Transcript: Nightly Business Report – August 15, 2017

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Home sweet home. Home Depot reports earnings that some call the best in retail. But shares fell. Why weren’t the results good enough for Wall Street?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Taking a stand. The CEO of Walmart criticizes the president as more executives leave White House advisory panels.

HERERA: Flying high. Boeing ramps up production of one of its key products and investors are hoping for a big payoff.

Those stories and more on NIGHTLY BUSINESS REPORT for Tuesday, August 15th.

MATHISEN: Good evening, everyone, and welcome.

Now, for much of this year, economists have been wondering where the American consumer had gone. Retail sales were tepid, despite an economy close to full employment. But today, that mystery was at least partly solved. In July, according to the Commerce Department, sales at retailers and restaurants rose at their fastest clip since December.

Steve Liesman has the numbers and an explanation.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The government’s retail sales report today showed that consumers are finally spending in line with their levels of confidence and employment. July retail sales rose 0.6 percent, the best gain of the year and outstripping Wall Street estimates, a perplexing decline in June retail sales has now been revised away to show a decent gain.

MICHELLE MEYER, BANK OF AMERICA: I think the retail sales stat is probably pretty important. It was strong the last two months or week. There were some factors that probably helped to boost sales, one of which was Amazon Prime Day, which help to concentrate sales in the month of July.

LIESMAN: Amazon said its Prime Day sales was its biggest sales day in its history. And the non-store category, which includes e-commerce showed a strong 1.3 percent monthly gain.

But autos and even department stores did well. That offset declines at gasoline stations.

Until today’s data, the consumer had been a mystery. Confidence is high, job growth strong, wage growth modest, but ticking up. But the retail sales numbers have been lackluster for several months running now.

Today’s report changed the picture somewhat. The June revision and strong July jobs report are serving as support for the forecast that the third quarter is on track for a near 3 percent gain in GDP. It’s still early in the quarter and the retail data can be revised. The strong July could have been helped by the Amazon sale, and so, it might have barred from future months.

But the ingredients are there for strong consumer spending. It just took the data a little while to catch up.

For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.

(END VIDEOTAPE)

HERERA: Well, Americans may be spending more online, but they are also spending a lot at Home Depot. The world’s largest home improvement retailer blew past earnings and revenue estimates. Profits were up, sales were the best in its history.

And the company raised its guidance for the second time this year. That’s pretty good given all of the trouble facing the retail sector recently.

Courtney Reagan has more on what’s working at Home Depot.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Consumers aren’t buying as much in department stores or at mall specialty retailers but home is where the spending is.

BRIAN NAGEL, RETAIL ANALYST, OPPENHEIMER: This is one of the few areas where the consumer is really spending, you know? And I think that goes back to home prices steadily increased now so it gives that homeowner consumer confidence to invest in their home. The home — the consumer is clearly choosing to spend in the home improvement category and maybe not spend as aggressively as elsewhere.

REAGAN: Home Depot posts another strong quarter, with sales in its key U.S. market especially strong. All departments, all sales increased over last year in all markets. The world’s largest home improvement retailer now expects even stronger full year results.

While the do-it-yourself projects and merchandise sales grew, sales to professionals like home improvement contractors again outpaced the DIY-ers. Sales of expensive items like appliances and flooring were especially strong. Online sales grew more than 20 percent. Though e-commerce makes up just over 6 percent of Home Depot’s total sales, stores are a key part of the execution.

More than four out of ten on line purchases are picked up in Home Depot stores.

NAGEL: In this retail environment, given what we are hearing from other retailers is absolutely amazing. What’s really incredible with Home Depot is that quarter in, quarter out, they put up these numbers despite some choppiness in the overall business.

REAGAN (on camera): Some analysts question how long Home Depot can continue to benefit from a strong U.S. housing market and home improvement trends. But the company says with a still tight supply of homes for sale and more than two-thirds of U.S. homes at least 30 years old, there is still a lot of opportunity for home repairs and updates.

For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan.

(END VIDEOTAPE)

MATHISEN: Well, despite those strong results, Home Depot shares fell. Go figure. The stock dropping more than 2-1/2 percent, and that made it the worst performer in the Dow index today. So, why weren’t the results good enough for Wall Street?

We just heard from Oppenheimer’s Brian Nagel in Courtney’s story and he’s back with us now.

Everything seems to be working beautifully, Brian, at Home Depot. Why did the stock go down today?

