Nightly Business Report - Friday March 29 2013.pdf

7/28/2019 Nightly Business Report - Friday March 29 2013.pdf

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ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and

Susie Gharib.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Good evening,

everyone. And welcome to our public television viewers.

Tonight, on a special edition of NIGHTLY BUSINESS REPORT, we`ll take a

look in-depth at what is arguably the number-one story in business -- how


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strong is the American economy, how healthy its recovery?

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: From housing, to

energy, to the consumer. We`ll examine the bright spots and the

challenges.

MATHISEN: And we`ll also break down the substantial challenges facing

the U.S. economy on the long run. And we`ll get perspective from the man

who while far from infallible, as he`d be the first to admit, kept the U.S.

economy on course for most of his nearly two decades as chairman of the

Federal Reserve, Alan Greenspan.

GHARIB: So, as we kick things off, let`s paraphrase the late New York

Mayor Ed Koch why are we doing?

Here`s Carl Quintanilla with a look what`s going right in the economy

and what`s not.

(BEGIN VIDEOTAPE)

CARL QUINTANILLA, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-

over):

That sound you hear is the American economic recovery at its sweetest --

the hammers and drills of the housing market.

Across the country, the median price of a home is up 7 percent in just


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the past year. Sales of existing homes are at multi-year highs. And since

housing is about a fifth of GDP, it may be the best thing we have going.

ANDREW SLIMMON, MORGAN STANLEY WEALTH MANAGEMENT: Ashousing starts

to bottom and recover, that`s invigorated (ph) the economy because at the

end of the day, Americans have more of their net worth in their house than

any other asset. And so this is a huge part of the confidence, the

rebuilding of confidence.

QUINTANILLA: Housing is one of three pillars that are responsible for

the recovery as we know it.

Autos is another. The revitalization of the big three carmakers

hasn`t brought many new plants, but it has brought new production -- an

estimated 15.5 million units this year, up from just 10.5 million at the

lows. Some call it the new center of gravity of a manufacturing

renaissance.

Also working: high-end retail. Sales at names like Macy s (NYSE:M),

Saks (NYSE:SKS) and Michael Kors suggest the wealthy are holding up their

end of the consumer spending bargain.

MICHAEL P. MURPHY, ROSECLIFF CAPITAL: That 1 percent of the

population that`s going to those high end retailers really has recovered

the fastest from the financial crisis and they`re out there and they`re


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spending money.

QUINTANILLA (on camera): But there`s plenty that s not working.

Despite the strength of the stock market, Wall Street banks are

retrenching, laying off workers, adjusting to an environment where a return

on equity isn`t what it once was.

(voice-over): Big-ticket exports, the countries like China have been

a challenge for companies like Caterpillar (NYSE:CAT), facing a new wave of

lower-cost competition.

And for all the enthusiasm about natural gas in this country, some say

regulatory uncertainty has kept a lid on production, handicapping what may

be one of the biggest long-term goals: energy independence.

BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: We`ve seen some signs of

improvement.

QUINTANILLA: In the end, the main uncertainty to this recovery

involves this man: Ben Bernanke and the Federal Reserve.

BERNANKE: We are getting some traction in the housing market.

QUINTANILLA: If the economy truly gains traction, when and how does

the Fed pull back on its monetary stimulus? What happens to mortgage


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rates, to government debt payments?

In short, can the economy survive the Fed`s band-aid coming off four

years after a bruising economic crisis? No one, it seems, has a good

answer for that.

Carl Quintanilla for NIGHTLY BUSINESS REPORT, New York.

(END VIDEOTAPE)

MATHISEN: Let`s dig a little deeper and break out some sectors. You

heard Carl mention the Fed and mortgage rates. So, let`s talk about

housing.

Diana Olick from the epicenter of the housing crisis, Las Vegas, on

how far the housing market has comeback and how far it still needs to go to

regain full health.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS CORRESPONDENT (voice-over): Chris and

Candice Rodgers wanted to move to a bigger house. With Las Vegas homes

costing half of what they did during the housing boom, they figured it was

the perfect time, except there was nothing to buy.


