Transcript: Nightly Business Report – July 7, 2016

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: High stakes. Tomorrow`s employment report takes on added importance as investors try to determine whether the labor market is healthy or has in fact lost its mojo.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Milk money. A French yogurt- maker makes its biggest acquisition in almost a decade, and it`s putting its faith in the fast growing market for organic food.

MATHISEN: Age discrimination? Google (NASDAQ:GOOG) has publicly addressed gender and racial imbalance in its workforce. Now, a lawsuit alleges another issue.

All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday, July 7th.

HERERA: Good evening, everyone, and welcome.

Anticipation is high. The release of the monthly jobs report is always important, of course, but tomorrow`s taking on added significance, not just to Wall Street but to Main Street and Washington as well. Hiring in May showed its weakest gain in more than five years. The anemic report shocked just about everybody, and it cemented the Federal Reserve`s decision not to raise interest rates.

Then came another surprise, the Brexit, and tomorrow`s report will determine whether May`s weak showing was an anomaly or the start of a new and worrying trend for what has been one of the strongest parts of the economy.

So, here`s what`s expected: consensus is for non-farm payrolls to rise 165,000. The unemployment rate may tick higher to 4.8 percent and average hourly earnings are expected to gain 0.2 percent.

MATHISEN: Two new pieces of data point to a strengthening labor market and could bode well for that report tomorrow. Payroll processor ADP released its monthly report showing the creation of 172,000 private sector jobs last month. Part of the gain is due to small businesses ramping up hiring.

In a separate report, the Labor Department said initial claims for unemployment benefits fell 16,000 last week, and that drop puts jobless claims close to a 43-year low.

HERERA: So, let`s turn now to Anthony Chan for more on what he`s expecting from tomorrow`s jobs report. He is chief economist with Chase.

Anthony, good to see you again. Welcome.

ANTHONY CHAN, CHASE CHIEF ECONOMIST: Great to be here.

HERERA: What are you expecting tomorrow?

CHAN: I`m looking for a number that`s north of 170,000. As you mentioned, that ADP report was very encouraging last month, as you are well aware.
That report actually exaggerated the strength, and missed the forecast by almost 150,000. I don`t think that will happen two months in a row. That report was strong again this month. I think will show up in the payroll numbers.

MATHISEN: So what happened last month? Why was it so low, 38,000? What went wrong?

CHAN: Well, the ADP report sometimes has a little bit of a spotty record.
We also had the Verizon (NYSE:VZ) strike that basically subtract it about
35,000 workers. They are not counted in payrolls when they are on strike.
This month, they are back to work, so you`ve got to add another 35,000.
That`s another reason to expect more strength.

But before we panic, we know the Federal Reserve tells us all you need is about 100,000 or so jobs being created every single month just to absorb the natural growth in the labor force, so any number north of 100,000 is actually good news.

HERERA: You know, Anthony, broadening it out a little bit, how important is this report to the Federal Reserve in light of the fact that we have some financial turmoil with the Brexit. We also have oil prices that really have been hit hard, especially in today`s trading session, and interest rates are hitting new lows.

CHAN: It`s a very important report, and the reason for that is if you look at the FOMC minutes, you can see quite a bit of anxiety on the part of the Federal Reserve officials because of that employment report, so they almost absolutely need to see this number recovering and be above 100,000. My suspicion is it will be a lot stronger than that.

And they also need to see wages picking up because consumer spending is going to be very robust in the second quarter, and they want to know that that sort of robust pace of consumer spending, that`s two-thirds of the economy, continues well into the second half given the Brexit concerns.
Everybody knows it`s going to be a hit to United Kingdom growth. It`s going to be a hit to eurozone growth and less of a hit to the U.S., but nonetheless, it will be a hit. So, we need to see other things working a lot better.

MATHISEN: So I know this isn`t your — isn`t your forecast, and I hesitate to ask you about something that you don`t think is going to happen, but I`m going to do it nonetheless. What if this number comes in below that
100,000 figure is more in line with the prior month. How worried would you be about the U.S. economy in that case?