NAGEL: Well, there’s a real — there’s an easy answer. And that was, it was today was a very, very tough tape for retail stocks. So, at Home Depot — I said in my segments before, I thought Home Depot’s results were really good. There were a couple other retailers, maybe a few more retailers reported really bad results today and I think —

MATHISEN: So, a baby and bath water kind of thing, right?

NAGEL: That’s exactly right. The tape was very tough for retail stocks today.

HERERA: You know, that’s interesting that you should say that because in I read in my notes that you say Home Depot was one of the best run retailers in the world. Is it just that the street gets too picky?

And I understand that the retail sector as a whole has been under pressure this week and last week for that matter. But is the street getting too picky about some of the internal components of the report?

NAGEL: Well, I think that’s a big piece of it. The other real big piece is, everyone invests in retail stocks right now is really worried about the overall impact of Amazon. So, you are seeing retailers clearly impacted by Amazon, and I think you have a retailer like Home Depot which is not. But from an investment standpoint, you start to wonder, does at some point, Home Depot start to feel the effects of Amazon?

MATHISEN: And your answer is, can — to the question, can Home Depot be Amazon? Your answer is —

NAGEL: Well, the simple answer is no. Now, look, I have studied retail for a long time and watched Amazon for a long time. So, I have learned really to never dismiss Amazon. But, you know, I look at Home Depot. I think that’s — this is Home Depot and really the home improvement category is really one of the best defended areas within retail against Amazon.

HERERA: You know, we are using Home Depot as the example, but there are other stocks where the results have been very good and the street sells it off for a variety of reasons. As an individual investor, should you evaluate the pros and cons of a company irrespective of Wall Street’s reaction to a report?

NAGEL: Well, look, in my view, that’s what gives you the opportunities, right? So, in a way, I always say to our clients and I primarily speak to institutional clients, but also some of our retail clients is, look, fundamentals first, right? Look at the fundamentals and analyze the fundamentals of this company. Is the company performing? And then worry about the stock price.

MATHISEN: Quick answer here. Where is the stock today? Where do you see it in a year and how does it get there?

NAGEL: Well, I’ve got — so I’ve got $178 price target. The stock today is just about $150. So, I expect some still decent upside here over the next 12 months for Home Depot.

MATHISEN: Brian, thanks very much. I appreciate it.

NAGEL: Thank you.

MATHISEN: Brian Nagel with Oppenheimer.

HERERA: More positive news for the housing industry. Home builder sentiment bounced back. A monthly index from the National Association of Homebuilders rose to its highest level since May. Builders say they are seeing rising demand from buyers who seem ready to pay a premium for new construction.

MATHISEN: Factory activity in New York nearly tripled to a three year-high. The Empire State Manufacturing Index rose thanks to new orders and shipments. Hiring also picked up and according to the survey, factories are optimistic that conditions will continue to improve over the next six months.

HERERA: Those positive reports on two key sectors of the economy — housing and manufacturing — were not enough to give stocks a lift. Earnings results from retailers in addition to Home Depot also capped any gains. The Dow Jones Industrial Average was up five points to 21998, the NASDAQ lost seven and the S&P 500 fell one.

MATHISEN: In Washington, the nonpartisan Congressional Budget Office reports that health care premiums will soar 20 percent next year if President Trump ends the Obamacare subsidies to insurance companies. They are expected to rise about 25 percent in 2020. The payments help low income Americans afford their plans. The report also says the federal deficit would increase by about $20 billion per year over the next ten years. The president so far has not committed to continuing the payments.

HERERA: At a news conference today at Trump Tower the president signed an executive order to speed approval of permits for the construction of highways, bridges, and roads. This is part of the administration’s proposal to spend $1 trillion to fix the country’s aging infrastructure. The president said the new process will happen without harm to the environment.

MATHISEN: Meantime, the CEO of the country’s largest private employer, Wal-Mart, took the unusual step of criticizing the White House today. In a note to employees, Doug McMillon said the president, quote, missed a critical opportunity to help bring our country together by unequivocally rejecting the appalling actions of white supremacists.

A Wal-Mart spokesman told “The New York Times” however that Mr. McMillon will stay on a presidential advisory council on economic development. In the past 24 hours, several more CEOs and business leaders have resigned from the president’s manufacturing council in the wake of what critics saw as a tepid White House response to Saturday’s violence in Charlottesville. That violence left one demonstrator and two Virginia state troopers dead, about 20 were injured.

