Transcript: Nightly Business Report – May 19, 2016

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Rising odds.  The Federal
Reserve is thinking seriously about increasing interest rates next month. But there`s one thing they                                                                      want to see first.

Housing conundrum.  With starter homes in short supply, what`s preventing
builders from creating more of them?

And going green.  Demand for organic foods is growing fast, but farm
acreage hasn`t kept pace.  Why that maybe about to change if one company
has its way.

All that more tonight on NIGHTLY BUSINESS REPORT for Wednesday, May 18th.

Good evening, everyone, and welcome.  I`m Sue Herera.  Tyler Mathisen is on
assignment tonight.

June looks to be a key month for the market.  Today, it became even more
important after the Federal Reserve gave the clearest indication yet at its
meeting next month that the central bank could potentially raise interest
rates again.  In its just released minutes, most of its members say that
they are ready, they just need the economy to cooperate.  And that sent
stocks on a wild ride with the Dow moving 200 points in 45 minutes.

By the close, the blue chip Dow index was off just three points and the
NASDAQ rose 23 and the S&P 500 was up fractionally.

We have two reports tonight.  Mary Thompson is covering today`s market
reaction.  But, first, Steve Liesman reports from the Federal Reserve on
the minutes of the Central Bank`s last meeting.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The U.S. Federal
Reserve strongly suggested the possibility of a June interest rate hike if
the economic data improved as expected.  In fact, in the minutes to its
April meeting released today, the Fed said some of those conditions had
already been met, including a stabilized dollar, rising equity prices, and
diminished global risks.

Many members of the Fed expected other conditions to be in place for a June
hike by the time the Fed meets.  Mostly, that meant further evidence the
economy would rebound in the second quarter from the weak GDP numbers we
got in the first.  Now, if those conditions were met, the minutes said,
quote, “It likely would be appropriate for the committee to increase the
target range for the federal funds rate in June.”

Now, not all were convinced.  Several members were concerned about risks
for a persistent slow down, about weak inflation and continued risk from
overseas growth, including the June vote on Brexit or the exit of Britain
from the European Union.

But the minutes also indicated the Feds even discussed an April rate hike
and there were some who supported the idea.  As it was, the Fed decided to
keep the options open for a June hike.  Some worried the market wasn`t
paying enough attention and wasn`t sufficiently prepared for a June rate
rise.  Now, there`s going to be attention paid to speeches by the Fed chair
and the vice chair, Stan Fischer, and New York Fed President Bill Dudley.

They`re seen as leaders of the FOMC and their comments there would go a
long way to convincing markets the Fed could move as soon as next month.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in Washington, D.C.

(END VIDEOTAPE)

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  A choppy day of
trading on Wall Street as traders are now bracing for rate hikes that could
sooner than many had expected.  At the high of the session, the Dow was up
over 100 points ahead of the release of the Federal Reserve`s minutes from
its April meeting.

When those minutes were released, it showed that the Federal Reserve would
consider raising interest rates in June if the data supports such action.
That sent stock prices lower and the Dow dropped more than 100 points.  It
also put pressure on treasury prices, so yields moved higher, the dollar
rallied, though, and that put pressure on both gold and oil.

Now, the prospect of high rates putting pressure on some rate-sensitive
sectors, like utilities in the session, but it benefitted financials as a
lot of banks would like to see higher short-term rates.  The rally that we
saw in the financial sector are not enough to drive the Dow back into the
green, though it did help the S&P to recover late in the day, and the
NASDAQ, which dropped recently into correction territory during the session
recovered, thanks to strength the tech and biotech.

All in all, a mixed, two flat sessions for the market after a very choppy
day.

From the New York Stock Exchange, I`m Mary Thompson for NIGHTLY BUSINESS
REPORT.

