Transcript: Nightly Business Report – August 8, 2016

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Chaos and cancellations.
A global computer failure halts all of Delta`s flights for hours, stranding tens of thousands of passengers                                                                     worldwide.

(BEGIN VIDEO CLIP)

DONALD TRUMP (R), PRESIDENTIAL NOMINEE: I am proposing an across the board
income tax reduction, especially for middle income Americans.

(END VIDEO CLIP)

MATHISEN: Taxes, trade and regulations. Donald Trump outlines a bold
economic plan he says will jump-start America`s economic growth.

Rules of the road. A Chinese company best known for a search engine is
focusing now on car engines, taking on some of Silicon Valley`s biggest
players.

Those stories and more on NIGHTLY BUSINESS REPORT for Monday, August 8th.

Good evening, everyone, and welcome. Sue Herera is off tonight.

Hundreds of flights cancelled. Thousands more delayed. That`s not what an
airline wants in the middle of the summer travel season. But that`s
exactly what happened today to Delta. A power outage in Atlanta where
Delta is based triggered a worldwide computer outage, grounding flights for
six hours.

Tens of thousands of passengers were marooned. Nothing worked. There was
no check-in system, no updated airport screens. Even the website was
affected. Boarding passes, such as they were written, had to be written by
hand.

And the chaos pressured shares of the world`s second largest airlines.
This is just the latest in a string of challenges facing the travel
industry this summer. It started back in May with the long snails paced
security lines. Now terror, Zika fears, they maybe starting to take a
toll.

Susan Li is at LaGuardia airport in New York City with more on Delta`s
massive delays.

(BEGIN VIDEOTAPE)

SUSAN LI, NIGHTLY BUSINESS REPORT CORRESPONDENT: All Delta flights
worldwide were grounded for hours after an early morning power outage in
Atlanta crashed the airline`s global systems. Delta says that hundreds of
flights were cancelled with many more experiencing long delays.

ED BASTIAN, DELTA AIRLINES CEO: I apologize for the challenges this has
created for you with travel experience. The Delta team is working very,
very hard to restore and get these systems back as quickly as possible.

LI: Adding to the travel confusion status boards weren`t updated
correctly, owing to the system outage, some erroneously displaying the
flights were either at the gate or even on time, frustrating customers.

UNIDENTIFIED MALE: We had no warning whatsoever that they were — the
system was delayed.

UNIDENTIFIED MALE: They had to do everything manually and they couldn`t
get the computers to work. There was no checking your bags or anything.
It was just — it`s a hassle.

LI: Most passengers that we spoke to said that Delta personnel handled the
situation relatively well. Delta has issued a system-wide waiver for those
being affected by Monday`s travel chaos. So, Delta will now refund the
passengers or rebook for those that have been affected by cancelled flights
or significantly delayed up the 12th.

For NIGHTLY BUSINESS REPORT, I`m Susan Li at LaGuardia Airport.

(END VIDEOTAPE)

MATHISEN: Whether it`s an airline outage, Zika or terror fears, the
problems for the travel industry do seem to keep on coming. But how much
of an impact are these factors having on the industry?

Hannah Sampson is associate editor for the online travel news and
information website Skift, and she joins us now to discuss.

Hannah, welcome. Good to have you with us.

HANNAH SAMPSON, SKIFT ASSOCIATE EDITOR: Thanks so much.

MATHISEN: I am assuming, correct me if I`m wrong, that the kinds of
computer glitches, outages that happened today at Delta happened a couple
of weeks ago to Southwest. They have plagued United in the past.

Are things that if they`re not recurring passengers forgive and forget
pretty quickly?

SAMPSON: Yes, it usually tends to be a big headache and maybe it`s in the
news for a couple of days but people travel and don`t change their plans
because of a power outage that led to delays. I think it is a flash in the
pan but then people forget and go about their business pretty quickly.

MATHISEN: If you were caught in it, you might have a different answer to
that, I suspect, if you were today were stranded as many thousands of
passengers were. You might not be so quick to forgive and forget.

Let`s talk more broadly about how the travel business is weathering some of
the challenges that it is facing this summer. Everything from those terror
worries to concern about Zika and more.

SAMPSON: It hasn`t been an easy year, and definitely, it hasn`t been an
easy summer for the industry. I think what we are seeing and what we`re
hearing across the entire industry is that people are still traveling.
They are being a little more cautious about how they are traveling. So
maybe they are not going to some of the destinations that have been
targeted by terror attacks or maybe they are not going to places that have
rapidly spreading Zika.