Under Armour CEO Kevin Plank said he decided to leave because his company, quote, engages in innovation and sports, not politics. Intel chief Brian Krzanich left to call attention to the serious harm a divided political climate is causing to critical issues, he said. Scott Paul, the head of the Alliance for American Manufacturing, said he was leaving because it was the right thing for him to do.

Yesterday, we reported that Merck’s CEO Ken Frazier quit because he felt a responsibility to take a stand against intolerance and extremism.

The president today in a tweet the president said: For every CEO that drops out of the Manufacturing Council, I have many to take their place. Grandstanders should not have gone on. Jobs.

HERERA: At that infrastructure news conference we just mentioned, things got heated when questions turned to the recent events in Charlottesville.

(BEGIN VIDEO CLIP)

TRUMP: I think there’s blame on both sides. You look at both — I think there’s blame on both sides. I have no doubt about it. And you don’t have any doubt about it either.

(CROSSTALK)

TRUMP: And — and if you reported it accurate, you would say.

(END VIDEO CLIP)

HERERA: Joining us in Washington is John Harwood.

John, is this going to spawn more CEO resignations or comments?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes. This is going to increase pressure, Sue, on CEOs to separate themselves from President Trump. I expect more and more of them to be looking at the admonition from former Treasury Secretary Larry Summers today when he said all CEOs should leave these presidential advisory councils because they are ineffective and they are associating themselves with a president who is not uniting the country.

MATHISEN: Does the president have a budding problem with business?

HARWOOD: He does. He has a budding problem with the American people. Look, his ratings are below 40 percent. Job approval. In Gallup yesterday, he hit a record low of 34 percent, 61 percent disapproval. So, that’s the backdrop.

But more specifically, many people in business have been accepting things that they didn’t like about Trump in the belief that he was going to be able to do things they did like. Deregulation, tax cuts, that sort of thing. All of these things become more difficult, the more toxic Donald Trump gets on a personal basis. And that is exactly what today’s press conference is going to — a problem that it’s going to make worse.

HERERA: Do you expect comments from either or both sides of the aisle about some of the comments that the president made at this news conference? And how badly, if at all, do you think it hampers his ability to put through the agenda that you just mentioned?

HARWOOD: If people feel embarrassed or ashamed to stand with their president, it makes it much more difficult for them to advance common priorities. Republicans are still going to be for tax cuts, whatever President Trump does. But the more toxic that he becomes in a political sense, the more difficult it is for them to work with him. And that imperils the entire Republican agenda.

And, frankly, Sue, it imperils the survival of the Trump presidency, because he needs protection from people in his party as Robert Mueller’s investigation picks up steam. There is the potential for — if Democrats were able to retake the House of Representatives, that there would be an impeachment drive against him.

And so, I think the president is making his problems more difficult with every passing day. He did over the weekend. He did again today.

HERERA: All right. John, we’ll leave it there. Thank you. John Harwood in Washington.

MATHISEN: Still ahead, Boeing is flying high.

(BEGIN VIDEO CLIP)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: I’m Phil LeBeau at the Boeing plant in Renton, Washington. Why is Boeing the best performing component of the Dow this year? We’ll explain what’s lifting the company to new heights when NIGHTLY BUSINESS REPORT returns.

(END VIDEO CLIP)

(MUSIC)

HERERA: Which stock has helped lift the blue chip Dow index to new highs? Boeing. Shares of the aerospace company have climbed more than 50 percent this year. A big reason for that increase is Boeing’s rising profitability in its commercial airplane division.

Phil LeBeau reports from Boeing’s 737 assembly line in Renton, Washington.

(BEGIN VIDEOTAPE)

LEBEAU (voice-over): The pieces are coming together in Boeing’s push to build and deliver more planes, now cranking out new 737s faster than ever. After building 42 a month earlier this year, Boeing has raised production by five per month and will increase it another 10 per month over the next two years.

KEITH LEVERKUHN, BOEING COMMERCIAL AIRLINES: What it’s really about is flow management. So, for instance, if we have to push the airplanes out quicker, then how do we sequence the jobs for the mechanics and the engineers to assure that they’ve got the right tools, the right parts, the right paper to make sure they can manage this increase flow.

LEBEAU: Boeing is not only building planes faster, it’s become more efficient. How? It’s trimmed the payroll while increasing automation, a combination that has fuelled a surge in productivity.