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CHRIS RODGERS, RECENT HOME BUYER: We looked at a lot of the existing

homes and some were bank-owned and they were in pretty bad shape.

OLICK: So, the Rodgers turned to new construction, which is suddenly

sprouting up all around the city, with national and local builders alike

coming back to what was until very recently a ghost town of unfinished

lots. As for the Rodgers` old home, rather than sell it at a loss, they

rented it out.

RODGERS: With the rental income, that reduces it by about 40 percent.

OLICK: The Rodgers are a big part of why supplies of homes across the

nation are so low. Few want to sell at the bottom while millions of others

are still under water.

KLIF ANDREWS, NEVADA PRESIDENT, PARDEE HOMES: The overall economyhas

gotten better. The buyers understand now that these low interest rates are

a real dramatic opportunity for them. And most of all, the resale

inventories dried up.

OLICK: And not just in Las Vegas. Nationally, the number of homes

for sale today is down 25 percent from a year ago, according to the

National Association of Realtors. Even as the spring market begins,

potential move up buyers are not putting their homes on the market.


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NOAH HERRERA, GREATER LAS VEGAS ASSOCIATION OF REALTORS:What`s

holding people back from buying a property is the fear of selling their

property and not being able to find one. That`s what the problem is.

OLICK: Lack of homes for sale coupled with huge demand from all cash

investors for distressed properties are a boon to the builders. They are

still producing about half the homes they would normally, but they are

seeing big jumps in new orders. Housing is finally helping, not hurting

the economy.

MIKE BRUNSON, REAL ESTATE DAMAGE ANALYTICS APPRAISER: The onlything

that concerns me is we have been here before, and the market itself is not

what`s driving the price increase.

OLICK: Appraiser Mike Brunson saw the very worst of the Vegas housing

boom when speculators and builders pushed prices beyond rational levels,

until it all came crumbling down. Something he says is missing from this

recovery.

BRUNSON: It`s not that we have new employers coming in and creating

tens of thousands of new jobs that are leading to people buying new houses.

It`s Las Vegas is on sale and investors are buying up everything they can

in the used market.


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OLICK (on camera): And those he argues are not healthy fundamentals.

Houses and prices are going up again, but the recovery is still not on

solid ground.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Las Vegas.

(END VIDEOTAPE)

GHARIB: Looking at the energy sector, a big focus in the United

States on the surge in oil and gas production here that`s transforming the

global energy landscape, and helping to lead America`s economic recovery.

But as Sharon Epperson reports, there are still challenges.

(BEGIN VIDEOTAPE)

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):

It was unthinkable a few years ago, but now U.S. energy independence

appears to be within reach. The United States is virtually self-sufficient

in natural gas supply and currently has the highest rate of growth in oil

production in the world, producing more oil than it has in two decades.

By the end of the decade, this nation is expected to become the

world`s top oil superpower, outpacing Saudi Arabia in terms of production.


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DANIEL YERGIN, IHS (NYSE:IHS) VICE CHAIRMAN: With a combination of

hydraulic fracturing otherwise known as fracking, and horizontal drilling,

the U.S. gas position has been turned around and today, the United States

is the largest producer of natural gas in the world. And by the end of the

decade, we may exceed Saudi Arabia to be tonight world`s number one oil

producer. We`ll certainly give Saudi Arabia a very good race for its

money.

EPPERSON (on camera): Here in Texas unconventional oil and gas

drilling is helping to fuel the state`s economy, directly and indirectly --

creating nearly 580,000 jobs last year and expected to account for 930,000

jobs by 2020.

