was followed by a report from “The New York Times (NYSE:NYT)” that he is also the focus now of a federal investigation. His resignation came just days after he was re-elected to a fifth term as the head of soccer’s governing body and amid allegations of corruption and the arrest of senior members of Blatter’s inner circle. Blatter, though, has not been charged with any crimes so far.

HERERA: In Washington, the Senate passed a bill that reforms the government’s domestic spy program. The bill would end the agency’s bulk collection of American telephone data exposed by Edward Snowden. The legislation now goes to the president to be signed into law. And on Twitter, he said that he plans to sign it as soon as he gets it.

MATHISEN: Also in the nation’s capitol, lawmakers press regulators and Takata executives about the firm’s massive recall and their comments show the problem keeps getting worse. Many cars that were already repaired may have to have a second airbag replacement — more than 30 million cars are involved in this massive recall.

HERERA: The acting director of the Transportation Security Administration has been reassigned. The decision comes after an internal investigation revealed major security failures at some of the nation’s busiest airports.

Fake bombs and other weapons went through checkpoints despite billions being spent on airport security.

Eamon Javers has more.

(BEGIN VIDEOTAPE)

SEN. CHARLES SCHUMER (D), NEW YORK: This is alarming — nothing short alarming.

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Lawmakers on Capitol Hill today were stunned in the wake of series of failure by airport security to detective fake weapons and explosives sent through checkpoint by investigators. The revelation sparked an immediate shake-up at the top of the TSA Tuesday, as Homeland Security Secretary Jeh Johnson announced the reassignment of acting TSA administrator Melvin Carraway in the fallout from the failed test.

According to a government source, red teams operated by the inspector general of the Department of Homeland Security were able to get potentially dangerous items through checkpoints in 67 of the 70 tests they conducted across the country. A 95 percent failure rate.

Now, experts are saying the revelations call into question the massive post-9/11 airport security spending boom.

BRUCE SCHNEIDER: Americans should question whether their money is being spent. It is $8 billion a year and in 95 percent failure rate, why are we doing this? It seems like the most expensive theater operation ever put on by anybody.

JAVERS: To some on Capitol Hill, the answer is to partially privatize the TSA.

REP. JOHN MICA (R), FLORIDA: Government has an important security role. It is an important role in connecting the dots. Whether it doesn’t do well is manage 46,000 screeners and equipment which they have lost track of even the count of it, and then can’t even monitor its effectiveness and use it properly.

JAVERS (on camera): The Department of Homeland Security has said it has instructed the TSA to revise its procedures to conduct training for all of its officers and to test and retest its screening equipment.

Meanwhile, President Obama has nominated a permanent administrator for the TSA, but that is still pending up on Capitol Hill.

For NIGHTLY BUSINESS REPORT, I’m Eamon Javers in Washington.

(END VIDEOTAPE)

MATHISEN: The IRS pledges to make its tax filing system more secure, testifying before the Senate Finance Committee, the agency’s commissioner says the IRS will team up with tax software companies to help block identity thieves following the breach of income tax data.

(BEGIN VIDEO CLIP)

JOHN KOSKINEN, IRS COMMISSIONER: The battle is becoming increasingly more difficult, not just for us, but for every one in the private sector. In many ways, this event is a shot across the bow to remind people the nature of the battle we’re fighting and the sophistication of the enemy.

(END VIDEO CLIP)

MATHISEN: More details on the agreement between the IRS and tax prep software companies are expected soon.

HERERA: Meantime, tax preparation H&R Block (NYSE:HRB) is trying a new high-tech way to help you prepare your taxes.

Jane Wells has more from Los Angeles.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: I like the 55 percent complete.

I’m having my taxes done by John.

JOHN: Thank you so much for coming in today.

WELLS: Thanks, John. H&R Block (NYSE:HRB) wants to revamp the customer experience and rather than spending money doing it in reality.

Oh, she mad a joke.

It’s testing it in virtual reality.

What did you think of it?

UNIDENTIFIED FEMALE: Cool.

WELLS: Block is the latest company trying to figure out if virtual reality or V.R. can be used as a business tool. Fidelity, for example, has a tool that lets you turn your stock news a city.

UNIDENTIFIED FEMALE: The height of the building represents the price.