HOWARD RUBEL, JEFFERIES: Over the last 15 or 18 months, they have generated about an 11 percent improvement in revenues per employee at the commercial business. That’s well above national averages for productivity gains. And I think they are finding that it’s infectious.

LEBEAU: With deliveries of the 737 MAX just taking off, Boeing is focused on cutting into a backlog that now totals more than 3,800 planes.

(on camera): That means airlines ordering a new, more fuel efficient 737 MAX won’t be receiving it until well after 2020, which is why airlines are now pushing Boeing to build these planes even faster beyond the top target of 57 per month.

LEVERKUHN: Even as we think about the rate of 57 in 2019, there’s upward pressure on the rate past 2019. So, the only way we can actually conceive about getting to those rates, it is assuring that the automation augments the workforce that has to — has to do this job.

LEBEAU (voice-over): Lifting the 737 to new heights, on the wings of workers moving quicker and more efficiently.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Renton, Washington.

(END VIDEOTAPE)

MATHISEN: Advanced Auto Parts had its worst day ever, and that’s where we begin tonight’s “Market Focus”.

The car parts retailer said it faced industry challenges in the latest quarter, causing income to slip and missed estimates. Revenue was in line. But the company said it expects same store sales to fall as much as 3 percent this year. Shares plunged 20 percent on the session to $87.08.

Coach’s decision to exit many department stores due to heavy discounting resulted in fewer sales in the latest quarter. The company missed revenue expectations but its earning did beat estimates by a penny. The company also gave disappointing full year earnings and sales guidance and what happened — well, you know what happened. The shares were down 15 percent to $40.64.

After reporting weaker than expected same store sales growth, Dick’s Sporting Goods said it would ramp up promotional efforts in a bid to attract more shoppers. In the latest quarter, the retailer struggled to get customers excited about its apparel offerings and that caused earnings to miss the mark. Dick also lowered its guidance for 2017, and shares got crushed, falling 23 percent to $26.87.

HERERA: Sticking with retail, TJX, the parent company of discount retailer chains T.J.Maxx and Marshall’s, said a rise in customer traffic helped earnings and sales beat estimates. The company also lifted its profit outlook. Shares of TJX rose fractionally to $70.16.

According to a regulatory filing after the bell yesterday, conglomerate Berkshire Hathaway sold its entire position in General Electric, while also picking up more than 17 million shares in the G.E. spinoff Synchrony Financial. Shares of G.E. were off nearly 1 percent to $25.14. Meanwhile, Synchrony Financial shares jumped more than 4 percent to $30.99.

A federal judge ruled that Costco owes Tiffany nearly $20 million for misleading customers by selling engagement rings labeled as Tiffany that did not actually come from the jeweler. Costco argued they used the word Tiffany to describe the ring setting, not the brand. Costco shares fell a fraction to $156.88. Shares of Tiffany were down almost 3 percent to $88.11.

MATHISEN: China is doubling down in its war of words with the Trump administration. The issue is trade. Today, the world’s second largest economy said the U.S. trade investigation that President Trump ordered yesterday would violate international rules.

Eunice Yoon has our story from Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Chinese government is taking a tough position. The commerce ministry reacted to the Trump directive by saying that the U.S. should strictly observe trade promises and not become a destroyer of multilateralism. The ministry warned the U.S. that it should act cautiously on the trade investigation and said Beijing would absolutely take measures to defend its rights if the U.S. harms bilateral ties.

The Chinese state media has been threatening retaliation. And today, the state-run news agency Shinwa said that the probe would have lose-lose prospects, calling it a unilateralist’s “baring of fangs” that would hurt both countries.

The question now is how seriously the U.S. should be taking this tougher tone. Analysts tell me that it’s hard to tell, particularly because it’s a political season in China. China is heading into a party congress and is expected to see a leadership reshuffle in about two to three months.

Everyone is expecting President Xi Jinping to consolidate and centralize his power and the way that government has been responding and reacting to outside forces has been with nationalism. Take for example the South Koreans. The Chinese have been using strong language for the South Koreans over its U.S. anti-missile defense system. And even more aggressive language when talking to the Indians about a border dispute in the Himalayas.

So, this rhetoric could be aimed at a domestic audience as much as an international one. Analysts say that we’re just going to have to wait and see toward the end of the year whether or not that tone changes.

For NIGHTLY BUSINESS REPORT, I’m Eunice Yoon in Beijing.

(END VIDEOTAPE)

HERERA: Coming up, can Americans take on more debt and save for retirement at the same time?