(END VIDEOTAPE)

HERERA:  Shares of Dow component Johnson and Johnson are trading near all
time highs, largely on the strength of its pharmaceutical business.  Today,
shares closed slightly lower to $113.59.  But with a growing threat of
lawsuits over its popular talcum powder product, shareholders want to know
how J&J plans to grow the rest of the business.

Meg Tirrell reports from its analyst day meeting in New Brunswick
(NYSE:BC), New Jersey.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Johnson & Johnson
(NYSE:JNJ) makes some of the world`s most iconic brands, Band-Aid, Tylenol,
Listerine and more.

But the conglomerate`s growth in recent years has been driven by its
prescription pharmaceuticals.  So, today, it met with analysts and
investors to chart out its plan to grow the rest of its business.

ALEX GORSKY, JOHNSON & JOHNSON CHAIRMAN & CEO:  We`ve been looking at our
portfolio because while we`re very excited about the investments that we`ve
been making in the future in certain areas, we realized that in other
areas, frankly, we needed to be more effective and more efficient.  We also
see the business model changing with our medical devices and making sure
that we`re sized the right now, that we`re organized the right way for
emerging customers.

TIRRELL:  J&J said it plans to apply for approval of more than 20 new
products in hospital medical devices over the next two years, with sales
potential of at least $6 billion.  In its consumer-focused medical device
units, which includes contact lenses and diabetes care, J&J says its near
term pipeline has $2 billion in sales potential.  Its total medical device
business brought in $25 million last year.

As for its consumer unit, J&J says they`ve got three brands worth $1
billion today.  Those are Listerine, Johnson`s Baby and Neutrogena.  By
2020, it says it will add two more brands to that list, Aveeno and Tylenol.

Tylenol is part of the company`s over-the-counter medicines unit that`s
still recovering from a series of recalls starting in 2009, that wiped out
two-thirds of the unit`s revenue.

MIKE WEINSTEIN, JPMORGAN MANAGING DIRECTOR:  They`re really put that behind
them.  But both businesses are still growing roughly at 2 percent in
aggregate.  So, they`re making the case today why the other half of the
portfolio, the device consumer pieces are going to re-accelerate and try to
close that gap with pharma.

TIRRELL:  More recently, the company has been battling a series of lawsuits
alleging it`s talcum powder is linked to ovarian cancer, a claim J&J
denies.

GORSKY:  We`re disappointed in some of the recent verdict findings and we
always have a lot of empathy for plaintiffs and the families that they may
represent.  But in this case, we think, frankly, it`s inconsistent with
more than 100 years of experience with powder and more than 30 years of
very compelling clinical evidence.

TIRRELL:  J&J says it plans to appeal.  Meanwhile, analysts` focus is on
growth, which many expect to see in the form of acquisitions, particularly
as biotech valuations have fallen so much in the last year.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell in New Brunswick (NYSE:BC),
New Jersey.

(END VIDEOTAPE)

HERERA:  Fellow Dow component Cisco (NASDAQ:CSCO) issued a solid outlook
after reporting better than expected earnings in the most recent quarter.
The company whose results are closely watched as an indicator of demand for
corporate technology reported earnings of 57 cents a share, two cents
better than estimates.  Revenue was in line with estimates at $12 billion,
though slightly lower than a year ago.  That rosy outlook helped lift
shares in the initial after-hours trading.

Dominic Chu has more on Cisco`s results.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  There`s a reason why a
lot of investors still pay attention to earnings from Cisco (NASDAQ:CSCO)
Systems.  It`s because they make the stuff that many called the backbone of
the Internet.

So, the company is seen as a bellwether or indicator of spending on
technology by both companies and governments around the world.  But what
Cisco (NASDAQ:CSCO) is looking to do in the future is different than how it
got to where it is today.  Instead of focusing on making communications
hardware, it wants to transition more towards one that sells software and
data management services, many of which can be done on a subscription basis
so the company gets more regular and recurring streams of revenue.