MATHISEN: Where is that being felt? Are we getting documentation, for
example that travel is off a little bit to France, to Belgium, to Turkey,
and maybe there are other places including the national parks of the U.S.
picking up some of those travelers?

SAMPSON: That`s certainly — no one wants to benefit from someone else`s
misfortune. A lot of destinations are making it clear to say that. But
when France and Belgium and Turkey, for example, are feeling the pinch
because people are concerned about safety going there, other destinations
in Norway or the U.K. or especially domestically in the U.S. are feeling a
lot more optimistic because they think it is a better option.

MATHISEN: Has the British Brexit vote affected travel to or from Britain
into the U.S.? British travelers are big travelers and they come to the
United States. Has that affected their predilection to travel or has the
strong dollar discouraged Europeans from coming here?

SAMPSON: There`s a whole mixed bag of factors right now. So, right after
the Brexit vote, which I think surprised a lot of people, you could hear a
lot of Americans saying, well, let`s go ahead and take that summer trip to
London right now. And at the same time, U.S. companies are concerned about
the impact they are going to see from Brits coming to the U.S.

It`s still kind of up in the air, how that`s going to turn out. But I
think that there are a lot of destinations here in the U.S. trying to cater
more to domestic travelers. Because they fear the fallout from the U.K.
and Europe.

MATHISEN: All right. Hannah, thank you so much. Hannah Sampson with
Skift tonight. We appreciate it.

SAMPSON: Thanks.

MATHISEN: Well, on Wall Street, eased back from record highs set last
week. The declines led by health care names and came despite a rise in oil
prices and a big rally in energy shares. The Dow Jones Industrial Average
fell to 18,529. NASDAQ dropped nearly eight and the S&P 500 off about two.

As for oil, there are reports that OPEC is planning informal talks for
September. That raised hopes for an output freeze or cut even. That sent
the price of domestic crude up nearly 3 percent on the day.

Well, Donald Trump today vowed to make America`s economy great again.
Speaking at the Detroit Economic Club, the Republican presidential nominee
said he would cut taxes, revamp trade agreements and he proposed a
moratorium on new regulations.

John Harwood is on the beat from the Motor City.

Hi, John.

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hi, Tyler.

You know, Donald Trump tried to jumpstart his campaign which has been
struggling of late with the economic speech here in Detroit. In addition
to the familiar regimen of tax cuts, he added a new proposal that his
daughter Ivanka had signaled in her speech at the recent Republican
convention.

(BEGIN VIDEO CLIP)

TRUMP: No one will gain more from these proposals than low and middle
income Americans. My plan will also help reduce the cost of child care by
allowing parents to fully deduct the average cost of child care spending
from their taxes.

(END VIDEO CLIP)

HARWOOD: Now, in addition to that new child care proposal, he reiterated
the desire to renegotiate trade deals like NAFTA, pull out of the Trans
Pacific Partnership, roll back regulations including Obamacare and
Dodd/Frank. As for the tax cuts he did change those proposals slightly.
Last September he rolled out a plan that had three rates — 10, 20 and 25
percent is the top rate. He had new rates today. Take a listen.

(BEGIN VIDEO CLIP)

TRUMP: We will work with House Republicans on this plan, using the same
brackets they have proposed — 12 percent, 25 percent, and 33 percent.

These reforms will offer the biggest tax revolution since the Reagan tax
reform. Which unleashed years of continued economic growth and job
creation.

(END VIDEO CLIP)

HARWOOD: Now, the new tax proposal accomplished two things. One, it
aligns him closely with Paul Ryan, the speaker and House Republican. It
also reduces the deficit impact of his tax plan which had initially been
estimated at $10 trillion added to the deficit over ten years. Don`t have
a new estimate yet, but his aides say one will be coming in a new tax
speech in coming weeks, guys.

MATHISEN: All right. This new deductibility of child care expenses is one
thing. Lowering the business tax rate to 15 percent is another.
Interesting to see what the effect on deficit will be.

Do we know and I don`t want to get much into the weeds, John, here, because
we may not know how that deduction for child care expenses would work.
And, of course, most people who have write-offs on their taxes are
wealthier and don`t use the standard deduction.

HARWOOD: Right. We don`t know, Tyler, first of all, whether it is
refundable so people without income tax liability would be able to benefit
from it. If not, that means the benefits would skew toward the upper end
of the income scale. And we also don`t know whether or not this is
something that will exist on every tax form irrespective of if you itemize
or take a standard deduction.

A lot of unanswered questions. Again, in the case of the child care plan
they will have more details in the coming weeks.