(voice-over): According to research from IHS (NYSE:IHS) CERA, over

1.7 million jobs are tied to unconventional oil and gas development today,

extending to every one of the lower 48 states and rising to 3 million jobs

by the end of the decade. Building more pipeline capacity, including the

Keystone XL Pipeline, stretching from the Canadian tars and through the

middle of the country to the refinery-rich Texas coast is also expected to

drive employment growth.

ALEXANDER POURBAIX, TRANSCANADA ENERGY & OIL PIPELINESPRESIDENT:

Keystone is going to support, according to the State Department, 42,000

jobs in the U.S., just in terms of the construction alone in the states

that we`re going through. We`re going to put 9,000 Americans to work.


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EPPERSON: Despite the surge in U.S. oil and gas development,

challenges remain as global forces continue to push oil prices higher.

JACK GERARD, PRESIDENT & CEO, AMERICAN PETROLEUM INSTITUTE:There are

various factors that contribute to the cost of crude oil -- unrest in the

Middle East, the demand coming out of Asia, particularly China and India,

and elsewhere around the world, the value of the dollar. A lot of things

contribute to that price.

EPPERSON: And drive up gasoline prices, too.

With the national average for regular gasoline near the highest it`s

ever been for this time of year, some consumers may wonder when their

wallets will see the economic benefit of this energy boom, but without the

surge in U.S. oil and gas supplies, fuel prices in this country would be

much higher.

For NIGHTLY BUSINESS REPORT, I`m Sharon Epperson in Houston.

(END VIDEOTAPE)

MATHISEN: Coming up, a look at the underpinning of the economy, the

consumer.


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(MUSIC)

MATHISEN: The backbone of a healthy economy, certainly one like ours,

is a healthy consumer. After all, consumer spending accounts for about

two-thirds of our economic activity.

Courtney Reagan takes a look at that spending and the pressures

keeping a lid on it.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):

Higher payroll taxes and rising gasoline prices continue to streak across

the headlines with good reason. These head winds appear at the very least

to be impacting how much consumers are buying.

ROBERT SUMMERS: These things will take dollars out of consumer s

pockets. It`s disproportionate for low earners, and I think it`s

reasonable to expect some moderation in that consumer demographic going

forward.

REAGAN: Walmart is certainly feeling the pressure. The world`s

largest retailer catering largely to lower-income consumers blamed a delay

in tax refunds for its slow February sales start.


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BOB DRBUL, BARCLAY`S RETAIL ANALYST: It does put a lot more pressure

on March. You know, February`s a smaller spending month than March from a

U.S. consumer`s perspective. It`s something that we`ll be watching that

very, very closely.

REAGAN (on camera): Well, consumer confidence rebounded in February,

executives from Target (NYSE:TGT), Abercrombie & Fitch (NYSE:ANF) and

Lowe`s are also expressing concern about continued consumer uncertainty,

though not everyone thinks retailers should worry too much.

DOUG HART, BDO USA CONSUMER PRACTICE PARTNER: I don`t think there`s

this new normal. Obviously, if paychecks are lower, there is going to be

some reduction, but I believe over time, if that`s the only factor, I think

consumers are going to adjust and I think that consumer spending is going

to stabilize.

REAGAN (voice-over): But higher payroll taxes aren`t the only head

wind. The average price for regular unleaded gasoline has increased 40

cents per gallon or 12 percent in just three months.

According to Barclay`s analyst Bob Drbul, a 10-cent increase at prices

at the pump takes away an additional $100 to $110 from consumers`

disposable income, or as much as a $13.8 billion drain on total consumer

spending in other areas.


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Because of the current pressures, it appears lower-income Americans

are on the sidelines of the American recovery, but then again, American

consumerism often prevails, even in times of economic hardship.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

GHARIB: Joining us now to talk more about the consumer, Anthony Chan.

He`s chief economist at JPMorgan`s Chase Private Client Group.

So, Anthony, you heard our report. Consumers are a very important

part of our economy. So, how would you describe right now the financial

health of the consumer and the mood of the consumer?