Two of the fastest growing businesses for Cisco (NASDAQ:CSCO) are the ones
that provide video content solutions and then ones that provide computer
network security.  They are two of the smaller units that`s measured by
sales, but they`re still the ones that Cisco (NASDAQ:CSCO) is touting as a
bigger part of the future of the company.

Now, on the more cautious side of things, CEO Jack Robbins also said that
he`s seen a fair amount of caution coming from the company`s customers.
Now, it`s about whether investors view the story as bright enough to break
the stock out of a trading range it`s been stuck in for some time now.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

HERERA:  In Washington, new rules will expand overtime pay for millions of
workers.  Beginning later this year, anybody making a salary of nearly
$47,500 will automatically qualify when they work more than 40 hours.
That`s about double the current level.

And according to the labor secretary, it`s exactly what both business and
consumers need.

(BEGIN VIDEO CLIP)

THOMAS PEREZ, SECRETARY OF LABOR:  I think what this is going to provide
for employers is clarity and what it`s going to provide for workers is
either more money or more time with their family and for us, what it does
is it fortifies the basic pillars of worker protection which is middle
class jobs should pay middle class wages.  And when you work extra, you
should be paid extra.

(END VIDEO CLIP)

HERERA:  The overtime threshold was last updated back in 2004.

Trade tensions are on the rise, this time between the U.S. and China.  The
Department of Commerce has slapped a 500 percent duty on some of China`s
steel products, which is used to make things like appliances and cars.
Beijing is demanding its removal and is urging the U.S. to, quote, “correct
its mistake”, end quote.

China produces about half the world`s steel and last month, U.S. steel
accused dozens of Chinese companies of breaking trade rules.

Shares of U.S. Steel, AK Steel and Nucor (NYSE:NUE) all traded lower today.

On this fourth anniversary of Facebook (NASDAQ:FB) going public, the social
media company is hosting a summit of conservative thought leaders to
discuss allegations of political bias of the website.  The claims that
curators of Facebook`s news feed has censored certain topics surfaced last
week.

Eamon Javers is following this story for us.

Good evening, Eamon.  Good to see you as always.

What is Facebook (NASDAQ:FB) hoping to accomplish with this?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Well, the first thing
they want to do is stop the PR bleeding.  They`ve taken a real beating
ironically on social media, but also in the mainstream media over this
story, even though they`ve denied the story and said that there`s no
political bias at Facebook (NASDAQ:FB), and the original story was based on
unnamed former Facebook (NASDAQ:FB) employees and quoted just on one
website, Gizmodo.com.

Still, this has taken off into a national discussion and Facebook
(NASDAQ:FB) wants to see if they can button that up by having all these
conservatives come in, talk to them and then broadcast that message out to
the conservative community.

HERERA:  And what do the attendees, the conservative attendees want out of
this.

JAVERS:  Well, I think part of what they want is to broaden Facebook`s own
conception of what diversity means.  You hear a lot of conservatives saying
that Facebook (NASDAQ:FB) needs to think about diversity of thought, in
addition to all the other types of diversity that Facebook (NASDAQ:FB) may
be focusing.

And when you look at the list of who is actually going to this meeting,
there are a lot of TV personalities here.  So, it`s clear that Facebook
(NASDAQ:FB) is going to try to bounce those people out into the media, and
get some second and third tier effects here from the meeting they`re
seeing.

You see Glenn Beck from “The Blaze”.  Dana Perino, she`s with FOX News
Channel.  Jim DeMint, he`s at the Heritage Foundation.  And S.E. Cupp of
CNN, a conservative commentator.

All of those people will go out to their respective audiences and sort of
retell the story of this Facebook (NASDAQ:FB) meeting that happened today
and get those audiences engaged.  That`s what Facebook (NASDAQ:FB) is
hoping to do here is get conservatives talking in a positive way about
Facebook (NASDAQ:FB).  We`ll see if that happens.

HERERA:  Right.  As I understand it, one of the reasons this is so
important to the conservative attendees is because so many people tend to
get their news exclusively from Facebook (NASDAQ:FB), correct?

