Transcript: Nightly Business Report – November 3, 2016

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: The last big number. The final employment report before the election comes out tomorrow. What to expect, and what it means for the economy and the vote.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Long losing streak. The S&P 500 falls for the eighth straight day, something it hasn’t done since the financial crisis. Just a hiccup or something more?

HERERA: Hacking your home. How seemingly harmless devices in your living room or kitchen could open the door to cyber attacks.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday, November 3rd.

MATHISEN: Good evening, everyone, and welcome.

Tomorrow, both Wall Street and Main Street will get one last look before Election Day at a key economic measure, the employment report for October is due out at 8:30 a.m. Eastern Time. It will provide information on the number of jobs created, wage growth, hours worked, and it is the final big number to hit before Americans head to the polls to vote for the next president.

Hampton Pearson tells us what to expect.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: On the eve of the last government jobs report before the presidential election, economic data is mixed.

First time unemployment claims increased by 7,000 last week to a seasonally adjusted 265,000. It’s the highest level since early August but still at historic lows. New private industry surveys also show a slowdown in both hiring and production in the services sector, which accounts for two-thirds of all economic activity.

But signs of job market strength include more than 5.4 million job openings, and a big decline in planned layoffs last month. A closely watched outplacement survey shows just under 31,000 job cuts in October with most of the cuts confined to the computer industry, compared to more than 44,000 in September, a 31 percent decline.

JOHN CHALLENGER, CHALLENGER, GRAY & CHRISTMAS CEO: I think it suggests that employers right now really are holding onto their people, their expectations certainly aren’t declining. For most businesses, you take those layoffs when you just need to cut because of the revenues that are falling.

PEARSON: This week, Federal Reserve monetary policymakers held off on raising interest rates but said the case for an increase in the federal funds rate has continued to strengthen.

The consensus forecast predicts employers at 173,000 new workers to payrolls last month, with a slight dip in the unemployment rate to 4.9 percent.

JARED BERNSTEIN, CENTER ON BUDGET & POLICY PRIORITIES: While the job market has very much improved and continues to do so, it hasn’t reached everyone. So, it’s very important to stay on track.

PEARSON: Make no mistake about it: one last jobs report right before the election will get the attention of both Main Street and Wall Street.

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

(END VIDEOTAPE)

HERERA: Two other economic reports today show slowing growth in the services sector and a rise in factory orders. The Institute for Supply Management said its gauge of service sector activity fell last month amid a slowdown in orders and hiring. Meantime, new orders for factory goods rose more than expected for the third straight month.

MATHISEN: And here is some terrific economic news. Another economic report showed worker productivity increased at its fastest pace in two years. That helped curb growth in labor costs. According to the Labor Department, non-farm productivity, which measures hourly output per worker rose at 3.1 percent as an annual rate in the third quarter. This is an improvement from the previous three-quarters which saw a decline in productivity.

HERERA: The Chicago Cubs did something they haven’t done since 1908, and today, the S&P 500 did something it hasn’t done since 2008. The index logged its longest losing streak since the financial crisis, down eight straight days. The other indexes were also lower. The Dow Jones Industrials Average fell nearly 29 points to 17,930. The NASDAQ dropped 47. And the S&P 500 was off nine.

Bob Pisani takes a look at what’s behind the decline.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was another down day for the markets. This is the eighth straight down day for the S&P 500. The last time that happened, 2008.

What’s the problem? The problem is the election, the Fed, and oil. Election jitters continue to dominate the market. While most polls show Clinton in the lead, but the margin has narrowed in the last week.

Some sectors are already affected by the election. Health care, for example, has been down for more than a month, over concerns a Clinton White House would attempt to heavily regulate the drug industry. And there was a report today that the U.S. Justice Department may file charges against more than a dozen drug companies for working together to raise generic drug prices.

And crude oil keeps dropping, sinking to its lowest level in five weeks, to just under $45 a barrel. It’s down more than 10 percent in the last couple of weeks. There’s too much oil in the world, that’s good news for consumers.

Finally, there’s the Fed. A rate hike is likely coming in December, and the market has slowly been adjusting to the prospects of higher rates, somewhat higher inflation and a little more volatility.

So far, the effects of all this have been modest. The S&P is only 5 percent off the historic highs we hit just a few months ago.

For NIGHTLY BUSINESS REPORT, I’m Bob Pisani at the New York Stock Exchange.

