Transcript: Nightly Business Report — July 1, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Back to work. Businesses stepped up hiring in June, possibly signaling another strong employment report from the government tomorrow.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Shifting gears. What the smallest of the big three automakers did that has never been done before.

HERERA: Hitting the books. Why students taking out loans for the upcoming academic year just got a bit of good news. Just a bit.

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

MATHISEN: Good evening, everyone, and welcome.

Company’s are hiring, auto showrooms are packed, but Greece isn’t budging. The lack of progress on that country’s debt seems not to faze investors today, though. Instead, they focus on better than expect data and sent stocks higher. A key labor report showed that private companies created positions at the fastest clip so far this year.

According to the payroll processor ADP, firms added 237,000 jobs in June. That was more than expected. And that, along with strong auto sales gave a lift to share prices. By the close, the Jones Industrial Average rose 128 points, the NASDAQ gained 26 and the S&P added 14.

Hampton Pearson has more on today’s private payroll report and what it may signal about tomorrow’s big report on the Labor Department.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Ahead of tomorrow’s Labor Department employment report, a closely watched survey of private sector payrolls had its biggest gain in six months.

MARK ZANDI, MOODY’S ANALYTICS: You know, construction jobs, manufacturing, transportation, distribution, finance, it goes on and on and on. This is the — housing will be the key to getting back to full employment by this time next year.

PEARSON: Construction spending rebounded in May to its highest level in more than six years. Other signs of a strengthening job market: factory activity accelerated, due in part to a big boost in auto sales. Tomorrow’s consensus forecast calls for 233,000 new jobs created last month with the unemployment rate dipping back to 5.4 percent, a seven-year low. Some leading economists however are for an upside surprise.

DIANE SWONK, MESIROW FINANCIAL: We are looking for a solid 250,000 in the month of June and we’re looking for this to be the best hiring market for young people since the onset of the crisis.

PEARSON: In May, employers added 280,000 workers to payrolls. Another strong jobs report will heat up the debate over when the Federal Reserve will raise key short term interest rates. The recent update economic data could put September in play.

SWONK: In the eyes of the Fed, the threshold for the September rate hike, not all of them, but the majority of them, is low. And so, they only need to see a little more improvement in the job market and feel confident in their forecast in medium term.

PEARSON: Strong job growth, along with improving data on consumer spending and housing could be the spark that ignites the entire economy for the second half of the year.

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

(END VIDEOTAPE)

HERERA: More now on those June auto sales. Several of the nation’s top automakers reported higher sales as demand for trucks and SUVs continues to strengthen. Ford and Chrysler saw their sales rise last month, while GM dropped largely because of a sharp drop in rental sales.

Phil LeBeau has more now on the results and the what smallest of the Big Three auto makers did for the very first time.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The American car buyer is not slowing down. In fact, the June sales pace topped 17 million vehicles for the third time in the last four months. The combination of job growth, low interest rates and strong consumer confidence of convincing more people, this is the time to buy a new car or truck.

STEPHANIE BRINLEY, IHS (NYSE:IHS) AUTOMOTIVE: Right now, people feel comfortable. They feel like they can buy. When we’re in the middle of a recession and even coming out of the recession, there was a lot of concern about job security and things like that where you might put off a purchase. Right now, we’re feeling pretty confident as to where things are going.

LEBEAU: The big winner in June, Fiat Chrysler. For the first time ever, the smallest of the Big Three sold more vehicles at dealerships than Ford. A big reason why is Jeep, where sale shot up a whopping 25 percent. Jeep is benefitting fro America’s renewed love of SUVs which is due in part to gas prices remaining relatively low.

It also helps Jeep and other automakers that they’re selling a new wave of small SUVs, one reason why many expect strong auto sale to continue for the second half of this year.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN: Stuart Hoffman joins us to talk about the small auto sale numbers and what he expects tomorrow from the jobs report. He’s chief economist with PNC Financials.

Stuart, welcome. It’s always good to have you with us.

Let’s talk about jobs. What is the number you all are forecasting for tomorrow? And how is healthy overall do you grade the U.S. labor market today?

STUART HOFFMAN, PNC FINANCIAL CHIEF ECONOMIST: Well, I’m closer to consensus, 230,000 for total payroll jobs and a drop in the unemployment rate to 5.4 percent. Hopefully, that’s not the kiss of death.

Let’s also remember what the market will look at if we get any upward revisions to March and April. Remember, April and May, remember the may number was 280,000. It won’t completely surprise me if that topped 300,000 after revisions.