JAVERS:  Sure.  Facebook (NASDAQ:FB) is huge.  It`s dominating the lives of
Americans who consume news.  It`s dominating the lives of people around the
world, who consume news.  And conservatives have long complained that
mainstream media outlets, television and newspapers, have a liberal bias
and they`re now seeing that they have to pay attention to social media as
well.  And when you look at the top leadership at Facebook (NASDAQ:FB),
there are people with well known liberal views who are running that
company.

This is an opportunity for the conservatives to say, hey, you may be
personally a liberal but we`d like you to make sure that your platform is
open to the arguments and thoughts and news of all people of all
persuasions here.

HERERA:  All right.  Eamon, thanks.

JAVERS:  You bet.

HERERA:  Eamon Javers in Washington.

Still ahead, costly regulations.  What home builders have to go through to
do what they do best — build?

(MUSIC)

HERERA:  The lowest mortgage rates in years was not enough to get home
buyers to take the plunge.  Total application volume last week fell about
1.5 percent from the previous week.  Refinancing applications increased
slightly while applications for new purchases fell.

It is the ultimately double-edged sword in housing.  There`s huge demand
for entry level housing and little supply.  You would think that would
present a big opportunity for home builders but it`s not.  Diana Olick
explains why from California.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  It is being called the
last seaside development in Southern (NYSE:SO) California and the poster
child for how increasing regulations are stifling builder productivity.

PHIL BODEM, TAYLOR MORRISON SOUTHER CA (NASDAQ:CA):  I would say it`s more
expensive to develop master plan communities today than ever before.

OLICK:  Sea Summit in San Clemente s finally open, building and selling
luxury million dollar homes.  This, 40 years after developers first looked
at building here.

BODEM:  There are a lot of requirements and hoops that we had to go through
to get the project approved.

OLICK:  Arizona-based Taylor Morrison purchased the project two years ago
for a reported $200 million after previous development had stalled.  The
plan is for 300 homes here.  Decades ago, they could have built twice as
many on this land.

JOHN BURNS, JOHN BURNS CONSULTING:  Every time you turn around, there`s a
new regulation.

OLICK:  Regulations that are now costing home buyers 30 percent more in the
purchase price of the home than they were just five years ago, according to
a new study.  Much of that is due to higher land costs resulting from
regulations on development.  These costs are passed on to buyers as
builders not only raise prices, but focus on higher end homes.  Add it up
and the cost of regulation is rising more than twice as fast as the average
home buyer`s ability to pay for it.

BURNS:  A lot of good things to protect the environment, but it`s making
building affordable homes impossible.

OLICK:  Extra costs that didn`t exist a decade ago.  Erosion control, fire
sprinklers, energy code cost and understaffed jurisdiction offices are
builders` biggest complaints, according to a survey by Burns.

BURNS:  I think what cities and counties are looking for is for the project
to make a significant contribution beyond just the homes to the city in
which the project is located.

OLICK:  Here at Sea Summit, Taylor Morrison had to build four new parks,
miles of hiking trails and plant new vegetation on 100 acres of open space,
all of which pushed the costs higher.

BURNS:  They would love do entry level, but they need to be able to make
money doing it and it`s getting increasingly hard to build a home for less
than $250,000.

OLICK:  So more million dollar homes go up in areas where they can sell
like this one and the rest of the nation struggles under tight supply and
rising prices for the precious few starter homes for sell.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in San Clemente, California.

(END VIDEOTAPE)

HERERA:  Beautiful.

To read more about new regulations for home builders, head to our website,
NBR.com.

Target (NYSE:TGT) warns of a slow down in sales and that`s where we begin
tonight`s “Market Focus”.  The retailer saw a drop in both revenue and
earnings for its latest quarter as unseasonable weather and lower consumer
spending hurt results and the impact of the weakened spending is expected
to continue as the company sees sales for the current quarter to be flat to
down 2 percent.  Shares of Target (NYSE:TGT) fell over 7.5 percent to $68.