(END VIDEOTAPE)

MATHISEN: Well, as investors keep one eye on the latest presidential polls, the nation is also watching California, the biggest state. Voters will make decisions there on 17 different ballot initiatives.

And as Jane Wells reports, some could set a national precedent.

(BEGIN VIDEOTAPE

SEN. BERNIE SANDERS (D), VERMONT: The entire nation is looking at California.

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Californians love taking on big issues. And this year, 17 ballot propositions tackle everything from sex and drugs to death and taxes.

SIR RICHARD BRANSON, VIRGIN GROUP: And if California can do it, I suspect the rest of America will follow suit.

WELLS: A budget busting half billion dollars has been spent to promote or defeat the proposals, with the most money being poured into Prop 61.

Prop 61 would cap the price the state pays for prescription drugs for its workers and state public employee unions. That cap would match the federal discount given to the V.A.

UNIDENTIFIED MALE: Please join veterans in voting no on this initiative.

WELLS: But every political party, newspaper, and veterans group has come out against it, fearing drug companies will react by raising everyone’s drug prices so that the cap rises, too.

In this voter guide, it turns out many of the propositions will have a huge financial impact on the nation’s largest economy here in California. Whether it is taxing legal pot, extending income tax on the state’s richest residents, adding a $2 a pack tax to cigarettes, and even the death penalty is getting a second look for financial reasons.

UNIDENTIFIED MALE: It is a disgrace.

WELLS: Actor Mike Farrell and Richard Branson supports Prop 62, which would end the death penalty, because one estimate claims Californians have spent $5 billion maintaining death row and funding appeals without a single execution in a decade. And finally —

UNIDENTIFIED FEMALE: OK. So I’m going to watch one of my own scenes here.

WELLS: One proposition would probably kill off what was once an estimated $4 billion California industry, porn.

UNIDENTIFIED MALE: I used to work for studios that always use condoms.

WELLS: Prop 60 would allow any Californian to sue a porn producer if it was suspected condoms were not used and it provides a financial incentive to sue.

KELLY HOLLAND, PENTHOUSE PRESIDENT: That person who sues at the expense of the state of California underwriting their lawsuit gets 25 percent of whatever fines are levied against who get sued.

WELLS: A lot to vote on next Tuesday. And if past propositions are any indication, what happens in California doesn’t always stay in California.

For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.

(END VIDEOTAPE)

HERERA: And voters in a number of states will have for her decision to make. They’ll be asked whether the minimum wage should be raised.

And as Kate Rogers reports, there are some who support the economic measure and others who do not.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Come Election Day, minimum wage workers in four states may be getting a raise. Arizona, Colorado, and Maine all have ballot initiatives to hike their state wages to $12 an hour while Washington state will vote on an even higher number, $13.80, all increases would be phase income by the year 2020.

In Boulder, Colorado, Julia is supporting the $12 initiative. The owner of Products Architect Inc. already pays her workers above the local wage of $8.31 an hour but says paying workers a fair wage is an employer’s responsibility no matter the size of the company.

JUDY AMABILE, PRODUCT ARCHITECTS, INC.: We see that as a fundamental fairness issue that if you’re going to occupy somebody’s time for 40 hours a week, you ought to provide them with a wage that’s sufficient for them to at least get by, put a roof over their head, and put food on their table.

ROGERS: State and local ballots to raise the wage have picked up steam in recent years as the federal minimum wage has remained stagnant at $7.25 an hour since 2009. Currently, 29 states and Washington, D.C., have wages above the federal minimum. Wage advocates say ballot initiatives next Tuesday will put even more pressure on Congress to take action.

LAURA HUIZAR, NATL EMPLOYMENT LAW PROJECT: The growing movement for higher wages across the country is showing that you can increase wages and improve communities, improve conditions for families, and workers. And so, there is a strong message that Congress should do something. And we expect that all of the momentum that’s been building for the last couple of years will mean federal action soon.

ROGERS: With tensions already high on Main Street ahead of the election, momentum for a higher federal minimum wage has some concerned.

JUANITA DUGGAN, NFIB PRESIDENT AND CEO: We see the uncertainty index among small business owners has reached a 42-year high in advance of this election, because they’re very worried about hikes in minimum wage, the rising health care costs under Obamacare. They can’t raise prices. So they will not be able to absorb these higher labor costs.

ROGERS: Both presidential candidates have called for a higher federal wage. Republican nominee Donald Trump settling on $10 a level at the federal level while Hillary Clinton has called for $12 an hour at the federal level and $15 in cities and municipalities where that jump is economically feasible.