CHAN: Well, in that case I would be very concerned about the economy. We know that if you start to get one number on top of another number that suggests weakness. You have to worry.

But, remember, those initial unemployment claims, when you look at the four-week moving average during the week that the government takes the survey, we`re much lower than the private month.

MATHISEN: Right.

CHAN: That`s usually consistent with a much stronger number and guess what, even this week`s initial unemployment claims were even lower, and that would suggest that not tomorrow`s number but even the next month`s number is actually going to —

MATHISEN: I love a vigorous economist. Man, Anthony, you come back any time, my friend. That is great.

HERERA: We love enthusiasm on NBR.

MATHISEN: And passion.

HERERA: Anthony, thank you so much.

CHAN: Thank you.

HERERA: Anthony Chan with Chase.

MATHISEN: Love that, whoa!

All right. On Wall Street, stocks weighed down by a drop in crude prices finished mixed ahead of the June jobs report. Not even a deal in the food sector could increase the buying. More on that acquisition in just a moment.

The Dow Jones Industrial Average was off 22 points to 17,895, the NASDAQ was up 17, and the S&P 500 fell slightly to 2,097. Meantime, oil prices tumbled about 5 percent to about a two-month low after government data showed a smaller than expected weekly decline in crude oil inventories.

HERERA: So, now on to that food deal we just mentioned. Paris-based Danone has agreed to acquire organic food-maker WhiteWave for about $10 billion, which sent shares of WhiteWave which owns brands like Silk, Horizon and Earthbound up more than 18 percent.

And as Sara Eisen reports, the food industry an increase in merger activity.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Another food company is in the shopping bag. WhiteWave which makes Horizon Milk and Earthbound getting scooped up by French yogurt giant Danone. Why? Well, it doubles Danone`s U.S. business and gives it access to fast growing brands and growth, something food and beverage companies have been starving for.

The problem: consumer tastes have changed. The economy globally is challenging, and innovation in this area has been hard to come by, so large companies are either buying small faster growing rivals like Danone and WhiteWave or they are going at it alone, ramping up their innovation machines, hoping to grow by launching new products that match millennial tastes. That`s certainly Pepsi`s strategy.

HUGH JOHNSTON, PEPSICO CFO: A lot of food and beverage companies are struggling for growth and are reshaping their portfolios to hit their expectations. Over the last ten years, we`ve reshaped our portfolio already to be consistent with expectations.

EISEN: Pepsi`s new products have helped, but others have been voraciously buying. Within the last two years alone, General Mills (NYSE:GIS) scooped up Annie`s, think organic cheddar bunnies, Heinz swallowed up Kraft (NYSE:KFT), combined two big companies to gain scale and cut costs.
Snyder`s bought Diamond Foods (NASDAQ:DMND) known for its almonds for nearly $2 billion. Pinnacle bought Boulder Brands, which makes Smart Balance (NASDAQ:SMBL) and Glutino in November.

So, what`s the next? Oreo maker Mondelez recently bid for Hershey, which rejected the deal, but many still say could be on the table, and that would be one of the largest ever in the food industry. As far as fast growing organic and healthy companies, many are looking at Haines Celestial which owns all sorts of healthy brands like Arrowhead Milk, Health Valley, Imagine Soups.

But those healthy food companies are becoming harder and harder to come by in this growing age of food consolidation.

For NIGHTLY BUSINESS REPORT, I`m Sara Eisen.

(END VIDEOTAPE)

MATHISEN: Shares of Humana (NYSE:HUM) dropped sharply on reports the Department of Justice plans to meet to discuss Humana`s deal with Aetna (NYSE:AET). This is according to “Reuters”. Antitrust regulators have significant concerns over the proposed acquisition. Officials will reportedly meet tomorrow with both insurers to discuss whether the deal will limit consumer choices for Medicare health plans for the elderly.