And wages — average hourly earnings, I’m a little bit above consensus, I think we might see that jump to 0.4 or 0.4, catching one other signs that wages are accelerating. So, I give the job markets right now and the labor market sort of a B or B-plus.

Another thing that the Fed and Janet Yellen will be looking at is how many people working part time. I think we’ll see that most of the jobs created were full time jobs and that the number of people working part-time, because they couldn’t get a full time job, will probably go down again, and it’s close to three quarters of a million lower than at this time last year, another sign of improvement in the job market.

HERERA: What about the economy overall, Stuart? I mean, we just heard from Phil LeBeau that auto sales are very strong. But does the strength in the labor market or shall I say, the continuing recovery in the labor market, and the strength on auto sales really reflect the underlying strength of the economy?

HOFFMAN: I think it does. I must admit, I’ve been on the high side of the consensus of economic forecast, expecting another spring rebound. Just like we had last year, a weak first quarter and a strong second quarter, we’ve seen it in the construction numbers you’re talking about, March, April and May, the auto sales number. Auto production schedules for the summer quarter, just starting now, are going to be strong. There are going to be far fewer shutdowns and layoffs in July that there are typically.

So, I think with construction, housing which we didn’t talk about, some very good numbers on housing sales and, of course, construction in today’s report and the ISM, as you mentioned, the manufacturing index, doing better. With the auto sales and auto production lifting that, I’m still remaining quite comfortable on the high side of the consensus.

And that makes me think that September is definitely in play, and not only in play. I think especially after we get on July 30th, that’s a big day. We’re going to get GDP revisions for the last couple years and I think the second quarter’ estimate will top 3 percent. If that happens, I think that’s just paving the runway for what we’ll call a lift-off in the Fed funds rate of a quarter of a percent in September. It will still be a very slow ascent thereafter.

MATHISEN: All right. Stuart, thank you very much. Have a great weekend, sir. Stuart Hoffman with PNC Financials.

HOFFMAN: Thank you.

HERERA: The Department of Justice is investigating possible collusion among the airlines. Regulators are looking into potential unlawful coordination to potentially limit capacity and keep prices artificially high. That sent shares of the major airlines down as much as 3 percent today.

MATHISEN: Well, the Justice Department also has filed an anti-trust suit to stop the sale of General Electric (NYSE:GE) appliance business to Electrolux. The DOJ says the $3 billion acquisition would eliminate competition that benefits American consumers and such a deal would combine two of the leading manufacturers of ranges, cook tops and ovens sold in the U.S. GE says it will fight the lawsuit.

HERERA: We talked about housing, construction spending rose in May to its highest level in more than six and a half years. According to the Commerce Department, the strength was lead by a jump in nonresidential projects. A second report showed growth in manufacturing as well. The institute for supply management said its index of factory activity hit its highest level since January.

MATHISEN: Still no deal in Greece after another round of negotiations failed and for that country’s pensioners, the situation is getting much worse. They are now facing limits on their monthly stipend, this as a crucial referendum looms this Sunday.

Michelle Caruso-Cabrera reports from Athens.

(BEGIN VIDEOTAPE)

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Retirees, many of them elderly, lined up at banks across Greece this morning to withdraw a small portion of their monthly pension. Earlier this week, the government said they would be able to withdraw all of their stipends. But now, Greece is running short of physical cash and this morning, they were given only 120 euros, roughly $135.

This 88-year-old man told me, he is frustrated but what can he do?

Banks are so close to everyone else including businesses. Nelly Kaperony is a manager for a company that distributes Italian coffee.

It’s from where?

NELLY KAPERONY, COFFEE DISTRIBUTOR: From Italy. We bring it here in Greece and we give to all customers.

CARUSO-CABRERA: She delivers it to cafes throughout Athens and even gives customers barista lessons. But like all Greek companies which rely on imports, the business needs a functioning bank so it can pay overseas suppliers.

KAPERONY: The big problem now is we don’t have how way we pay in Italy because all banks are closed. So they cannot from Italy bring here any coffee.

CARUSO-CABRERA: She’s worried the banks will be closed longer than the coffee has coffee.

KAPERONY: We have coffee for three months only.

CARUSO-CABRERA: And there is no sign the bank there’s open any time soon. The European Central Bank is unlikely to deliver any fresh cash to this country until it has assigned a new bailout deal. And even though the prime minister of Greece sent this letter late last night to the country’s creditors, saying he is willing to make big some big concessions — he then went on national television and called those same creditors blackmailers and told the Greeks to vote no in an upcoming referendum on the very bailout agreement. That didn’t sit well.

With that, Europe’s other finance ministers made it clear, they’ve had enough.