It was a different story, though, over at Lowe`s.  The home improvement
retailer posted solid revenue and profit growth that came in above
estimates.  Strong demand for home renovation products helped to lift
results and sent same store sales up more than 7 percent.  In addition, the
company raised its earnings guidance for the year.  Shares up 3 percent to
$78.60.

The New York Department of Financial Services has subpoenaed Lending Club
over its business practices.  This launches the third investigation.
According to a report from “The Wall Street Journal”, this most recent
investigation is unrelated to the recent resignation of Lending Club CEO.
Shares were up nearly 11 percent to $3.99.

Oil producers Apache (NYSE:APA) saw its shares rise today after a report
from oilandgaspeople.com said rival Occidental Petroleum (NYSE:OXY) will
buy the company in a deal believed to be about $25 billion.  However,
Occidental said it had no knowledge of this news while Apache (NYSE:APA)
declined to comment.  Apache (NYSE:APA) shares were up more than 2 1/2
percent to $56.61.  But Occidental was off 2 percent to $74.81.

Auto maker Tesla said it will sell about $2 billion of its stock to help
expedite production of its new Model 3.  About $1.4 billion worth of shares
will be offered to the public by the company, while CEO Elon Musk will sell
the remaining shares to cover tax obligations.  The news sent shares down
initially in extended hours after the finishing the regular session up 3
percent to $211.17.

And Southwest Airlines (NYSE:LUV) is hiking its dividend to 10 cents up
from 7.5, but it`s also buying back $2 million worth of its shares.
Meanwhile, outside of the company shareholder meeting, the airlines pilots
and flight attendants protested that they haven`t received a pay rise or an
updated contract in several years.  Shares rose more than a percent to
$42.90.

Well, it`s a story we`ve been telling you about and today, it was another
long and frustrating one for millions of Americans traveling through some
of the country`s busiest airports.  Many had to wait in TSA security lines
that lasted more than an hour and now, a new report is predicting airports
will be even more crowded this summer.

Phil LeBeau reports tonight from O`Hare Airport in Chicago.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Six a.m. at O`Hare
Airport and the long wait begins.  These people spent more than an hour in
the TSA security line.

UNIDENTIFIED FEMALE:  In all my years in Chicago, we end up five or six
blocks.  How did we get to this point?  It`s crazy.  What`s being done?

UNIDENTIFIED MALE:  Terrifying, terrifying.  Brutal, straight chaos.  So,
I`m pretty nervous.  We have two hours to go so, pretty nervous.  But I
mean, hopefully, we`ll make it.

LEBEAU:  Their fear of missing a flight is real.  Sunday, dozens slept on
cots at O`Hare because they couldn`t get through security in time to make
their flight.  The TSA blames the long lines on the combination of factors.
Budget cuts have limited how many officers are staffing checkpoints.

Meanwhile, more people are flying, and with many taking carry on bags
checking people takes longer.  But should travelers spend two to three
hours in line?  The man who runs the Department of Homeland Security which
oversees the TSA says that wait is too long.

JEH JOHNSON, DEPT. OF HOMELAND SECURITY SECRETARY:  Obviously, waiting
three hours for what may be a two hour flight or a 90-minute flight is not
unacceptable, and it`s not a good thing and it would tax everybody`s
patience.

LEBEAU:  Now, a new report warns it will be more crowded at airports this
summer.  Airlines for American predicts a record number of people will fly
in the U.S. in June, July and August.  More than 231 million flying
somewhere, after enduring security lines so long that some in Congress want
private companies to take over airport security and eliminate the TSA.

REP. JOHN MICA (R), FLORIDA:  TSA is a huge bureaucracy.  It can`t get it
right.  It hasn`t got it right.  They cannot — they cannot recruit.  They
cannot train.  They cannot retain.  And they certainly can`t administer
that workforce.