MATHISEN: I was struck by two things. He stuck to the script religiously.
It was an un-Trump Trump today. In the face of multiple hecklers, he kept
his cool.

HARWOOD: He was very disciplined. I`m sure that pleased Republicans in
his campaign and beyond.

He was still Trump though. At one point, he said something that was flat-
out false about Hillary Clinton`s economic proposals. He quoted her as
having said last week, we are going to raise taxes on middle income
families. In fact, she said we aren`t going to raise taxes on middle
income families.

MATHISEN: All right. John Harwood in Detroit for us tonight, thanks very
much.

Well, both Trump and Clinton have proposed spending a lot more on
infrastructure as a way to grow the economy. Today, “New York Times
(NYSE:NYT)” op-ed columnist Paul Krugman wrote about needing increased
public investments in everything, from energy to transportation. And
according to “The Wall Street Journal”, Wall Street is urging governments
to invest in big ticket projects now while interest rates are so low.

Joining us to discuss is the writer of “The Wall Street Journal” article,
David Harrison.

David, welcome.

Your piece this morning was interesting, because while people are talking
about infrastructure projects, people are urging state and local
governments to borrow. They`re not doing it. What`s the number — what do
the numbers say and why?

DAVID HARRISON, WALL STREET JOURNAL REPORTER: Yes, right. So, state
government — state and local governments were really, really hard hit
during the recession. They had to make some really drastic budget cuts
that were really painful. Now that things are slowly getting better, they
are still a little skittish about borrowing a lot of money.

So, borrowing my state and local governments, the issuance of municipal
bonds is off somewhat from the prerecession pace. I think they are now
around a little shy of $150 billion a year which is quite a bit lower than
it was before. So, there are still some anxiety and some nervousness on
the part of these governments for taking, for issuing new bonds and
borrowing a lot —

MATHISEN: I guess it`s not just the governments that are gun shy. It is
the voters, because in many states, including the one I live in, most —
many if not all of the bond issues have to be approved at the polls.

HARRISON: That`s right. It`s definitely a concern for a lot of states.
You`re right. A lot of places — you have referendums that voters have to
approve. You have the situation right now that`s kind of strange where one
of the main sort of drivers of new borrowing isn`t so much the interest
rates, but it`s the popular mood. Right now, the popular mood is
definitely very sort of anti-tax, anti-borrowing. That`s holding back a
lot of bonds —

MATHISEN: You know better than I whether states are in better fiscal shape
and could take on additional borrowing. Tell me about that. And,
certainly, the interest rates are as favorable as I have ever seen them. I
have been around a long time.

HARRISON: Yes, that`s right. So, the fiscal picture, it is improving
somewhat, but it hasn`t improved very much. It`s been slow to come back.
That`s largely due to the fact that, you know, incomes haven`t really come
back much. So, states are in a better fiscal situation. It is not great
yet. It`s harder.

And then on the yield perspective, they are really, really low because of a
number of factors because the Federal Reserve kept rates low, and also
because investors are looking for safe investments. Municipal bonds are
one of the safest.

MATHISEN: All right. Thanks very much, David. We appreciate it. David
Harrison of the “Wall Street Journal”.

HARRISON: Thank you.

MATHISEN: Well, there is one major question that is hanging over the
economy that has economists puzzled. How can growth be so weak at the same
time the labor market is strong?

Steve Liesman takes a look at this latest economic puzzle.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: When it comes to the
economy e days we have a split decision.

In one corner, weak growth. In the other, the strong jobs and investors
economist and the Fed struggling to find out which is better. At 255,000
jobs in the month of July, job growth weighs in well above average at just
1 percent, though, economic growth is a full fledged weakling, a whole
point below average.

Economists, though, are betting on jobs.

DREW MATUS, UBS INVESTMENT BANK: The question is, what can we measure
better, the number of people working or the entire U.S. economy on a
quarterly basis? I think — your money has to be on the labor market being
the right signal.

LIESMAN: One way to deal with the split is to call a tie.

BOB DOLL, NUVEEN ASSET MANAGEMENT: So, the GDP was one. The employment
number suggests something like three. The truth is in the middle. We`re
growing two.

LIESMAN: What does it mean for stocks? More jobs and less growth suggests
companies might be less profitable but consumers richer, and that could be
OK for equities.

DOLL: That`s not going to give us double digit stock market, but it can
give us, you know, four to six percent, couple of points for dividend, six
to eight over the next five years or so. That would be fine.

LIESMAN: What does it mean for the Fed? If the reason for the split
decision is one of he data points is wrong, it would be a policy mistake.
The Fed might stay too low while inflation and the economy heat up.