ANTHONY CHAN, CHASE PRIVATE CLIENT GROUP CHIEF ECONOMIST: Ireally

see the consumer making some real -- showing some real signs of

improvement. I`ll tell you why. When you look at the loss of wealth, it

was pretty significant. From 2007 to 2009, you essentially saw $16

trillion of household net worth disappear. But since then, we`ve seen

household net worth picking up again.

And we`re now just short $1.3 trillion as of the fourth quarter, the

latest numbers the Federal Reserve has in their flow of funds. But if you

look at movements in housing prices, movements in equity prices in the


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first quarter -- I think by the end of the first quarter, the consumer will

have gotten all of their $16 trillion back. It is no wonder that consumer

confidence is picking up. It is no wonder why retail sales held in so

well, despite the payroll tax and despite all the other headwinds.

GHARIB: Those are very interesting thoughts and statistics. But we

know that on the jobs front, there are a lot of people who are still out of

work. Some companies are still laying off. Some companies are holding off

from hiring.

So what kind of progress is there on the jobs front?

CHAN: I think there`s significant progress. When we look at the last

three months, for example, we have seen that non-farm payrolls have

averaged about 191,000. When we look at how many jobs we need to create

just to absorb the natural growth in the labor force, about 110,000 or so.

So believe it or not, we are making some progress in terms of lowering

the unemployment rate. So the net change is an improvement, even on the

job front, believe it or not.

GHARIB: You just heard Courtney`s report where she was talking about

a 10-cent increase in the price at the pump and the impact that has on the

economy. Billions of dollars come out of the economy.


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What is your forecast on prices at the pump for the rest of this year?

CHAN: Well, there`s no question that higher gasoline prices are not

positive for consumers, because it does siphon money away from the

consumers for other products. But, in fact, if you`ve seen gasoline

prices, they basically went up. And through the end of February, they

continued to go up. But they have been coming down steadily. My

suspicion, over the next couple years, gasoline prices will be heading

higher, because it basically mimics what happens to economic growth here

and abroad. And economic growth is, in fact, accelerating.

But, again, I think that gasoline prices are important, but how

wealthy the consumer is, or what the balance sheet of the consumer is, is

even more important. How else can you explain the resiliency and the sales

of cars in the first quarter, despite the fact that gasoline prices went

higher?

GHARIB: I want to also get your forecast on two very important

indicators of consumer confidence. There`s back to school sales, and

holiday sales. And I know that we`re far off from both of those events.

But what is your forecast? Based on the trends you`ve seen right now

for the consumer, how well are those holiday sales going to do at the end

of the year?


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CHAN: I have to believe that there are going to be a lot better than

last year. And why do I say that? Because consumer confidence seems to be

creeping higher. Whether you look at the monthly numbers, whether it`s the

conference boards, Michigan or whether you look daily Rasmussen numbers,

they`re moving closer and closer, especially the daily ones, closer to

five-year highs.

So with the improvement in consumer confidence, we`re going to see

better back to school numbers and certainly better holiday sales in the

month November and December.

GHARIB: All right. Lots of good information. Thank you so much,

Anthony.

Anthony Chan, chief economist at JPMorgan`s Chase Private Client Group

-- Tyler.

MATHISEN: Well, actually, coming up, the structural challenges the

economy faces moving forward.

And the former chairman of the Federal Reserve, Alan Greenspan. We`ll

weigh in.

(MUSIC)


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MATHISEN: Tonight, we have examined where the economy is growing and

where headwinds remain. But let`s shift to the bigger picture and explore

what the long-term significant obstacles could be to America`s economic

primacy and prosperity. Four challenges we face.

(BEGIN VIDEOTAPE)

MATHISEN (voice-over): Challenge number one: health care. We will

spend $2.8 trillion on it this year, that`s about $1 out of every $6 the

U.S. economy will generate.

We pay more for health care than the next 10 biggest spenders

combined, and we don`t get better results. We have higher rates of disease

and injury of every age up to 75 and shorter life spans than any of 17

other wealthy nations.