Aetna (NYSE:AET) announced its intention to buy Humana (NYSE:HUM) about a year ago. Humana (NYSE:HUM) shares fell 9.5 percent on the trade today.
Aetna (NYSE:AET) also lower by almost 4 percent.

HERERA: And another health insurance deal is being questioned. The Connecticut attorney general is raising concerns about the proposed Anthem/Cigna take over. George Jepsen says if the acquisition wins federal approval, it could hurt competition in the industry and lead to higher prices for consumers. Cigna is based in Connecticut, and according to “The Hartford Courant”, Jepsen`s office is about two weeks away from wrapping up a review of the tie-up.

MATHISEN: On Capitol Hill, the director of the FBI was at the center of a heated hearing today. James Comey staunchly defended his decision to not recommend criminal charges against Hillary Clinton for her use of a private e-mail server while she was secretary of state, but that did not satisfy some lawmakers.

Hampton Pearson watched it all.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: And nothing but the truth.

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was a marathon on Capitol Hill for FBI Director James Comey, defending the decision not to bring criminal charges against Hillary Clinton for her use of a private e- mail server while secretary of state.

Again and again, Comey told lawmakers Clinton`s conduct was careless but not negligent, and there`s only been one case in the last century where charges were levied.

JAMES COMEY, FBI DIRECTOR: No reasonable prosecutor would bring this case.
No reasonable prosecutor would bring the second case in 100 years focused on gross negligence.

PEARSON: Oversight Committee Chairman Jason Chaffetz pushed back, asking repeatedly if Hillary Clinton had lied during the investigation.

REP. JASON CHAFFETZ (R-UT), OVERSIGHT COMMITTEE CHAIRMAN: Did Hillary Clinton lie?

COMEY: To the FBI? We have no basis to conclude she lied to the FBI.

CHAFFETZ: Did she lie to the public?

COMEY: That`s a question I`m not qualified to answer. I can speak about what she said to the FBI.

PEARSON: And Comey strongly challenged the charge Hillary Clinton got special treatment.

COMEY: I just want the American people to know we really did this the right way. You can disagree with us, but can you not fairly say we did it in any kind of political way. We don`t carry water for anybody.

PEARSON: And there`s this reaction from the Hillary Clinton campaign. A statement says, “Despite the partisan motivations, they are glad the hearing took place and that Director Comey`s explanations shuts the door on any lingering conspiracy theories.”

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson on Capitol Hill.

(END VIDEOTAPE)

HERERA: Miss Clinton`s campaign may say the door is shut on any remaining conspiracy theories, but no one thinks the case is closed.

John Harwood comes to us from Washington tonight.

So, John, they think that the door is shut on this and the case is closed.
Is it?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, it`s shut legally. Loretta Lynch says she will accept the recommendations of the FBI investigators on this.

Now, Jason Chaffetz did indicate today that he was going to try to send a referral to the FBI for a perjury case against Secretary Clinton. We`ll see whether the department picks up that invitation to investigate that. I suspect they may not, but in any case this political issue is going to stay alive all the way through November because of the strength of the criticisms that James Comey had about her carelessness in handling classified information.

MATHISEN: Let`s talk a little bit about the Republican reaction to the hearing today and in light of this sort of non-indictment indictment, if you will, of Ms. Clinton. It would seem that Republicans and Mr. Trump should be able to agree that this is a fruitful path to run against Mrs.
Clinton.

Did they come together, or was this meeting somewhat fractious?

HARWOOD: There were two meetings actually, and his meeting with the House, they did come together. Members were very positive coming out of the meeting. Paul Ryan gave a statement saying that we`re united in our resolve to defeat Hillary Clinton.

So, Hillary Clinton, there`s no question is a binding agent, a unifying force for Donald Trump helping him pull Republicans behind him.

HERERA: There have been some complaints though from Republicans about Mr.
Trump.