WELLS: It is easier to experiment with V.R. as the cost came down. Lieberman Research Worldwide is running the H&R Block (NYSE:HRB). It used to spend 40 grand per headset. And now it buys them from oculus for 300 bucks.

JASON BROOKS: Next year, you’re going to see entire arms race happening with headsets. Already, there is probably six to ten different headset manufacturers that have already announced projects.

WELLS: Block is exploring a new office layout with more privacy, and a big screen so customers can follow the tax process.

LAURA SCOBIE: In virtual reality, it lets you bring together all those moving pieces and the parts and do it in a way it does feel realistic. It’s so real to them, they’ll start talking about the avatars. John was foaming at the mouth. Besides, no, it was just really comfortable.

WELLS: And even if the graphics like kind of hokie, this customer Chery Zell Bower (ph) bought into it.

UNIDENTIFIED FEMALE: I felt it was interactive even though I didn’t talk back. It felt kind of real.

WELLS: To be clear, the V.R. was only used for research and an avatar will not do your taxes. It’s just a new way for companies like Block to test concepts in virtual reality before moving them to reality.

JOHN: It was great to meet you and please don’t hesitate to call me.

WELLS: OK, John looks weird. I’m sorry.

For NIGHTLY BUSINESS, Jane Wells, Los Angeles.

(END VIDEOTAPE)

MATHISEN: John looks weird?

Dollar General (NYSE:DG) pops on a profit beat, and that is where we begin tonight’s “Market Focus”.

Sales of tobacco, candy and health products helped the retailer top earnings expectations. Same-store sales were also strong, but revenue was slightly below expectations. Still, shares were up 3 percent to $74.98.

Medtronic’s results beat on both the top and bottom lines. This was the first quarter to include revenue from the acquisition of the surgical products maker Covidien. The company’s full-year profit outlook was below estimates, citing impact from the strong dollar. Despite that, shares were fractionally higher to $76.88.

Some new guidance from Delta weighed on its shares today. The airline lowered its forecast for unit revenue, which is a key measure of its performance, on a decrease in business travel. Shares fell 2 1/2 percent to $43.21.

Several hedge funds have asked Macy’s (NYSE:M) to consider selling or leasing out some of its major real estate, according to reports. The push is in line with real estate decisions by other major retailers. Shares popped when the news came out and finished the day up 2 1/2 percent to $68.49.

MATHISEN: Billionaires are taking part more and more in Warren Buffett’s giving pledge to give away half of their fortunes to philanthropic causes. Ten more people have joined the effort, which was also jumpstarted by Bill and Melinda Gates. Among them, the founders of Groupon (NASDAQ:GRPN) and Chobani, the yogurt company. There are now 137 pledgers on the list.

HERERA: And giving back isn’t only for the super rich. One CEO of a smaller firm is giving back in his own way.

Chieh Huang is head of a tech company called Boxed. It’s a kind of a mix of Costco (NASDAQ:COST) meeting Amazon (NASDAQ:AMZN), allowing users to buy in bulk online and although right now, he only has 100 employees, he recently announced planned to pay for workers’ children’s college education because he believes education is the key to closing the wage gap.

We’re pleased to have Chieh in studio with us.

Welcome. Nice to have you here.

CHIEH HUANG, BOXED: Thank you very much for having me. And I’m really glad that we clarified I’m not a billionaire. You know, the program would have been easier to allow.

MATHISEN: You’re a pre-billionaire.

HERERA: Right. You’re a budding billionaire.

So, you’ve decided that workers that have children that are eligible for this program, you will pay for their tuition to college.

HUANG: That’s right.

HERERA: How did you come to that decision?

HUANG: It was a combination of two factors. One, me being kind of growing up in very humble beginnings and a humble background, knowing that the reason why I’m here today is because of education. And education is the real kind of trajectory changer for most families in this country.

And so, me thinking that okay, we have that. And two, me being blessed with the scale that I can’t do myself. And for me to get the most of myself, I actually need a great group of folks around me.

MATHISEN: And so three related but unrelated questions. One, how are you going to pay for it? Two, what are the strings, how long do I have to work for or stay with the company? And three are there any caps on the amount you will pay?