JEROEN DIJSSELBLOEM, EUROGROUP PRESIDENT: There will no coming talks in coming days, nor at Eurogroup level, nor between the Greek authorities and the institutions on proposals or financial arrangements. We will simply wait now the outcome of the referendum on Sunday.

CARUSO-CABRERA: They aren’t the only ones, so are all the Greek people.

For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera, Athens.

(END VIDEOTAPE)

HERERA: Still ahead, students taking out federal loans for the upcoming school year just got a little bit of good news. But just a little.

(MUSIC)

HERERA: The SEC is proposing a new rule that could impact what some executives are paid. The agency would require a portion of bonuses awarded to executives to be recovered or clawed back if a public company restates its financial results. The proposal would apply to all restatements, including those reissued because of mistakes.

But some say that measure goes too far and should not be applied to smaller companies.

MATHISEN: President Obama says the U.S. and Cuba struck a deal to open embassies in each other’s capitals. It is the next step in the move to reestablish diplomatic and economic relations between the two countries for the first time in more than half a century.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The progress that we mark today is yet another demonstration that we don’t have to be imprisoned by the past. When something isn’t working, we can and will change.

(END VIDEO CLIP)

MATHISEN: The president went on to say it’s time for Congress to move forward on Cuba and lift the embargo. The embassies will open on or after July 20th.

HERERA: From Cuba to Puerto Rico, where the island is being compared to Greece because of its own debt crisis. Well, today, some positive news. All of the nearly $2 billion in due debt today has been paid. But there’s still a lot of uncertainty around what might happen next.

Kate Kelly has more from San Juan.

(BEGIN VIDEOTAPE)

KATE KELLY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Puerto Rico made headlines this week when the governor said its economy was in a death spiral. And while there’s disagreement about the rhetoric, when you talk to the locals, there’s no question about the reality.

UNIDENTIFIED FEMALE: I got lucky. I found a job here. But most of my colleagues had to get out to the United States to find a job.

KELLY: Was the economy always this bad? Or was it better in the past?

UNIDENTIFIED MALE: The economy?

KELLY: Yes.

UNIDENTIFIED MALE: It’s bad.

UNIDENTIFIED MALE: It’s been really hard. Really hard in trying to make ends meet.

KELLY: But today, there was a little progress. A $645 million payment tied to what is known as general obligation bonds was made, as was another tie to the island’s electric power utility, PREPA.

In an interview today, PREPA’s restructuring officer, Lisa Donahue, noted that much work remains to be done.

LISA DONAHUE, PREPA: The debt is something from the beginning. It has to be dealt with. It’s not sustainable in its current form. And, you know, we’ve been making a lot of progress toward transforming PREPA into a modern utility with an ability to manage itself from a business perspective and in a more flexible manner.

KELLY: Puerto Rico is still saddled with $72 billion in overall debt, with no clear path to paying it down.

For NIGHTLY BUSINESS REPORT, I’m Kate Kelly in San Juan.

(END VIDEOTAPE)

MATHISEN: And now to Asia and Macau, where gambling revenue has fallen for the 13th straight month. According to government data, the world’s casino capital saw revenue dropped 36 percent in June from a year earlier. Many attribute the slump to China’s crackdown on corruption.

Eunice Yoon is in Macau with more.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Glamorous hotels, spectacular attractions, Macau is the Las Vegas of the east. Since the Chinese gambling center opened to international investors in 2002, the former Portuguese colony has been on a hot streak, generating more revenues than the Las Vegas strip. But now, the chips are down, due largely to Beijing’s anti-corruption drive.

STEVE WYNN, WYNN RESORTS CHAIRMAN & CEO: These investigations tend to intimidate everybody. So it has curtailed all of the upper end spending and business that are in that area of the economy like better automobiles and clothing and fashion, and Macau falls in that category.

YOON: That stops people like Liu Shuai, once a frequent visitor to Macau. An officer for a Chinese state bank in the nearby city, Liu says he hasn’t done anything illegal. But he’s scared to go back.

LIU SHUAI, CHINESE STATE BANK OFFICER (through translator): I think these restrictions on entering Macau may last forever.

YOON: Even so, the potential of $1.3 billion increasingly wealthy Chinese consumers still has the casino operators betting big.

YOON: Construction sites like this one can be found all over Macau, and in 2016, this partially built complex will be the Steve Wynn’s latest entry, Wynn Palace.

The palace will feature a lake, an option beyond the casino in line with Macau’s drive to lure more visitors with attractions similar to Las Vegas. With policies in Beijing unpredictable when Macau will stage a comeback is unclear.