But the Fed is more worried about weak growth more than strong jobs.

MATUS: They`re going to be a little confused. And confusion breeds
caution. And I think we`ve already seen that and UBS expects we`re going
to continue to see it. So, we are expecting the first rate hike in
December.

LIESMAN: By then, the Fed should have a better idea if strong jobs knock
out weaker growth.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: Still ahead — still not sure which way the economy is headed?
We look to the transportation sector — trucks and trains mostly — for
some clues.

(MUSIC)

MATHISEN: A number of smaller mergers were announced today. Walmart made
official the acquisition we told you about last week. The world`s largest
retailer will buy the ecommerce startup jet.com. The all cash deal valued
at $3 billion and helps Walmart better compete online. Digital sales still
just a fraction of Walmart`s overall business. Shares of Walmart fell
fractionally today, as you see there.

The South African company Steinhoff will pay about $2.5 billion to the
owner of Sleepy`s company owner Mattress Firm. This is Steinhoff`s first
move into the U.S. market. The deal will create the world`s largest multi-
brand mattress retail distribution company. Shares of Mattress Firm, well,
they were firm today, up 114 percent to $63.75.

Vail Resorts (NYSE:MTN) will buy the Canadian resort Whistler Black Comb
for a little more than a billion dollars. The acquisition further
diversifies Vail`s locations and will expand its season pass program. The
transaction expected to close in the fall of this year. Shares of Vail up
about 8 percent on the session.

And TIAA confirms it has reached a deal to buy EverBank Financial for $2.5
billion in cash. The takeover design to bolster the banking business and
comes about two weeks after EverBank said it was in talks for a buy out.
Shares of EverBank up about 3 percent in trade today.

Well, transportation is one of the most closely watched industries and that
is because it`s viewed as a proxy for the health of the economy. More
goods move in rail or truck, that means in theory there is more economic
activity. For a while, the stocks that make up the sector haven`t been
performing as well as the broader market. But that looks like it is
starting to change.

Morgan Brennan has tonight`s “Sector Spotlight”.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Dow Transports
has finally begun moving higher, outperforming the broader stock market
since the start of July. It`s a big difference from earlier this year when
the transportation average was trading down almost 30 percent from the late
2014 high, as Wall Street feared, another recession.

The reversal is important because transports have long been seen as a
barometer of economic health. What are transports signaling now?

CHRIS WETHERBEE, CITI INVESTMENT RESEARCH: The demand is OK, but not
great. It`s just coming off a fairly week base, still relatively muted
economic environment that we`re in right now. We`d love to see a little
bit better activity to kind of give us a little bit more conviction in the
economy getting better.

BRENNAN: Case in point: truckers. Trucking is a leading economic
indicator, since 70 percent of all goods in the U.S. move at some point by
this mode of transport. The American Trucking Association report tonnage
has tumbled this year amid weak shipments and too many trucks on the road.

But recently, there`s been a slight uptick in demand. That`s helped stocks
like Knight Transportation (NYSE:KNX), Swift Transportation, Werner
Enterprises (NASDAQ:WERN) and a small but closely watched company called
Covenant Transportation jump this quarter.

Then, there`s the railroads. After being battered by the classic commodity
prices, shares of Union Pacific (NYSE:UNP), CSX (NYSE:CSX), Norfolk
Southern (NYSE:SO) and Kansas City Southern (NYSE:SO) (NYSE:KSU) have
chugged higher this quarter despite tepid earnings. Why? Experts believe
U.S. rail lines after freefalling for more than a year may finally be
bottoming out.

WETHERBEE: We have seen the pick up in freight activity in the months of
June and July. We have seen it on the rail side with an improvement in
some of the bulk commodities like coal and grain, that`s picked up from the
troughs earlier in the second quarter. We have also seen it on the truck
side a little bit.

And I think it`s partly due to, you know, more seasonality in the weather.
We`ve got a hotter summer start and I think that`s starting to move volume
through.

BRENNAN: Investors view railroads, another hard hit transport stocks as
potential value plays, since they are trading at lower multiples, relative
to other industrial companies, a reversal from just two years ago. But
while the worst may potentially be over for the sector, trade volumes have
a long road ahead to return to their 2014 highs. And key factors including
inventory levels, energy prices and the strength of the dollar could still
derail a recovery, at least where this sector is concerned.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN: Profit rises at Sotheby`s, and topped expectations, and that is
where we begin tonight`s “Market Focus”.

The auction house said cost cuts and higher commission margins lifted
earnings. Lower inventory sales did drag down revenue. But even so, those
results were still good enough to top estimates. Shares rose to 13 percent
on the day, to $36.49. Biggest one day gain there in more than four years.