No matter who wins the election, it’s clear the momentum for a higher wage nationwide is only building.

For NIGHTLY BUSINESS REPORT, I’m Kate Rogers.

(END VIDEOTAPE)

MATHISEN: At what point, though, do higher wages start to become a real burden for employers? It’s at the heart of the discussion.

Mark Hamrick is the senior economic analyst at Bankrate.

Mr. Hamrick, welcome. Good to have you with us.

What do you think, when does a higher wage begin to become sort of counterproductive for labor in that it means fewer people hired, maybe even more people laid off?

MARK HAMRICK, BANKRATE SENIOR ECONOMIC ANALYST: Well, let’s put it this way. As that report referenced, there have been efforts along these lines for several years now that have been end runs around Washington. It’s interesting that in many cases, these are ballot initiatives initiated by people as opposed to elected leaders. And the people who vote on them favor the ballot initiatives.

To your question, wherever that point is, we aren’t nearly there yet. This does seem to be an experiment in action. And so, as we see some of these minimums move to $15 an hour, for example, in New York state, we’ll see how it works out.

But, you know, I think also, there is a sense that because we’ve had such income inequality developing in recent years, the time has come to try to lift people at the lowest levels of our society. It is effectively a political solution to an economic problem.

HERERA: Do you agree that bigger companies will have an easier time handling any possible increase in the minimum wage versus the Main Street businesses that are employer-owned?

HAMRICK: Obviously, if you have scale, and you have the volume to absorb the cost, it’s going to be easier for a larger enterprise to indeed take care of that. And in the case of New York state, indeed, they changed the way the law applies to larger employers, in this case 11 employees or above as I recall, and also had the minimum less aggressively rising in areas farther away from New York.

So, yes, if you are a larger company, obviously, you can absorb it. But there’s plenty of surveys out there on the part of the businesses that indicate there’s another unintended consequence, and that is helping businesses to attract better employees.

MATHISEN: I know restaurateurs are very worried about the idea if they’re required to pay waiters and waitresses a full minimum wage and get no tip credit, it could really, really impact their businesses.

Let me ask a more fundamental question, Mark, and that is, is there a real reason for a minimum wage? If a worker wants to go to work at a price and it’s below the minimum, why shouldn’t she or he be allowed to do that?

HAMRICK: Well, it’s the same answer to the earlier point about this being a political solution to an economic problem. You know, the question is, should an employee or prospective worker be forced to abide by the laws of the land? Well, the answer is yes, to the same extent the laws have to apply to the employer.

And so, in many cases, we’ve had Americans deciding that the economic solution to income inequality as determined by the marketplace has been insufficient or less than satisfying, and in many cases, voters have said yes. By the way, this has tended to be a bipartisan issue. Only in recent years has this become something that has divided our elected leaders.

The polls show Republicans and Democrats and independents support minimum wage boosts.

MATHISEN: All right. Mark Hamrick, thank you very much. Mark is with Bankrate.

HAMRICK: Thank you.

HERERA: Still ahead, have smart devices in your home? Well, they may be the next target for hackers.

(MUSIC)

HERERA: As Bob Pisani mentioned a bit earlier, U.S. prosecutors could file charges against some generic drug makers, as part of an investigation into pricing. According to Bloomberg, the charges could come by year’s end. The investigation includes more than two dozen drugs and a dozen companies, including Mylan, Teva, and Endo Pharma, all of which fell today on that report.

MATHISEN: The SEC is investigating Wells Fargo over its sales practices. That agency now joins the Departments of Justice, the offices of state attorneys general, and congressional committees that want more information on those unauthorized accounts that bank open for customers.

As we reported, regulators say bank workers created those accounts to meet sales goals. Wells Fargo also increased its legal reserves fund.

HERERA: Americans are drinking their coffee. Starbucks saw its profits rise as sales increased and topped expectations in the most recent quarter. The world’s largest coffee chain earned 65 cents a share. That was a penny better than estimates. Revenue climbed 16 percent to more than $5.5 billion.

The company announced an increase in its dividend. But shares in initial after-hours trading were volatile.

Susan Li has more on Starbucks’ results.

(BEGIN VIDEOTAPE)

SUSAN LI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The big driver behind the rally in Starbucks shares in the after hours, it’s the increase in dividends, raising the return back to shareholders by 25 percent. But it was another quarter, though, of disappointing global same store sales, which is how restaurants and coffee chains are judged. A third straight mess for Starbucks with comparable sales only increasing by 4 percent, where is the market was looking for gains of 4.9 percent. That has investors and some analysts concerned that maybe we’ve seen a peak in Starbucks’ global business, which is why the stock is trading at close to one-year lows this weekend, down some 13 percent so far this year on Wall Street.