WYNN: My attitude at the moment is that China is in a state of change brought by its leadership that determined the change was necessary. Hard to argue with that if you pay attention and read why there’s change. What the long term implications of it I think are very uncertain.

YOON: For NIGHTLY BUSINESS REPORT, I’m Eunice Yoon.

(END VIDEOTAPE)

HERERA: The biggest deal ever in the insurance industry is where we begin tonight’s “Market Focus”.

Switzerland based Ace Limited (NYSE:ACE) will buy Chubb (NYSE:CB) for $28 billion in cash and stock. That deal comes as the property and casualty insurance sector faces pricing pressure and diminish interest income. Chubb (NYSE:CB) surged 26 percent to $119.99. Ace was up a fraction to $102.49.

General Mills (NYSE:GIS) out with mixed results as the cereal maker continues to struggle with changing consumer tastes. The dollar also weighing on its top line, but its profit managed to beat estimates. Shares rose 2.5 percent to $57.09.

A huge jump in earnings from Constellation Brands (NYSE:STZ). The alcoholic beverage maker saw profit rise 35 percent as its Mexican beer segment continued to propel growth. The CEO says he expects that to continue.

(BEGIN VIDEO CLIP)

ROBERT SANDS, CONSTELLATIONS BRANDS CEO: We now expect our beer business to grow double digits this year. So, first quarter, the growth has been even beyond our own expectations and at this point, we don’t foresee that growth rate changing dramatically as we go to the year.

(END VIDEO CLIP)

HERERA: However, shares were off a fraction to $116.

MATHISEN: The opposite story from McCormick (NYSE:MKC). The spice maker’s profits fell as the stronger green buck weighed on its sales. It hiked its full year outlook for adjusted for share earnings, but that wasn’t enough to satisfy investor shares off nearly 2 percent. They finished at $79.57.

Coffee cups from J.M. Smucker’s today. It is dropping price for the majority of its coffee products sold in the U.S. by about 6 percent. Those include that Folgers and Dunkin’ Donuts sold in stores. This comes after a price hike last year because of rallying coffee bean costs. This year the commodity is down in price. Shares rose a fraction today at Smucker. They finished at $109.19.

Angie’s List announcing some changes at the top. The online review site has made chief operating officer Jay Mark Howell its interim CEO. This follows the resignation of its co-founder Bill Oesterle. Shares fell nearly 8 percent today to $5.68.

And investors bought up shares of Teladoc in its market debut. The company which facilitates calls and videos between doctors and patients priced its initial public offering at $19 a share, top end of the range. It sold more than 8 million of those shares. The stocks soared 50 percent today to finish at $28.50.

HERERA: Students taking out loans will get a little bit of welcome news. As of today, the interest rate on federal student loans will drop, albeit slightly. But if the Federal Reserve gets ready to hike rates possibly sometime this year, will the reprieve be short-lived?

Sharon Epperson has more.

(BEGIN VIDEOTAPE)

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Aaron Ruiz will start his sophomore at New York’s Pace University this fall. But he’s already learned a costly lesson about student loans.

AARON RUIZ, STUDENT: At the end of my undergraduate career, I will have just under $150,000 in debt.

EPPERSON: Fortunately, in the upcoming school year, Ruiz and millions of student borrowers who take out federal loans will get a little break.

LAUREN ASHER, THE INSTITUTE FOR COLLEGE ACCESS & SUCCESS: The rates on new loans will be lower than they were from last year’s loans. So, that’s good news if you’re borrowing this year.

EPPERSON: As of July 1st, the rate on Stafford loans for undergraduates will fall to 4.29 percent, down from 4.66 percent, the loans issued in the last academic year. Stafford loans for graduate students are now 5.84 percent, down from 6.21 percent. And parent and graduate plus loans are now 6.84 percent, down from over 7 percent last year.

Many borrowers may not realize how much they’re saving.

RUIZ: I’ve never done the math.

EPPERSON: Rate cuts will have a modest impact, saving borrowers about $50 per $10,000 in new loans with a 10-year repayment term, and about $500 in interest on a 20-year term, according to Advisors.com.

Yet, the savings only applies to new loans taken for the upcoming year.

RUIZ: I’m happy they’re lower but I don’t think they’re going to stay like this forever.

EPPERSON: In 2013, Congress changed the way federal student loan rates are set. Basing them on the be rate treasury note every spring. Rates can change each year with market fluctuations. But once you borrow, the money the rate is set for the life of the loan.