HARWOOD: That`s right. And we heard some of those in the Senate meeting, so first he goes to the House and has a meeting that was very positive.
Our own Larry Kudlow introduced him at that meeting and said that he felt members were coming together.

But in the second meeting in the Senate, you saw Jeff Flake, senator from Arizona, colleague of John McCain, the former Vietnam prisoner of war stand up and say I`m the one who wasn`t captured. I`m the senator who wasn`t captured. He and Donald Trump had a sharp exchange. He suggested that Jeff Flake may be in political trouble for distancing himself from him.
Flake reminded him he`s not up for re-election this year.

So, there`s still some tension points and Donald Trump has work to do to pull the entire party behind him from leadership level to rank and file.

HERERA: It`s going to keep being as interesting as it is has been all along.

John, thanks so much. John Harwood in Washington.

MATHISEN: Still ahead, just how rampant is age discrimination in tech- focused Silicon Valley? Federal investigators now want to know.

(MUSIC)

MATHISEN: Eight U.S. airlines have been tentatively awarded flights to Havana. They could start as early as this fall. The airlines named by the Department of Transportation are United Continental, Delta, American, JetBlue, Alaska, Frontier, Southwest and Spirit. These tentative plans are expected to be completed this summer. The move is the next step in restoring diplomatic ties with Cuba.

HERERA: A case of the munchies helps lift results at Pepsi, and that`s where we begin tonight`s “Market Focus”.

Strong demand for the company`s Frito Lay snacks as well as new drinks like Propel flavored water helped the company top earnings estimates. As a result, Pepsi raised its guidance for the year. Shares of PepsiCo briefly hit an all-time high of $109 per share before pulling back and ending up nearly 1 1/2 percent to $107.49.

Wendy`s said customers` financial information was compromised at more than
1,000 franchise-owned restaurants during a malware attack. The fast food chain first report it had earlier this year. The company said hackers were able to steal card holders` names, credit card numbers and expiration dates. Shares of Wendy`s were down eight cents to $9.55.

HERERA: Same-store sales over at Costco (NASDAQ:COST) topped street estimates. Sales in June remain flat at the giant retailer but that was still better than the 1 1/2 percent drop that analysts were expecting.
Shares of Costco (NASDAQ:COST) rose nearly 5 percent on the news to $163.70.

MATHISEN: June was a good month at the retailer L Brand. Same-store sales rose more than expected as the operator of Victoria`s Secret and Bath & Body Works said results were lifted by the timing of the Memorial Day and July 4th holiday. But despite the beat, L Brands sales for July to remain flat or to decline into the low single growth zone. Shares fell 1 1/2 percent to $67.43.

Paychecks to raise its quarterly dividend. The payroll software-maker will hike its dividend 10 percent to 46 cents a share, up from 42. In addition, the company will launch a $350 million share buyback program. Paychecks down marginally on the trade today to $60.59.

The anti-virus technology-maker Avast software will buy rival AVG technologies for more than a billion. Avast says the merger will allow it to make more personal security products and increase its geographical presence. Shares of AVG surged more than 30 percent to $24.58.

And the FDA has put a clinical hold on a Juno Therapeutics drug trial, this after some patients died. The news is a big blow to Juno Therapeutics and its use of genetically engineered white blood cells to treat adult leukemia patients. Shares fell more than 25 percent initially in after-hours trading as you see on that graphic.

HERERA: San Francisco is ground zero for the so-called gig economy which is made up of independent workers who can work where they want and when they want. But the big shift that`s happening in the nation`s labor market with the creation of on-demand workers isn`t happening in the city that started it all.

Josh Lipton has our story.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here in San Francisco, startups are up ending and redefining entire industries from travel to food delivery and home services.

But online platforms are having a big impact on one area, the workforce of San Francisco. That`s the conclusion of a new report from Ted Egan, the city`s chief economist. As of 2014, he found that about 30 percent of workers in San Francisco were either self-employed or working less than 35 hours per week. That`s roughly the same number as in 2000.