We rank 50th in the world in infant mortality. According to "Time"

magazine, Cuba is number 41.

PAUL KRUGMAN, NOBEL PRIZE-WINNING ECONOMIST: We have to dosomething

about health care costs, that which is what the main driver of stuff. But

that doesn`t really mean cutting benefits, that means cutting costs.

MATHISEN: Bottom line: even though health care creates jobs, an

expected 5.5 million this decade, what we spend on it is a weight on our


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economy and our future prosperity.

Challenge number two: America`s infrastructure -- roads, bridges,

water system, transit, the electric grid, all outdated or crumbling, or

both, and it`s costing.

According to the World Economic Forum, the U.S. ranks 25th in overall

infrastructure, behind Barbados and Oman and one spot ahead of Qatar.

PATRICK NATALE, AMERICAN SOCIETY OF CIVIL ENGINEERS: We`re going to

lose 3.5 million jobs.

MATHISEN: Pat Natale heads up the American Society of Civil

Engineers.

NATALE: We`re looking at a $3,100 negative impact on your pocketbook.

MATHISEN: Natale`s group, which admittedly has a vested interest in

infrastructure spending, says that by 2020, the U.S. could lose almost $1

trillion a year in commerce, unless we invest more in our physical plant.

Case in point, he says --

NATALE: We lose about 6 billion gallons of good clean drinking water

out of our system every day.


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MATHISEN: Bottom line: the U.S. spends 2 percent of GDP on

infrastructure, half what it did 50 years ago. Europe spends 5 percent,

China, 9 percent.

That`s a competitive risk, which brings us to challenge number three:

global competitiveness. We`re number seven now, down two spots in the

World Economic Forum`s latest ranking. It`s the fourth year in a row the

U.S. has slipped.

High labor costs are hurting. Damaging, too, is a complex tax code,

regulation, and a political system that critics say is dysfunctional.

But perhaps most troubling of all, we`re shortchanging research and

development. U.S. R&D spending grew just 3 percent as a share of GDP from

1987 to 2008. Meanwhile, China`s rose 110 percent, Korea s 91 percent.

In part, that lack of investment has left America with a skills gap,

and that leads to challenge number four: education. We spent $810 billion

a year on it for primary and secondary schooling alone, close to $8,000 per

school-aged child, far more than any other developed country. Yet,

American students ranked 17th in science, 25th in math, out of 34

industrialized nations.

Of the 1.6 million bachelor`s degrees awarded in 2009, only about 6


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percent were in engineering, half the average for rich countries. Only

15,000 degrees were in math, that`s half as many as were awarded in parks,

recreation, leisure and fitness studies, which is nothing against parks and

recreation, but which does show the education challenge we face.

(END VIDEOTAPE)

MATHISEN: Well, for nearly two decades, from 1987 to 2006, Alan

Greenspan was the world`s most influential banker, as chairman of the

Federal Reserve.

For much of that term, he was lauded as the maestro, the wizard who

kept the economy on track through stock market crashes, 9/11 and more.

Since leaving office, he`s been criticized for easing money policies that

some say led to the housing bubble and the subsequent financial meltdown.

But hero or not, however, remains a keen observer of the global

economy. I began a recent conversation with him by asking about stock

prices.

(BEGIN VIDEOTAPE)

ALAN GREENSPAN, FORMER CHAIRMAN FOR THE FEDERAL RESERVE:Nowhere

close. The characteristics of what`s been going on, basically, are

actually more related to the removal of various types of what we call major


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areas of uncertainty. And the so-called terror risk, meaning the risks

very unlikely to happen. But if they do, they have a very large impact.

Europe has been hanging over the American markets now for quite a

while. And the removal of that risk, at least temporarily, and I think it

is only temporary, has enabled the underlying forces of the market to begin

to come into vision. And what those forces are, are the deep-seated,

exceptional discounting that`s going on of stocks to a point where so-

called equity premiums are virtually the highest level in history. That

means that it is very difficult to get the stock market to go down

significantly from here.

