TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Solid but not stellar. More than 200,000 jobs were created last month. Wage growth was positive but tepid. Is it enough to tip the Fed’s hand?
Dollar dilemma. The red hot green buck casts a shadow over earnings, but our market monitor has a list of stocks that he says will stay cool as the dollar heats up.
And bright idea. Meet the former pro-football player whose business plan started with a Google (NASDAQ:GOOG) search.
All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, August 7th.
Good evening, everyone, and welcome. I’m Tyler Mathisen. Sue Herera has the evening off.
Well, the streak continues. The economy has created 200,000 jobs or more in 15 of the past 17 months, 215,000 positions were added in July, with the unemployment rate steady at 5.3 percent.
Wages nudged up just slightly, while the share of Americans participating in the labor force remains stuck at a 38-year low. But experts say the overall report is proof the recovery is chugging along and likely keeps the Federal Reserve on track for its first interest rate hike since 2006.
Hampton Pearson has more on the numbers and what they mean for Main Street and Wall Street.
HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: For the first seven months of this year, job growth has been wide spread, averaging 212,000 jobs per month. Health care continues to lead, up 436,000 for the year, including 28,000 last month. Retailers have added 322,000 new employees as consumer spending picks up.
And it was another strong month for professional and technical services, up 27,000, topping 301,000 for the year. Those booming auto sales help manufacturing have its best month of the year. Workers’ hours increased, but wage growth remained stagnant.
Overall, a steady job market for the Obama White House.
JASON FURMAN, WH COUNCIL OF ECONOMIC ADVISERS CHAIRMAN: It was very much on target. You just, look, 15 of the last 17 months this economy is created over 200,000 jobs. It’s just months after months, you know, keeps adding to those jobs that’s broadly been bringing the unemployment rate down.
PEARSON: The Washington, D.C. area is experiencing many of those same trends, rebounding from the recession. In fact, the region is experiencing the biggest year over year growth in jobs since the economy stalled here two years ago.
Nearly 70,000 new jobs have been added to the regional economy in the last 12 months, with high-tech and health care leading the way. The 4.8 percent unemployment rate is below the national average.
MARK HAMRICK, BANKRATE WASHINGTON BUREAU CHIEF: We don’t really have gains in federal employment in D.C., and the D.C. area, but we do see the private sector making up for that and indeed it’s really been a boom economy here in D.C. in the recent years.
PEARSON: Today’s headline job growth fits the Fed criteria for further improvement in the job market, prompting most economists to say a September rate hike is very much on the table.
MICHAEL HANSON, BOFA MERRILL LYNCH GLOBAL RESEARCH SR. ECONOMIST: Do you think this is one more sort of steady step along the way towards the Fed likely hiking in September? I think it’s more likely than not, and I don’t think it’s quite a done deal. We have five weeks of data. If we’ve learned anything the last several years, a lot can happen in five weeks.
PEARSON: September’s jobs report can be decisive as the central bank moves closer to the biggest change in interest rate policy in nearly a decade.
For NIGHTLY BUSINESS REPORT, I’m Hampton Pearson in Washington.
MATHISEN: And look who’s here to discuss today’s big jobs report, the man you just saw in Hampton’s piece.
Welcome to you, Michael Hanson, senior economist at Bank of America (NYSE:BAC). Good to have you with us.
I take it that you’re in the camp that believes that it is probably a little more than likely that the Fed will raise rates in September. There was nothing in this report that changes your mind on that, is there?
HANSON: No, if anything it probably nudged the Fed closer to a September rate hike. The one thing soft was wages, but payroll growth has been strong, unemployment rate’s getting close to the level the Fed starts to think the market is getting tight. So, it very much leaves September in play.
MATHISEN: How strong is economic growth overall, and are we at a sort of level that we should just get accustomed to, 2.5 percent to 3 percent a year?
HANSON: Yes, 2.5 percent to 3 percent is probably above the long-term trend, given the fundamentals of the economy right now. It’s enough to probably keep job growth for a while in this 200,000 range and probably not to get to 4 percent or 5 percent any time soon, unfortunately.