In other words, startups that rely on contractors to deliver food or clean homes haven`t significantly changed the overall job landscape. Egan says that`s because in part many of these startups are still relatively young, but it`s also because the San Francisco economy is strong.

TED EGAN, SAN FRANCISCO CHIEF ECONOMIST: Our unemployment rate is less than 3 percent and jobs are very plentiful here for people who want them.
And so, you don`t have a situation where people are forced into self- employment as much as you may have in other places where the economies are not as strong.

LIPTON: More recent data corroborate Egan`s conclusions, that JPMorgan
(NYSE:JPM) Chase Institute last year found that just 5 percent of workers in the San Francisco area derive income from online platforms, a small percentage, though larger than other cities.

Of course, there are some sectors where there has been an uptick in self- employment. Transportation, for example, has been impacted bid ride- hailing apps like Uber and Lyft.

And looking ahead, Egan says he would expect the gig economy to have more of an impact on the job market here as these startups continue attracting new users and the contractors who serve them.

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

(END VIDEOTAPE)

MATHISEN: Silicon Valley`s tech giant Google (NASDAQ:GOOG) is under fire for its employment practices. According to a lawsuit filed in a California federal court, the equal employment opportunity commission, the EEOC is investigating multiple complaints filed against the company for age discrimination in hiring. But does this go beyond Google (NASDAQ:GOOG)?

Joanna Lahey is a professor of economics at Texas A&M University`s Bush School of Government and Public Service. And Joanna joins us now.

Joanna, welcome. Good to have you with us.

From what you know, does Silicon Valley broadly speaking have an ageism problem? In other words, that they don`t hire enough folks who are above say 40 or promote or may be a little too quick to fire them?

JOANNA LAHEY, TEXAS A&M UNIVERSITY PROF. OF ECONOMICS: Well, it`s hard to say for sure if Silicon Valley specifically has an age problem. It`s generally thought that it does. The fact that the workforce is so young might indicate that.

HERERA: What about this EEOC investigation? It seems to me that they wouldn`t be investigating unless they thought there really was something going on at Google (NASDAQ:GOOG) that perhaps needs to be rectified.

LAHEY: Absolutely. The EEOC does not prosecute a lot of age discrimination claims unless they, you know, think that there really is strong evidence or compelling evidence for discrimination problem. Whether that goes beyond Google (NASDAQ:GOOG), it`s hard to say.

HERERA: As I understand this — these allegations, it has to do with hiring practices as opposed to promotion practices or firing practices. I would imagine that in a case like this, it is harder to make it or to prove it in cases of hiring than it might be in cases of promotion or firing, where you would have an internal record of the person`s performance.

LAHEY: Absolutely. That`s absolutely correct. It`s much easier for firms to discriminate at the hiring level precisely as you say because there`s no record.

And so, unless people at the hiring stage specifically say something, a smoking gun like oh, we don`t hire old people —

MATHISEN: You`re too old.

LAHEY: Yes, unless you say something like that, people don`t know are we –
– did I not get the job because I was not the most qualified person or, you know, is there something else going on like age discrimination?

HERERA: But there were multiple claims of this. So, what does that say or allege about the culture at Google (NASDAQ:GOOG)?

LAHEY: Well, you know, it`s — it`s hard to say. I mean, on the one hand, it could be that Google (NASDAQ:GOOG) does have a problem with age discrimination. That would be the most obvious answer, but it could also be just that, you know, older people are applying to Google (NASDAQ:GOOG) and they are not getting hired for whatever reason.

So, this will be really interesting to see how the EEOC case plays out.
Obviously either they must think that they have very strong evidence, compelling evidence, or they want to send a message to Silicon Valley.

HERERA: Exactly, yes.

LAHEY: That age discrimination is not OK, but we won`t really know until the lawsuit has been finished.

MATHISEN: This would be the kind of thing that would get other companies` attention, I would assume.

LAHEY: Absolutely.

