NIGHTLY BUSINESS REPORT for March 30, 2016, PBS - Part 1

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Julia Boorstin, Sharon Epperson, Jane Wells>

Economy>

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Earnings shock. This season is expected to be ugly. But even if the results are lousy, is it possible the stock market could still rise?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Costly coverage. Patients on the exchanges need more care than others, raising concerns that insurers may not participate for the long haul.

HERERA: Detroit`s comeback. How small business owners are helping that city get back on its feet.

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, March 30th.

MATHISEN: Good evening, everyone, and welcome.

Day two, stocks extend their gains as global markets rally, thanks to the market-friendly speech by the fed chair yesterday. As we reported then, Janet Yellen said that the central bank is in no rush to raise interest rates. And that powered a stock market rally around the globe, continuing today, and resulted in the Dow Industrials gaining 83 points to 17,716, the NASDAQ added 22 and the S&P 500 rose nearly 9.

HERERA: The president of the Chicago Fed agrees with the Fed chair. In an interview today, Charles Evans said a rate hike in April would be surprising.

(BEGIN VIDEO CLIP)

CHARLES EVANS, FEDERAL RESERVE BANK OF CHICAGO PRESIDENT: I think Chair Yellen laid out all the right issues, you know, coming out of December going into the March FOMC, it seemed like, you know, some of the risk factors increased a bit, there`s more financial volatility, things settled down a little bit. But I think global risk is higher.

The median is for two hikes this year. If the data come in the way we`re expecting. If they come in stronger, then I think everybody would adjust upwards.

(END VIDEO CLIP)

HERERA: Evans added that potentially moving in June, well, that decision would be made on the basis of further improvement in the labor market but he emphasized he didn`t want to get ahead of himself.

MATHISEN: And there was more evidence today the job market is strengthening. Private companies in the United States added 200,000 jobs in March. This according to the payroll processer, ADP. The construction, the retail and shipping industries all had solid gains, but manufacturing employment barely budged.

HERERA: So while the labor market is humming along the same cannot be said for corporate profits. Overall, earnings for companies in the S&P 500 are forecast to fall, continuing a trend of the past few quarters.

Dominic Chu tells us just how ugly it might get.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: In just a couple of weeks, a lot of focus for traders and investors will turn back toward company-specific stories. Specifically because in a couple of weeks, we start large cap earnings season yet again. And this time the estimates, they`re not very good at least to start.

Here`s what we`re talking about. If you take a look at S&P 500 companies, the analysts over at Thomson Reuters (NYSE:TRI) IBUS compiled all of these analysts` estimates, and right now, they`re showing what could be a forecasted 7 percent decline in S&P 500 profits over the same time last year.

And it`s not just bottom line profits. It`s also what`s happening with sales as well. They`re forecasted to fall by about 1 percent. It would be the third consecutive drop in quarter by profits and the fifth consecutive quarterly drop in terms of sale if it comes to fruition.

Now, it`s going to be a big deal to talk about energy. It has been for quite some time. But if you strip out the negative effects of falling oil prices, you get a different story, a significantly better one but still bad.

Earnings would drop by 2 percent at that point if you stripped out energy and revenues would actually rise by about 2 percent.

So, why is energy such a big focus this time around? It always has been for earnings season ever since oil prices have fallen, but take a look at how bad it`s going to get. The only positive stories we can really talk about right now are in consumer discretionary, up about 14 percent in terms of profit. Telecommunications stocks up by about 5.5 percent.

Here`s where it gets a little tough. Material stocks are forecasted to drop by 19 percent in terms of profits. Energy stocks by a shocking 99 percent. So, that`s the reason why energy will be a big focus and some of those earnings estimates for S&P 500 companies are not quite as robust as some would like.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

MATHISEN: So, what could a weak earnings season mean for the market?

David Lefkowitz is senior equity strategist at UBS Wealth Management Research. He joins us now to discuss that.

David, welcome, good to have you with us. The market has had a tremendous month of March since February 11th. It`s up double digits, done very, very nicely.

Is the market looking past what everybody seems to say is going to be one of the worst earnings quarters that we will have seen in many, many years? What`s going on?

DAVID LEFKOWITZ, UBS WEALTH MANAGEMENT RESEARCH: Yes, Tyler. I think you have to take things in context. When we started the year, there was a lot of concern about a slowdown in China, becoming a hard landing. There were concerns about the U.S. economy, itself, whether it would continue to grow or not.

And now, we`ve seen some signs of stabilization in the Chinese economy, seen some signs of stabilization in the U.S. manufacturing sector as well. And I think that`s what`s powered the rebound on top of the fact that the Fed has been a little bit more accommodative.

So, now, we can get back to I think where we were at the end of last year and the earnings picture still is a bit sluggish, but I think your previous segment nailed it on the head. A lot of this is energy. Some of it is the strong dollar.