JENNIFER MISHORY, YOUNG INVICIBLES EXEC. DIRECTOR: When Congress changed that, they didn’t anticipate they would go down. However, we think it is short-lived. So, as the fed increases interest rates in the market, we anticipate that those rates will change for federal student loans and increase as well.

EPPERSON: Starting next year, federal loan rates for undergraduates are projected to top 5 percent. And rise above 6 percent for the 2018, 2019 school year. Though rates may increase, loans are what Ruiz calls a necessary evil.

RUIZ: I care what they are because I’ll have to worry about that later down the road. But I’m going to take them out regardless.

EPPERSON: Like millions of students, the cost of financing a college education won’t deter him from getting a degree.

For NIGHTLY BUSINESS REPORT, I’m Sharon Epperson.

(END VIDEOTAPE)

MATHISEN: Coming up, drying up. How one California gardener stays in business despite the state’s worst drought on record.

(MUSIC)

HERERA: Here is what to watch tomorrow. As we told you earlier, it’s jobs day. We’ll have the Labor Department’s June employment number which could move the markets. Also, a read on employment with how many Americans filed for unemployment benefits. And Fiat Chrysler will come under scrutiny at a rare public hearing about its slow efforts to recall affected vehicles. And that is what to watch tomorrow.

MATHISEN: Well, Sue, as we turn the page on the first half of 2015, a number of big companies are ushering in a new era with changes at the top. Starting today, News Corp (NASDAQ:NWS), Boeing (NYSE:BA) and Twitter all have new CEOs. Despite those notable changes, the overall trend is different. According to the firm, Challenger, Gray and Christmas, CEO turnover was down 13 percent through May. And now to the stock market’s record level and an improving economy.

HERERA: Macy’s (NYSE:M) joins the list of companies severing ties with Donald Trump. The department store will pull Trump’s branded merchandise from its stores, following the controversial comments he made about immigrants during the announcement of its presidential campaign. NBC and Univision, among others, have already ended their business relationships with Trump.

MATHISEN: And finally tonight, the very dry state of California. While some businesses are suffering from the state’s worst drought in recorded history, others are finding opportunity.

Jane Wells has our story tonight from Los Angeles.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The drought is a very sod story. Jurgen Gramckow used to do $100,000 a year selling sod in southern California. Business is down 50 percent.

JURGEN GRAMCKOW, SOUTHLAND SOD FARMS CEO: We laid off 30 people last Friday. It was a tough day. Probably the toughest thing I’ve ever done.

WELLS: Instead of planting grass, people are pulling it out to save on water and get rebates. Gardeners are benefiting in the short term with the changeover, but it’s not clear what will happen when there are fewer lawns to mow.

JESUS MORENO, GARDENER: So, it’s pretty much the same amount of work. It’s just different.

WELLS: Overall, plant sales at Elegant Gardens Nursery are down 30 percent since the governor ordered cuts in water last April.

CARL BRODOCK, ELEGANT GARDENS NURSERY: May should have been the best we had in the last ten years. And it wasn’t so.

WELLS: But for all the losers in the drought, there are also winners. Technology companies are discovering that water is the new gold mine.

UNIDENTIFIED MALE: You’ve done a good thing in mulching.

WELLS: WaterSmart is a software company which provides to dozens of water agencies, letting customers know how much water they use compared to neighbors.

UNIDENTIFIED MALE: When you have (INAUDIBLE), it’s a little difficult telling this, that the water sort of looks milky. This looks clear.

WELLS: I was surprised to learn I’m using 50 percent more water than peers.

I question the data.

ROBIN GILTHORPE, WATERSMART CEO: So we have this a lot. People think, I couldn’t possibly use this. And often, they could have a leaky toilet they’ve had for years. They don’t know about it, or a leaking irrigation system.

KEVIN TILDEN, CALIFORNIA AMERICAN WATER: Last year, we tripled the business. The year before, we tripled the business. And this year, we’re on track to triple the business.

WELLS: Does the guilt trip work? WaterSmart claims the software reduces consumption 5 percent, mostly in the lawn. But Jurgen Gramckow thinks sod is getting a bad rap. Lawns cool the environment and sequester carbon, but no one wants to hear it and he’s just trying to hang on until the drought is over.

GRAMCKOW: When all that ends and people go back to their preferences, they’ll go back to lawns.

WELLS: That’s assuming the drought ends.

For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.

(END VIDEOTAPE)

HERERA: Well, let’s hope it does and soon.

MATHISEN: It has been a long, long time.

HERERA: It really has. Hopefully, they’ll get some rain.

That will do it for NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for joining us.

MATHISEN: And I’m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody. And we’ll see you 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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