MATHISEN: All right. How the Aggies going to be this fall, Joanna?

LAHEY: Great as always.

MATHISEN: All right. Good.

Joanna Lahey with Texas A&M University`s Bush School of Government and Public Service.

HERERA: Coming up, pets bring unconditional love to their owners and big business ideas to entrepreneurs.

(MUSIC)

MATHISEN: Here`s what to watch tomorrow, folks. As we reported, the employment report for June will be released. Expectations are for an increase of 165,000 non-farm payroll jobs. We`ll find out whether consumer borrowing increased or slowed down in May when the Fed releases its monthly consumer credit report and the energy markets will pay attention to the change in the number of active oil rigs. That`s what to watch Friday.

HERERA: Mortgage rates have fallen to near record lows, according to the latest Freddie Mac data, the average 30-year fixed rate dropped to 3.41 percent this week. A shift in interest rate expectations, a vote in the U.K. to leave the E.U. and a strengthening dollar have all combined to hold treasury yields low. The yield on the ten-year treasury is an indicator of whether mortgage rates will rise or fall. When yields drop, so do loan home rates.

MATHISEN: It`s no secret that we spend a lot of money on our pets, right, Ms. Sue.

HERERA: Oh, absolutely.

MATHISEN: Oh, my $5,000 cat`s surgery.

All that spending has given rise to a very lucrative industry and has created opportunities for aspiring entrepreneurs. Jane Wells takes a look at some of the hottest trends for our furry friends.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Let me smell your breath.

We treat our pets like they are humans. In fact, we think they are humans.

CARTOON CHARACTER: He`s going to be your brother.

WELLS: Actually, we love them more than humans. As universal`s “The Secret Life of Pets” hits theaters, the $60 billion-plus pet products industry is lapping up profits and spawning a new wave of entrepreneurs.

UNIDENTIFIED FEMALE: We make harnesses, dresses, life jackets, backpacks.

WELLS: Roni Di Lullo turning from computer programmer to pet product titan, creating goggles for dogs called Doggles used for sun protection to style. It`s now a $3 million a year business.

Veterinarian Tim Shu has created a line of medical marijuana products for pets sold in California dispensaries, even though vets cannot prescribe pot for pets yet.

UNIDENTIFIED FEMALE: That`s a good boy.

DR. TIM SHU, VETCBD FOUNDER: The sky`s the limit really in this industry because what we`re doing is we`re using medical marijuana for very common illness, you know, pain, arthritis, anxiety and these are common ailments that we see in the veterinary clinics every day.

WELLS: But no part of the pet industry may be growing faster than insurance.

RUSTY SPROAT, FIGO PET INSURANCE FOUNDER: It`s going to grow to I`m thinking $5 billion, $6 billion industry easily.

WELLS: Rusty Sproat founded Figo Pet Insurance which not only provides coverage for about $500 a year, but it also has an app which lets owners access their pet`s record in the cloud or find pet-friendly businesses.

SPROAT: Some reports say one out of every three Fortune 500 companies is offering pet insurance as a supplemental employee benefit. They`re contributing or they`re passing out a group discount.

WELLS: With 160 million dogs and cats as pets in America, we`ve come a long way since the days when Lassie had to sleep outside on the farm, and oh, by the way, Lassie was the first American pet to get insurance.

For NIGHTLY BUSINESS REPORT, Jane Wells, Thousand Oakes, California.

(END VIDEOTAPE)

HERERA: Those are her dogs.

MATHISEN: Jane and her bassets?

HERERA: Yes, Princess Leah and Eyore (ph).

MATHISEN: All righty.

HERERA: Now you know everything you need to know.

MATHISEN: They look good in Doggles.

HERERA: Doggles.

That does it for NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera. Thanks for joining us.

MATHISEN: Thanks from me as well. I`m Tyler Mathisen. I`ll be wearing my Doggles tomorrow. Have a great evening, everybody. We`ll see you.

HERERA: I dare you.

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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