(MUSIC)

MATHISEN: Here is a look at what to watch tomorrow.

The first round of NAFTA renegotiations get under way with President Trump meeting with the leaders of Canada and Mexico.

The minutes from the latest Federal Reserve policy meeting will be released. Investors will look for clues on the prospect of future rate hikes. They always do.

And more retail earnings are due out. We’ll hear from Target and L Brands, the parent company of Victoria’s Secret.

And that’s what to watch Wednesday.

HERERA: Household debt is at a record. A new report from the New York Fed shows total debt hit more than $12.5 trillion in the second quarter, marking the 12th consecutive quarterly increase. The increase partly reflects renewed confidence in the economy but there are some signs that households are becoming overstretched, including a growing percentage of credit card balances that are 30 and 90 days delinquent.

MATHISEN: While debt is rising, a new survey shows that a growing percentage of working Americans are saving more for retirement. According to Bankrate.com, 23 percent of working Americans increased their retirement contributions over the past year. That’s the highest level in six years.

Greg McBride, chief financial analyst at Bankrate.com joins us to discuss the findings and more.

Greg, welcome. Good to have you back.

I’m always curious when I hear surveys like this, 23 percent of working Americans increased their retirement contributions. Is that empirical fact or is that what they say they did?

GREG MCBRIDE, CHIEF FINANCIAL ANALYST, BANKRATE.COM: Well, that’s what they say they did.

MATHISEN: OK.

MCBRIDE: So, you know, there’s — you know, there’s always a little — you have to allow for a little bit of fibbing there. But what’s unmistakable, Tyler, is that we have seen tremendous improvement in this over the last several years consistent with an improving economy.

Back in 2011, when we looked at this, it was 2-1 people cutting back their retirement contributions rather than boosting them. We have seen that swing completely around now to the point where 23 percent are actually increasing those contributions and the percentage of people that haven’t contributed at all either this year or last year, the lowest we’ve seen in that same period of time.

HERERA: That’s the good news. I’m a little bit worried about household debt being at a record and some longer than expected payment times on credit card debt. Does that worry you at all?

MCBRIDE: Well, I — you know, it tells us a — it gives us a signal, Sue, I think in the sense that, you know, it shows there are households that are stretched in that rubber band further and further. And, you know, this comes at a time when we’re near full employment. So, that tells me that unfortunately these delinquencies particularly for people that are living close to the edge, they’re only going to get worse. You know, they’re not likely to get better.

So, I think that, you know, for people to have good credit, they’re going to find that credit is still freely available. But that issuers are going to be much more selective with those that have some spots in their credit because of the increase in delinquency.

MATHISEN: OK. I’m going to ask you to channel your inner Suze Orman here for a minute, Greg, OK? If I have to choose between paying down high rate debt or putting more money in my retirement account, which do I do first?

MCBRIDE: Well, look, people ask me this question all the time, and the answer that I give them is do both. It’s not a matter of either/or. You’ve got to pay yourself first, have the money going into the retirement account directly from your paycheck, have a direct deposit from your checking account into your IRA. And then you live on what’s left.

And what’s left, you’ve got to be able to carve out room for debt repayment. And if that means driving Uber or taking one some contract work or a second job, then do it. But you can’t afford to miss out on the years of retirement savings in the name of paying down debt. But at the same token, a lot of people have an overhang of costly debt that they just never seem to make headway on.

HERERA: Right. To your point, there are different types of debt out there. We pointed out this survey about credit card debt. But one of the worrisome factors has been out there has been auto debt. And the loans are much longer. Used to be, you could only finance three or four years. Now, they’re going out, I think it’s seven years.

Does — is that a warning sign or not?

MCBRIDE: Oh, I think it absolutely is, because as you noted, the amount of the people are borrowing increasing, they are stretching it out over longer periods of time. We’ve been at a time when wage growth has been really sluggish for a lot of people. and there is no give. A $500 car payment is $500 car payment.

MATHISEN: Right.

MCBRIDE: You’ve got no wiggle room there. So, that’s the concern that I have.

MATHISEN: Greg, thanks very much and thanks for channeling your inner Suze.

Earlier, we talked about whether there could be more resignations from the president’s advisory council. Tonight, we are learning that the AFL-CIO President Richard Trumka has stepped down.

HERERA: And that is it for us tonight. I’m Sue Herera. Thanks for joining us.

MATHISEN: I’m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody. We’ll see you tomorrow.

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