MATHISEN: Well, I was going to pick up on that, because if you watched the debates last night, Jeb Bush said that he thinks a target we should aim for is 4 percent in the economy. He said he confessed that is an aspirational target. Is it a practical one?
HANSON: It would be tough. I think it would be difficult, given some of the changes in fundamentals, for example, we have a declining labor force and that’s certainly weighing on growth. I think we’ve seen a number of factors post the financial crisis slow down the pace of growth a bit and may take a while to turn around.
MATHISEN: I was speaking earlier today to our Steve Liesman, our economics reporter, and I was asking him about why labor force participation is as stubbornly low as it is. How do you explain?
HANSON: Well, a good chunk of it is demographics. Baby boomers are a big part of that. Obviously, moving into retirement age, you see some younger workers also have a tendency to stay in school longer. Therefore, on average people, teens and early 20s, aren’t coming to the labor force as much as they used to. Not, of course, retiring themselves, they’ll come back eventually, but not at the earlier stage.
MATHISEN: Let’s go back to the question of interest rates. You’re of the view of September, but do you believe then they will be moving interest rates up pretty regularly, most meetings, if not every meeting? And how steeply?
HANSON: Yes, well, the Fed said they are going to be gradual, but that’s not a promise, it’s a forecast. The Fed has emphasized data dependence, we’re going to have to wait and see. Given we talk about the fact trend growth is slower and, of course, the case that wages and inflation aren’t rising quickly, I think the Fed can very much be patient, which probably means quite less often than every meeting.
MATHISEN: Is a patient pace of interest rate hikes in any real sense a major danger to people’s portfolios, quickly?
HANSON: I don’t think so, because the Fed is going to hike as the economy gets better. We don’t want the Fed prematurely hiking and potentially have things to fall back. That would be in the end bad for portfolios.
MATHISEN: Michael, thanks very much for being with us.
HANSON: Certainly. Thank you.
MATHISEN: Appreciate it. Thank you.
Michael Hanson of Bank of America (NYSE:BAC) Merrill Lynch.
Well, with cyber attacks a near daily occurrence for companies, employers are looking hard now for workers who can protect them. In the latest in our series “Where The Jobs Are,” Mary Thompson looks at the world’s growing need for cyber warriors from Symantec (NASDAQ:SYMC) Global Operations Center in Herndon, Virginia.
MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: In the war against cyber criminals, 30-year-old Richard Hobson is one of the newest recruits.
RICHARD HOBSON: What I like best is, it doesn’t feel like a job.
THOMPSON: A former welder, Hobson now interns at Morgan Stanley (NYSE:MS), having completed a three-month training program called SC3 or Symantec (NASDAQ:SYMC) Cyber Career Connection.
HOBSON: We’re looking for any vulnerabilities, any threats that can compromise personal information and data that’s highly regarded to the organization.
THOMPSON: Costing businesses an estimated half billion a year, cyber attacks show no signs of slowing down, and that’s fuelling growth in a sector Symantec (NASDAQ:SYMC) estimates will have 6 million jobs by 2019, but only 4.5 million people to fill them.
AMY CAPPELANTI-WOLF, SYMANTEC CHIEF HUMAN RESOURCES OFFICER: And the market’s hot right now, because every time you open up a newspaper, there’s another cyber security attack going on.
THOMPSON: The higher demand means higher salaries. The job analytics firm Burning Glass Technology says on average cyber security jobs pay $84,000 a year. That’s 9 percent more than your typical IT job. Still, these positions are tough to fill.
Burning Glass CEO Matthew Sigelman says that’s because candidates need technical chops and a deep knowledge of the industries they’ll defend, like health care, retail, or finance.
MATTHEW SIGELMAN, BURNING GLASS TECHNOLOGIES CEO: About 84 percent of cyber security jobs require a college degree, 70 percent of them require multiple years of experience in a field that really didn’t exist multiple years ago.