Meantime, Starbucks is making a big push into China, predicting that China will overtake the U.S. as its biggest market in the future, building at least one new Starbucks every day in China over the next five years. Sales there came in better than expected with gains of 6 percent.

Now, other multinationals like Yum and McDonald’s in their recent earnings reports said sales were hurt by protests and boycotts after a South China Sea ruling against China. Starbucks, though, in the quarter saw no impact.

For NIGHTLY BUSINESS REPORT, I’m Susan Li.

(END VIDEOTAPE)

MATHISEN: Facebook shares fell despite a blowout quarter for the social network. We reported it last night. On the conference call, the company surprised investors when it said its strong ad base was set to slow. That pressured the stock today, as you see right there.

Julia Boorstin takes a closer look at Facebook’s growing pains.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Facebook says it’s reaching its limit on how many ads users see in their news feeds. And it won’t be able to continue to rely on increasing its ad load to drive revenue growth.

Facebook’s CFO David Wehner explaining the company’s outlook on its earnings call last night.

DAVID WEHNER, FACEBOOK CFO: Ad load has been one of the three primary factors fueling that growth, with a much smaller contribution from this important factor going forward, we expect to see the ad growth rate coming down meaningfully. Secondly on expenses. Though it’s premature to provide specific expense guidance, as Mark mentioned, we anticipate 2017 will be an aggressive investment year.

BOORSTIN: That aggressive investment CFO David Wehner and CEO Mark Zuckerberg talked about will be in hiring, engineers particularly, as Facebook looks to innovate to keep users coming back and also to grow ad revenue.

And analysts point out that Facebook’s growth isn’t entirely reliant on increasing ad growth.

YOUSSEF SQUALI, CANTOR FITZGERALD ANALYST: We think growth in users and growth in engagement are even more important in ad load. And then, you have Instagram, which has just started monetizing. In 2018, you’re going to have the kick-in of messenger.

So, I think this train has a number of engines that will continue to make it grow, probably to 30 to 40 percent rates for the next couple of years.

BOORSTIN: Some analysts, including Nomura’s Anthony DiClemente, say limiting ad loads is actually a good thing for Facebook’s long term potential. When it comes to staying engaging in the face of growing competition from the likes of Snapchat, which has 150 million daily active users.

ANTHONY DICLEMENTE, NOMURA ANALYST: Some people are concerned about whether Snapchat comes in and intercepts some of the usage amongst younger teens. We’re not seeing that. So, the numbers on daily active usage were awesome last night, right? Daily active users accelerated.

BOORSTIN: Facebook also has impressive user growth at WhatsApp and Messenger, each with over 1 billion monthly active users. And though Facebook hasn’t started to make money from them yet, investors see big potential down the line, though perhaps not fast enough to compensate for declining ad load growth.

For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

HERERA: Chip maker is going private and that’s where we begin tonight’s “Market Focus.”

The company will be bought by a private equity firm for more than $1 billion, making this the latest deal in the fast consolidating semiconductor sector. Shares surged 18 1/2 percent to $7.55.

Auto parts maker American Axle will buy rival Metaldyne Performance Group for $1.5 billion. That deal is expected to expand American Axle’s presence in Europe. American Axle’s shares plummeted 17 percent to $13.68. Meanwhile, shares of Metaldyne surged 34 percent to $19.20.

MATHISEN: An increase in crude production lifted results at Marathon Oil. The energy company did pose a loss, but it was narrower than analysts expected. Revenue topped estimates. Shares up more than 10 percent on this session, at $14.15.

Activision Blizzard said strong demand for two of its videogames released this year caused revenue to rise. The entertainment company also raised its earnings and sales guidance for the full year. Still, shares fell initially in after hours trading. But they did end the regular session up nearly 2 percent at about $43.37.

HERERA: Last month’s cyber attack crippled some major websites. But experts say that was just the beginning. Now, Homeland Security says it will soon announce new principles for home gadgets that connect to the Internet.

Andrea Day tell us how cyber thieves may be hacking your home.

(BEGIN VIDEOTAPE)

JAMES LYNE, SOPHOS GLOBAL HEAD OF SECURITY RESEARCH: The sharks have smelt the blood in the water and are circling to use your IOT device for further attacks.