MATHISEN: So you think, then, that earnings aren`t as big a

significant contributor to where stock prices are. The Fed isn`t as big as

the tail risk disappearing.

What are the other tail risks you would worry about that could unseat

this stock market rally?

GREENSPAN: Well, I think the major problem is the longer-term

outlook. Because this rally is going to run into problems as it becomes

apparent that there is a temporary, at least, limit to upside economic

growth and at the moment, as you know, profit margins are not going

anywhere. And, indeed, earnings are not going anywhere. And unless you

get economic growth coming back in play, earnings are not going to be able


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to substantiate the market going up you very much more.

MATHISEN: Let`s pursue the idea of what`s next for the economy. Can

it continue to grow, at what speed, and with what effect on unemployment?

GREENSPAN: I don`t look for the economy to get very much more than 2

percent, 2.5 percent, maybe short-term 3 percent. But getting back to

where we used to be in the growth rate, at the moment, is not on the

horizon.

MATHISEN: How concerned are you or are you concerned at all about the

effect of the so-called sequester spending cuts of federal outlays, or

additional spending cuts that may be in the pipeline. Do you think that

will have a significant effect on economic growth this year or not?

GREENSPAN: I think it will have an effect, but not that much. I

think we`re overestimating the impact of what cuts in spending do, provided

market values basically of homes and of stocks continue to rise. And I

would expect both to be the case.

MATHISEN: Do you believe that housing is on a sustainable, solid

footing today?

GREENSPAN: I think it is. And you can see things which are very

important in this respect. The demand for owner occupancy is coming back.


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And that is likely to give a big push to housing single family housing

starts, which is where most of the issues lie.

So I would basically think that it`s looking low. I think the major

problem we have, for example, in 2008 when there was mediation of

mortgages, half of them failed after six months. Now, that figure of six-

month mediation is down to 10 percent. That tells you the mortgage market

is significantly improving.

MATHISEN: One last question then on the banks, if I might. One of

our viewers asked whether you feel that the new regulations governing

derivatives, for example, have been effective. And I`ll turn that to ask,

do you think that some banks are still too big to fail, and has Dodd/Frank

worked or not?

GREENSPAN: I think Dodd/Frank has not worked. It is unlikely to

work. It`s too complex, and there are too many regulations. The Fed, in

conjunction with the other regulators, this is a load which I don`t think

is readily handled. But far more importantly, I think the structure of the

economy presupposed by the nature of the regulations in Dodd/Frank is not

the real world.

I think a lot of these regulations will fail to do what they`re

supposed to do, because of diagnosis or what the problems were, are wrong.


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MATHISEN: Chairman Greenspan, the first commentator in the history of

NIGHTLY BUSINESS REPORT, thanks so much for joining us.

GREENSPAN: My pleasure.

(END VIDEOTAPE)

MATHISEN: You know what stood out to me as we took a look at the

American recovery is both Chairman Greenspan and Anthony Chan, see the

economy as growing. But Mr. Greenspan, I felt, felt us growing a lot less

strongly than Chan did.

GHARIB: Except there`s one thing, you know, Tyler. All during the

economic crisis over the last couple years, the question I ask so many

people, you know, when are we going to know we`re turning? They said when

the job market picks up and when the housing market picks up.

One thing that Greenspan did acknowledge is that the housing market is

doing better. And one thing Anthony talked about is the jobs market is

picking up.

So, you know, maybe there is more reason to be optimistic than

pessimistic.

MATHISEN: Absolutely the case.


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GHARIB: And that`s it for this special NIGHTLY BUSINESS REPORT: "The

American Recovery." I`m Susie Gharib. Thanks for watching.

MATHISEN: And I m Tyler Mathisen. Have a good 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) 2013 CNBC, Inc.

Nightly Business Report - Friday March 29 2013.pdf

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