THOMPSON: So, to build a pipeline of workers, Symantec (NASDAQ:SYMC) head of human resources is looking beyond the walls of higher education and expanding SC3, a program focused on training minorities and women.
CAPPELANTI-WOLF: Eighty percent of them have GED or equivalent degrees. So, it’s a workforce you wouldn’t normally have access to.
THOMPSON: Hobson is among 31 graduates who take courses, including ethical hacking and security plus.
HOBSON: It changed my life in many ways.
THOMPSON: And for Symantec (NASDAQ:SYMC), it’s changing the way it develops workers to fill critical jobs available now and in the future.
For NIGHTLY BUSINESS REPORT, I’m Mary Thompson in Herndon, Virginia.
MATHISEN: To read more about the growing need for cyber security professionals, head to our Web site, NBR.com.
Well, the jobs report and expectations for a rate hike weighed on the market this day, sending the Dow Jones Industrial Average lower for the seventh straight session. The index is the longest such losing streak since August of 2011, one of the bumpiest months of the past decade.
The blue chip Dow index dropped 46 points to 17,373, NASDAQ fell a dozen, and the S&P 500 was off a half a dozen.
For the week, all the major averages were lower by more than 1 percent. As you see there.
Crude prices fell for a sixth straight weeks, settling in at $43.87 a barrel. That is a new multi-month low.
The Dow component American Express (NYSE:EXPR) (NYSE:AXP) helped offset some of the pressure from the jobs report and oils decline today. The stock rose more than 6 percent on heavy volume on word that the activist hedge fund Value Act took a $1 billion stake in the firm. In a statement, American Express (NYSE:EXPR) (NYSE:AXP) says it respects Value Act and has been speaking to them, as it does with other big investors.
And still ahead, stocks that can escape the heat from the hot dollar. Our market monitor is coming up.
MATHISEN: Travel booking firm Saber says its systems were hacked. Bloomberg News also reporting American Airlines was examining whether its network was breached. It is believed to be the work of the same hackers that targeted the health insurance firm Anthem back in February and the U.S. government’s personnel office in June.
Renew era for the global trade, we recently told you about all the business being done at the major U.S. ports, now across the globe, the Suez Canal, through which flows 8 percent of the world’s sea trade just got bigger.
And as Hadley Gamble reports, it could mean a smoother passage for the shipping industry and the fragile Egyptian economy.
HADLEY GAMBLE, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was a historic day for Egypt, complete with pomp and pageantry and a major political victory for the country’s president.
A new Suez Canal 22 miles long carved out of the Egyptian desert in just under a year at a cost of $8.5 billion, all financed by the Egyptian public. But with analysts already speculating that the government’s figures are overly optimistic, a potential windfall of as much as $13.5 billion in increased transit revenues over the next five years, it’s the economic zone’s plan for around the canal that the government hopes will rake in the long-term cash.
And it’s that long-term investment and job growth that Egypt so desperately needs. As gulf governments begin to tighten the purse strings, the pressure is on President Sisi to perform.
BOB DUDLEY, BP CEO: When you come to the conference like this, you can almost see the economic engine starting to rev up.
GAMBLE: A string of multibillion dollar deals announced in Sharm-el-Shaikh in March with the likes of BP and Siemens will start. And a look at the guest book in Suez, leaders from the Gulf, Africa, Russian Prime Minister Medvedev, and President Holland of France may shed some light on where the president is hoping to find strategic partners for investment next.
Earlier this week, the Obama administration reaffirmed a commitment to deliver eight F-16 aircrafts suspended indefinitely after the overthrow of former President Mohamed Morsi. Secretary Kerry delivered the good news, but was notably absent today, while the presence of so many leaders from the Gulf comes as no surprise given the major monetary commitments over the last few years just to keep the country in the black. President Hollande and Russian Prime Minister Medvedev do reflect a widening of the net, a growing cooperation that’s translating into new economic and military deals.
Now, when you speak to Egyptian officials, they do say this is all about maintaining economic stability over the long term, but for many, privately, they also speculate this is as much as about geostrategic realignment as it is about financial opportunity.