Milk prices helped to drive profits higher at the dairy producer Dean Foods
(NYSE:DF). However, those results came in on the skim side, a little
light, missed estimates. The company also said revenue for the quarter
fell because of an overall drop in volume. Shares down 3.5 percent to
$18.16.

Strong product demand and lower prices for animal feed helped Tyson Foods
(NYSE:TSN) top profit expectations. Revenue at the meat processor did
fall. It was still good enough to surpass street targets. The company
also raised its full year earnings guidance. Shares finished the day up
fractionally, $74.07 at the close.

Robust sales of the drug Botox drove revenue higher at Allergan (NYSE:AGN),
but those results missed still street expectations. The biotech company
saw its loss widened but still managed to top earnings estimates by a
penny. In addition, Allergan (NYSE:AGN) cut its revenue forecast for the
year and said it does not plan to enter into merger talks. Shares for the
day down 2 percent at $248.31.

News Corps posted an uptick in sales in the latest quarter, thanks in part
to strong performance in the company`s digital real estate segment.
However, those results were shy of street targets. The owner of the “Wall
Street Journal” said it has regained profitability but earnings for the
quarter missed estimates. Shares were flat in after hours trading as you
see there after finishing the regular session up a tick at $12.84.

Coming up, hitting the road. The Chinese company that`s competing against
some powerful Silicon Valley firms to change driving as we know it.

(MUSIC)

MATHISEN: The man who is instrumental in building Google`s self-driving
car business is leaving. Chief technician Chris Urmson joined Google
(NASDAQ:GOOG) back in 2009 to join what was then a secret project. The
decision comes about a year after Google (NASDAQ:GOOG) hired a former
Hyundai executive to run its car unit. According to reports, two other top
executives have left the project as well.

Well, Google (NASDAQ:GOOG) is not the only company with big plans for a
self-driving car. Far from it. The Chinese company Baidu (NASDAQ:BIDU) is
also trying to compete and it is hiring a lot of people from Silicon Valley
to help in its effort.

Eunice Yoon reports from Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Chinese internet giant
Baidu (NASDAQ:BIDU) is moving fast to create a self-driving car.
Considered the Google (NASDAQ:GOOG) of China, Baidu (NASDAQ:BIDU) is known
more for its search engine rather than its car engines. Yet, Baidu
(NASDAQ:BIDU) is betting that like its American counterpart it can develop
the automobile of the future.

WANG JING, BAIDU SENIOR VICE PRESIDENT: Down the road, in the future, the
car will be called a smart car. And being a smart car, the value of the
software will be much more important than the body and the hardware.

YOON: Until now, Chinese companies have lagged behind their foreign rivals
in the auto industry. But new internet and electric technologies promised
to reset the starting line. Chinese firms are hoping to get an edge.

Baidu (NASDAQ:BIDU) isn`t interested in making the actual car, just the
brains.

JING: I think Baidu (NASDAQ:BIDU) really builds up strength in A.I.
technology. So, we have been very innovative in this area.

YOON: The company has hired hundreds of people in Silicon Valley to focus
on A.I. or artificial intelligence. It is now among the top tech firms
applying deep learning, where computers learn by themselves.

It`s also tailoring its in-car systems, so the country`s tech savvy drivers
can connect with their smartphones. Baidu (NASDAQ:BIDU) maps have more
than 70 percent of the Chinese market.

ZHANG HUI, BAIDU TELEMATICS GENERAL MANAGER (through translator): Here are
our applications. You can use them for phone calls, browse maps, to
navigate and use voice recognition, because it`s hard to type while
driving.

YOON: Do you think that this app could be popular outside of China as
well?

HUI: This year, the Baidu (NASDAQ:BIDU) map app will be available in more
than 190 countries. When the map becomes more popular overseas, we`ll
consider bringing the car system abroad as well.

YOON: Baidu (NASDAQ:BIDU), together with various awesome they are aiming
to sell a completely driverless car on a mass scale in five years.

JING: We believe we can build the best self-driving cars in the world.

YOON: Why is it important for you to be first?

JING: Because when we`re bringing more cars, self driving cars on the
road, you can collect more data. The more data, the system will be
smarter.

YOON: Potentially helping Baidu (NASDAQ:BIDU) to surpass its rivals on the
road.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon.

(END VIDEOTAPE)

MATHISEN: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Tyler
Mathisen. Thanks so much for watching. Have a great evening, everyone.
And we hope to 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) 2016 CNBC, Inc.

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