LEBEAU:  With the TSA under fire, it`s hoping more staffing and more
overtime will shorten security lines.  Here in Chicago, more than 250 new
TSA officers will be added by mid-August.  But until they`re hired and
trained, O`Hare Airport is warning travelers get here well before your
flight, just to make sure you make it through security.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA:  Coming up, as more people eat organic, why aren`t more farms
growing organic foods?  What one company is doing to change that.

(MUSIC)

HERERA:  Here`s a look at what to watch for tomorrow.

Dow component Walmart reports earnings and investors will be looking to see
how the world`s largest retailer is fairing as competition increases.
We`ll find out how many Americans filed for unemployment benefits last
week, and a handful of Fed officials are scheduled to speak.  And that`s
what to touch for Thursday.

Soda makers must include health warnings on advertisements for soda and
other added sugar drinks in San Francisco.  This after a federal judge
declined to halt a new law that goes into effect in late July.  San
Francisco will be the first city to require such warnings on paper ads and
posters and billboards but not TV commercials or packaging.

Genetically engineered crops are safe for humans and animals to eat.
That`s the finding from the National Academy of Science which says GMO
foods have not caused increases in cancer, obesity, kidney disease or
autism.  The group reviewed more than 900 studies and data covering 20
years.  The report also concluded that these crops have saved farmers money
but have not increased yields.

And as you know, more people are eating organic but it takes a long time
and a lot of money to convert a traditional farm to an organic one.

Jane Wells takes a look at what one company is doing to ease the burden on
the nation`s farmers and meet the growing demand.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The whole country is
going organic except for America`s farms.  While organic food is a $39
billion industry, less than 1 percent of U.S. farmland is certified to grow
organic food.  Why?  It`s a hassle.

DAVID DENHOLM, KASHI CEO:  Mostly, they have to get new infrastructure and
that may involve silos, new equipment.

WELLS:  The USDA says a conventional farm which wants to become certified
organic has to spend three years using organic practices before it can slap
on an organic label.  Anything grown during that transition has to be sold
at lower conventional prices.  In other words, farmers have to spend more
over three years for something that sells for a lot less.

So, Kashi, the healthy cereal company owned by Kellogg`s, is trying to
create a reason for farmers to make the switch.  It`s created a new
labeling process called certified transitional, paying farmers a higher
price for their crops during that three-year period and making consumers
aware.

DENHOLM:  A lot of consumers know about organic.  They have a lot of
intellectual curiosity around organic food, but many don`t know that
farmers face challenges and it takes three years to transition a farm from
conventional farm to organic.

WELLS:  Farmers have to pay a third-party certification program to be part
of the transitional program, but Kashi has not trademarked the label.  In
fact, quite the opposite.  The company wants it to become a standard which
rivals can use.

Kashi has to see if consumers understand the label and take to it, to see
if more farmers will switch over to organic farming because of this
program, to see if rivals will join in and support the label.  That`s a lot
of “if”, but the long term goal is to create more organic farms, more
supply for demanding market, and maybe eventually make organic food less
expensive.

For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.

(END VIDEOTAPE)

HERERA:  And finally, tonight, the fittest cities in the U.S.  For the
third year in a row, Washington, D.C. tops the list, thanks to its low rate
of smoke.  That`s according to the American fitness index.  Minneapolis St.
Paul came in second, followed by Denver in third.  Residents of all three
cities tend to walk more and have greater access to parks for recreation.
The survey also uncovered a new trend, more than 75 percent of Americans
reported exercising within the past 30 days, a double digit increase from
last year.

And the city at the bottom of the list, Indianapolis.

That will do it for us tonight on NIGHTLY BUSINESS REPORT.  I`m Sue Herera.
Thanks for joining us.  Have a great evening, everybody.  And we`ll see you
right 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) 2016 CNBC, Inc.

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