For NIGHTLY BUSINESS REPORT, I’m Hadley Gamble, on the banks of the Suez Canal.
MATHISEN: Hershey’s sales are flat for the first time in years and that’s where we begin tonight’s “Market Focus”.
The maker of Reese’s Peanut Butter Cups and other treats like Hershey Kisses saw volumes slip in North America because of price increases and weak demand from China. The company also cut its full-year sales forecast for 2015. Shares fell more than 2.5 percent to $89.73.
Sotheby’s saw its profits and sales slip in its latest quarter. The auction house blamed currency headwinds and said losses from the sale of a single painting dented results. Shares tumbled 7.5 percent to $37.49.
Cablevision had subscriber growth in its most recent quarter. The company managed to beat estimates on both the top and bottom lines. Still, shares slipped on this down day for the market, more than 2.5 percent. They finished $25.82.
The credit card lender Capital One Financial (NYSE:COF) is in talks now to acquire General Electric’s healthcare finance unit, that’s according to a Reuters. The deal will likely top $10 billion. GE was off a fraction. It finished $25.79. Capital One also fell slightly to $80.82.
Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A) said second quarter operating profit fell 10 percent to about $4 billion. The decline reflects weaker results in its insurance operations. The “A” shares didn’t move much in after hours trading, but declined in the regular session to end the day at $215,462. Yes, you heard me correct.
You probably notice a theme this earnings season, companies are blaming the strong dollar for dismal quarterlies. In fact, a recent FactSet report noted that currency was the most popular topic discussed this earnings season by S&P 500 companies.
This week’s market monitor has some smart ways to protect your portfolio from currency upheaval. Last time he was on in January, his picks were National Grid. It’s off 7 percent. JPMorgan (NYSE:JPM), which is up 22 percent. And the biggest of all, Google (NASDAQ:GOOG), which has jumped 29 percent.
Jamie Cox joins us now, he’s managing partner at Harris (NYSE:HRS) Financial Group.
Mr. Cox, welcome. Good to have you with us.
JAMIE COX, HARRIS FINANCIAL GROUP: Thank you, Tyler. Nice to be with you.
MATHISEN: We just mentioned so many earnings reports, particularly revenue reports, reference currency headwinds, and that is why revenues for a lot of companies seem to have come up short. Is that your view, or are they using this as a fig leaf?
COX: I think it’s true. I think if you look at constant currency, most of the picture looks better for most companies. So, I don’t think that’s — I don’t think that’s an egregious statement this particular quarter because the dollar did spike going into both the first and second quarters. I think companies have a legitimate non-weather-related reason to complain about their earnings.
MATHISEN: Do you think the dollar will likely strengthen from here or roughly stay where it’s been the past few months between about 105 to the euro and 110?
COX: I don’t see that it goes up much further than this. I think we’re all anticipating interest rate risings coming in either the third or fourth quarter and I think markets have already priced that in. So, I don’t — unless the Fed raise rates faster than what we think, I think the dollar is where it’s going to be for some time.
MATHISEN: Nice to see somebody from my home state of Virginia.
MATHISEN: Let’s talk about a couple of your picks and why you think they are rather more insulated from currency headwinds.
Let’s start with Rockwell Automation (NYSE:ROK), a stock that has been moving below its moving average in recent days. I guess you see this as a buying opportunity. Why?
COX: I do. Rockwell has been undergoing a major transformation in its system over the last three years and finally, we’re starting to see them divest businesses that are low margin like their seat business and some of their car interiors, and they are actually introducing businesses like their stop/start batteries.
So, in Europe, we’ve been using stop/start batteries for quite some time, hybrid and electric vehicles use those batteries, and we think that stop/start batteries will actually be part of the general population of cars. Management is giddy about that. I think it’s going to be a major headwind.
MATHISEN: Let’s move quickly to a second pick, little out of order, that is Johnson Controls (NYSE:JCI), which has a kind of similar story about automobile interiors and the like.