ANDREA DAY, NIGHTLY BUSINESS REPORT CORRESPONDENT: A warning from this cyber security expert. The devices that can make your home smarter can also unlock the door for hackers.

LYNE: Your home CCTV camera is for sale for a cyber criminal to use for some elicit purpose.

DAY: James Lyne is the global head of security research at Sophos. He’s talking about the Internet of things, devices like smart cameras and thermostats that connect to the Internet.

Late last month, 100,000 of these gadgets were taken over by hackers and directed to launch an attack that block access to some high profile websites, like Twitter and Netflix.

LYNE: This is big business. And just your CCTV camera or DVR is enough of a reason to attack you so that you can be useful to attack other people. You’re a target.

DAY: Within hours, the sites were back. But with billions of connected devices in use right now, and the smart home market exploding, Lyne says we’re not prepared to handle the security that’s needed.

LYNE: It’s a land mine field out there at the moment. The chances of finding a device that’s insecure is so, so high.

DAY: One Chinese company with devices implicated in the attack has already recalled product sold in the United States.

LYNE: To the vendors, you’ve got a very small window. The cyber criminals have noticed the abhorrent lack of security.

DAY: Some lawmakers are calling on the government to step in.

SEN. MARK WARNER (D), VIRGINIA: I think all of us from industry to individuals to government are going to have to up our game in terms of making sure these devices are safe.

DAY: So what makes the gadgets so vulnerable?

LYNE: Devices like these often come with a really bad and easy to guess username and password.

DAY: He says making it easier for hackers to plan bigger and more damaging attacks.

His best advice: Make sure you change the default password on every single device and always update with the latest software. You can even set the devices to update automatically.

But even with all of that, devices won’t be hack-proof. So, it’s always best to be cautious.

I’m Andrea Day for NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

MATHISEN: Coming up, why hiring holiday workers is proving more and more difficult.

(MUSIC)

HERERA: The scramble is on to hire hundreds of thousands of holiday workers. This year, it’s not just retailers that are looking to add to their rank and file, but also logistics firms and employers are going through resumes a lot earlier than usual.

Morgan Brennan has more.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The holidays are fast approaching. And that means crunch time for employers. With e-commerce sales expected to again surge and unemployment at 5 percent, it’s getting tougher for logistics firms and retailers to find seasonal help.

And there’s no shortage of demand. Amazon is looking to add 125,000 people. UPS, 95,000 workers. FedEx, 50,000. Plus, hundreds of thousands more at the biggest retailers.

In a recent survey, hourly jobs marketplace Snagajob found more than 80 percent of employers experience challenges filling temporary holiday positions.

PETER HARRISON, SNAGAJOB CEO: No question at all that companies we work with are finding it harder. Part of that is because they have more positions to fill. So, they’re having to just scramble.

BRENNAN: Retailers and shipping firms are all competing for the same workers and doing so from a segment of the labor pool that’s seen some of the strongest job growth this career. According to the Labor Department, that’s already pushed weekly wages higher, up 4 percent last quarter for full-time workers making about $14 an hour. It’s a trend likely to continue in coming months.

Logistics staffing firm ProLogistix expects hourly pay to jump significantly in certain markets, especially as more jobs are tied to transportation and warehousing, an area growing as e-commerce sales soar.

BRIAN DEVINE, PROLOGISTIX SENIOR VICE PRESIDENT: We’re seeing wages increase by between $1.50 and $3 an hour to handle the peak season. And that is on top of the increases we’ve seen in the last 24 months.

BRENNAN: Job listing aggregator Indeed.com says retailers have been recruiting earlier each year, with postings showing up for this season a full month earlier than just three years ago. FedEx and UPS both redesigned their recruitment websites. UPS is offering some shifts consisting of flexible hours. Like many of its retail rivals, Amazon has been holding hiring events and like its shipping partners, stressing the possibility that some positions could become permanent.

But with Christmas right around the corner, the question will be, is it all actually enough to get warehouses, service centers, and stores fully staffed?

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN: And finally tonight, the Chicago Cubs’ historic championship was the most-watched baseball game in 25 years. According to Nielsen, more than 40 million viewers watched game seven of the World Series. And what a great game it was.

HERERA: A fantastic game.

That does it for us on NBR. I’m Sue Herera. Thanks for joining us.

MATHISEN: And I’m Tyler Mathisen. Have a great evening, everybody. We’ll see you 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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