HUANG: Sure. So, no caps at all. So whether you want to go to community college or whether you want to go to, I guess what is the most expensive one now, George Washington or I don’t know where it is. But it’s really up to you. I don’t want to hinder your education, that’s the complete opposite of what I want to do.

MATHISEN: So, no cap?

HUANG: No cap. Going back to the first question, it is my personal money, so it is not affiliated with the company right now. So I set aside a large portion of my personal shares in the company and a large portion of my personal cash in order to pay —

MATHISEN: Into a foundation or a trust —

HUANG: Exactly. And the cash right now is for the short-term obligations. One of the folks in the warehouse today, he has a son going to college in just three short months, and they’re not going to take Boxed shares as payments.

MATHISEN: To college (INAUDIBLE) —

HUANG: Yes, I asked them and they wouldn’t.

HERERA: Well, maybe some will eventually. This is not your first —

MATHISEN: And how long do you have to work for the company?

HUANG: The trigger will really be when there is a great outcome for the company. Whether at the New York Stock Exchange or the NASDAQ ringing the bell, or I wouldn’t prefer it, but if we were acquired as a company, those shares would become liquid and that would be the pool distributed.

HERERA: Distributed to all this.

And you say that basically the shares are in play, however this is not your first entrepreneurial adventure. One of the ways you helped found Boxed was you had another company that you sold. So, that was kind of your seed money, correct?

HUANG: Absolutely, absolutely.

HERERA: So that is helping in this effort?

HUANG: So, 100 percent. And I haven’t taken salary in my current role for the past two years. So, the cash that I put toward the foundation was the cash that I got from the last company that we started.

HERERA: Very noble effort. Chieh, thank you so much for spending time.

HUANG: Thanks for having me here.

HERERA: All right. Chieh Huang of Boxed.

MATHISEN: And coming up, will the big bet Disney (NYSE:DIS) is making on a whole new type of toy pay off? We’ll see.

(MUSIC)

HERERA: Finally tonight, Disney (NYSE:DIS) making a big bet on a new toy designed to get kids off the couch. The company has invested millions of bucks in developing the game and it is hoping for an even bigger payoff.

Julia Boorstin has more.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Disney (NYSE:DIS) unveiling a new toy system called Playmation, designed to change the way kids play to inspire them to unplug from screens and run around as they imagine their Avengers characters.

TOM STAGGS, WALT DISNEY: It’s physical play for a digital animation. Playmation will bring kids favorite stories to life in the real world.

BOORSTIN: It is a five piece package of kids toys build on Marvels Avengers and made by Hasbro (NYSE:HAS). The centerpiece, an Ironman gloves. It works with two action figurers and two plastic disks that light up and talk to kids in the voice of Ironman’s assistant Jarvis, delivering instructions for a mission.

Kids can shot at and be hit by the action figures which makes the glove vibrate. While the toys can sync with an app, for more information on the mission and to get updates on progress, it works without any screens or even Wi-Fi.

(on camera): Playmation system of connected toys and wearable devices bring together infrared and motion sensor and Bluetooth technology to create a whole new category of game play.

(voice-over): The package will retail for $120 in October with preorders starting in July.

In November, a package built around interactive Hulk hands will hit stores with more Avengers toys in the works.

Disney (NYSE:DIS) has been working on this for three years, investing millions of dollars, but will it off? The Avengers franchise of toys could generate as much as half a billion dollars in sales annually, says toy expert Jim Silver, CEO of CCPM, who was pre-briefed by Disney (NYSE:DIS). He says it could hit a billion dollars annually as Playmation expands to other franchisees.

STAGGS: In the coming years, we’ll apply the Playmation vision and technology to create an active play experiences that expand some of our most popular stories. Next up is “Star Wars” in 2016, and then “Frozen” coming in 2017.

BOORSTIN: This holiday season, Disney (NYSE:DIS) is hoping to tap into kid’s natural love of play and parents hope to unglue kids from screens and get them up and running.

For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

HERERA: That is in our future, you know that, right?

MATHISEN: Oh, yes, both of us.

HERERA: Absolutely.

That does it for NIGHTLY BUSINESS 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: I’m Tyler Mathisen, thanks for your support, and have a great night, everybody. We’ll see you back here tomorrow.

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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