COX: That’s true.
In addition, I think both Rockwell and in this particular company, what you have is an opportunity for integration of systems. They were early pioneers in the revolution where they took offline systems to bring the data online for management to use. Now, these companies are actually down-selling security solution for companies, and I think that’s where they are going to make money. It’s being underutilized and talked about.
MATHISEN: All right. Final one, quickly, Precision Castparts (NYSE:PCP). What do they do and why do you like them?
COX: Airplanes. Think about the number of airplanes sold. Castparts is absolutely the place to be if you’re thinking the airplanes are going to be sold around the globe, you know, you’ve seen enormous numbers of airplanes bought. Precision Castparts (NYSE:PCP) is a place you want to be if you believe that story.
MATHISEN: All right. Jamie, thank you very much. Jamie Cox with Harris (NYSE:HRS) Financial Group.
And coming up, how one entrepreneur was able to battle the odds, open a mortgage company at the height of the housing crisis, and turn it into a multibillion dollar business.
MATHISEN: Here’s what to watch next week: Dow component Cisco (NASDAQ:CSCO) reports quarterly results. The Federal Reserve Presidents Bill Dudley and Dennis Lockhart are going to be giving some speeches. And on the data front, retail sales are out, very important one there. Producer price index at the key read on inflation and also the industrial production numbers. That is what to watch next week.
Well, the high stakes game of house flipping has always been around, but now the practice of buying and selling a home in the same year is solely for profit is getting a whole lot riskier, but also more lucrative.
Diana Olick has our story.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Taking a house from this to this takes a lot of cash, but in today’s competitive housing market, it is a necessity for investors who hope to make big profits flipping homes.
CHRIS HARRISON, HOME INVESTOR: The market has gotten tougher, and so it’s not for novices. You have to know what you’re doing, and you have to be able to do a good job. You have to have an eye for detail. But with that comes reward, which is a better reward.
OLICK: Chris Harrison put nearly $400,000 into renovating this Washington, D.C. home, after buying it for $700,000. It’s currently listed at just over $1.4 million.
HARRISON: It’s a calculator risk. The numbers in this neighborhood are very strong. The days on the market are short.
OLICK: Higher home prices have pushed a lot of flippers out of the business. Flips made up just 4.5 percent of sales in the second quarter of this year, according to RealtyTrac, and that’s down from a year ago. Growth flipping returns, however, increased to nearly 36 percent, up from 24 percent a year ago. Investors are now making an average $71,000 before renovation costs up from $50,000 a year ago.
Today’s buyers want not only turnkey properties. They also want the high end finishes. So, for flippers, that means more cash up front and more risk to return.
GINNY WALKER, REALYTRAC: We’re actually seeing a lot of flippers getting out of the business. I know one flipper that’s getting into home remodeling now because he doesn’t want the risks associated with flipping anymore. So, if you’re in it, you need to proceed with caution, you know, do the high end deals.
OLICK: Flips on the lowest end of the market are actually losing money, likely because of the renovation costs. Flippers are seeing some of the greatest returns in the $2 to $5 million range and regionally, Nevada and Florida still see the most flips because they have the most distressed homes, but Chicago, Dayton, and Baltimore are giving flippers the best return.
WALKER: If you’re in the flipping business now, you have to know what you’re doing. It’s not for somebody who sees HGTV and thinks I can get in and flip.
OLICK: Flipping today takes more patience, more time, and ever more cash up front.
For NIGHTLY BUSINESS REPORT, I’m Diana Olick in Washington.
MATHISEN: To read more about house flipping and the risks and rewards involved, head to our Web site, NBR.com.
Well, from house flipping to home finance. The young entrepreneur just 29 at the time decided to open a mortgage business aimed specifically at home buyers, not refinancers, just before the financial crisis hit in 2008. You probably think that wasn’t a very bright idea, but it was and is.
That young entrepreneur is Casey Crawford (NYSE:CRD.A), a former professional football player in Charlotte, North Carolina.
CASEY CRAWFORD, MOVEMENT MORTGAGE CEO AND FOUNDER: Man, this is fantastic.
MATHISEN: Dramatic, unexpected turnarounds are Casey Crawford’s thing. As a football player, he wasn’t drafted out of college, but he managed to spend two years as a tight end with the NFL’s Carolina Panthers. Then he got cut, but wound up signing with the Tampa Bay Buccaneers in 2002, a season that ended with a Super Bowl victory.
CRAWFORD: I need to set up a call with the head of sales —
MATHISEN: Crawford (NYSE:CRD.A) began to flip homes while he was still playing football. It was the early 2000s and real estate and the real estate bubble were blowing up.
CRAWFORD: I think I heard Donald Trump say this, and he’s probably right. He said the only way to be wrong in real estate at that time was to not buy something.
MATHISEN: Crawford (NYSE:CRD.A) was doing so well that he quit football after the Super Bowl. It worked out fine until 2007 and ’08 when bad loans began to kill off giant lenders like Countrywide, American Home, and Wachovia.
CRAWFORD: Evil, right? They’ve been defined by greed. They are defined by lack of integrity, by putting families into loans they couldn’t afford.
MATHISEN: Despite the chaos, though, Crawford (NYSE:CRD.A) sensed an opening. He wanted to build a mortgage business that would help keep people within their means.
CRAWFORD: Think about Warren Buffett, time to get in the market is always in the midst of chaos, when the blood is running in the streets.
MATHISEN: Of course, he didn’t know how to start a mortgage bank, so he did what anyone would do, he Googled it.
CRAWFORD: Jumped right on Google (NASDAQ:GOOG), how to start a mortgage bank.
MATHISEN: A year later in September 2008, Crawford’s mortgage company, about 20 people, opened for business.
CRAWFORD: We had a full 30 days before October of 2008, just a whole financial world totally comes collapsing down. I spent about 60 days sucking my thumb in a closet trying to explain to my wife why this was a good idea a year earlier.
MATHISEN: Slowly things did get better. In 2009 they did about $180 million worth of loans. Now, the company’s called Movement Mortgage. Its 2,200 employees — yes, 2,200 — expect to do more than $7.5 billion worth of business this year.
Movement is building a new headquarters just across the state line in South Carolina. When it opens next year, Crawford (NYSE:CRD.A) says he’ll create 600 new jobs. The jobs alone can turn into life-changing opportunities, but Movement isn’t leaving Charlotte altogether.
COLIN PINKNEY, THE HARVEST CENTER EXEC. DIRECTOR: Movement foundation is offering us something I have never seen.
MATHISEN: Colin Pinkney runs the Harvest Center, one of several nonprofits that will begin sharing a new office space called the Movement Center in Charlotte this month.
Crawford (NYSE:CRD.A) hopes the center can become a sort of one-stop shop for the people who depend on the services they’ll find there.
CRAWFORD: They don’t just need food, they don’t just need job training, they don’t just need mental health services, they need that whole suite of products. And the problem is often they find them all over town, right? That’s really difficult if you don’t even have a car to get to all these places.
PINKNEY: I think that’s going to be important, not just for our city, but across the nation.
MATHISEN: A privately-funded scalable model for nonprofits across the country, imagine that — instead of leaving a trail of foreclosures behind, a mortgage company trying to build a better city, a turnaround indeed.
CRAWFORD: Great business minds I think in the United States would really get passionate about solving the problems in the U.S. and not leaving that to the federal government, I think we’d transform communities across the United States.
MATHISEN: Interesting fellow.
Well, we’ve mentioned before how nonbank lenders have so quickly grown into a significant force in the mortgage business from about 11 percent of loan volume in 2011 to 37 percent last year. These companies say they are simply setting customers straight on how much house they can truly afford and trying to do it before they ever begin looking at homes.
And that, folks, is NIGHTLY BUSINESS REPORT for Friday evening. I’m Tyler Mathisen. Thanks so much for watching. Have a great weekend, everybody. We’ll see you back here on Monday.
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.