Those headwinds begin to go away as we go into the second half of this year and 2017. They shouldn`t really affect us at all. So, I think the market is going to be somewhat range bound but looks brighter as you look further out in time.

HERERA: So, does the green light further action in the market to the upside, David?

LEFKOWITZ: I do think over time. I do think, though, we need to see some -- we have to get some confidence that the weakness in the manufacturing and the industrial and energy sectors is not spreading more broadly. It has spread a little bit. Financials are seeing the impact from higher loan costs in the energy loans.

But consumer discretionary looks good. Health care looks decent. Tech is still good. So, as long as those sectors continue to do well, we should see higher prices and I think ultimately, we will, but I still think we`re going to be in a bit of a volatile period.

We didn`t talk about politics but certainly the political season could have an impact as well.

MATHISEN: Oh, that.

(LAUGHTER)

MATHISEN: But, David, let me come back to what I think I hear you saying an that is that, yeah, the rest of the year is likely to be better in terms of earnings than this first quarter is likely to turn out to be, but the market may be vulnerable in the short term to some volatility because it`s gone up quite a bit. The Fed has been a tailwind there, but now, the rubber meets the road with profits.

Am I hearing you correctly?

LEFKOWITZ: I think that`s right, Tyler. Yes. We`ve had a very strong rebound. I wouldn`t be surprised to see a more of a range-bound market in the near term. And, again, we still need to get more confidence that -- or I think investors more broadly need to get more confident that we will see an earnings recovery in the second half of this year and I think that`s what`s going to be kind of in the backdrop of people`s minds.

I -- you know, if you want to spin it positively, this could be the worst quarter for earnings of this -- of the last several, and then it`s going to get better going forward. I think it`s going to take some time, though, for investors to get comfortable that we have seen the worst.

MATHISEN: All right, David. Thank you very much. David Lefkowitz with UBS Wealth Management Research.

HERERA: MetLife (NYSE:MET) is not too big to fail, so ruled a federal judge. The decision means the company should not be subjected to stricter regulations that emerge following the financial crisis. The reason for the judge`s ruling remains sealed and the government may still appeal. But MetLife (NYSE:MET) shareholders were happy, sending shares higher along with the other insurance companies that have been labeled systemically important.

MATHISEN: Patients who obtained health care through the exchanges under the Affordable Care Act, well, they`re in need of more medical care than those who already had insurance. According to a new study by Bluecross/Blueshield, that increases cost for insurers. The study based on claims of more than 4.5 million people and the finding may help explain why higher premiums have been sought by insurers in many states, and some say it also raises concerns about insurers potentially leaving the exchange.

HERERA: Dan Mendelson joins us more to talk about more the rising cost of health coverage will ultimately mean for the insurers and of course the futures for the exchanges. He`s CEO and founder of Avalere Health, a health care consulting firm.

Welcome, Dan. Nice to have you here.

Were you surprised by the results of the study --

DAN MENDELSON, AVALERE HEALTH CEO & FOUNDER: No.

HERERA: -- and the fact those who were surveyed their health was worse than we originally thought?

MENDELSON: No, I wasn`t surprised. I mean, we`ve essentially reproduced very similar results and what`s happening here is that those people who really need the insurance the most are the ones who are most likely to sign up for it, and as a result, the market is essentially creating a risk pool that is somewhat adverse for the insurers who are participating in it.

I think it is really important, though, to keep it in context and the fact that there are 10 million people who have insurance, they`re generally low- income individuals and individuals who really need the care, and I don`t think this market is going away any time soon.

HERERA: Often, my guess is people who got into the health insurance marketplace who hadn`t had it before, maybe because they had pre-existing conditions and couldn`t get health care coverage or because they just didn`t want to pay for it, it wasn`t as available to them as it is under the Affordable Care Act, now they`re catching up on treatment that maybe they postponed.

Would you expect to see the demand for these health care services even out over time as these new comers then get integrated into the health care system and maybe their health turns a little bit better as they get the care they now can afford to pay for?

MENDELSON: There definitely has been some catch-up and see that in the data. But I think really what`s going on here is that the solutions are really around getting a broader group of people enrolled in this program. So, you have about 10 million people in this program but really the projections we and others made initially is about 20 million should be in this program right now.

So, really, the solutions are around broader enrollment and making sure that the healthy people in addition to those who currently are bearing the burden of illness are enrolled in the program.

HERERA: But, Dan, do you expect as the study indicated might happen that we would see the major insurers decide to exit until we see that evening out or do you think that won`t happen?

MENDELSON: Look, it`s possible that you`ll see one or another insurers exit from this program. Health care is a very locally market-specific enterprise and that`s always been true. However, it`s really important to remember that this is very strategically important.

This is a very strategically important program for the insurers who are participating in it. There always will be a market for individual insurance in this country, and the larger insurers in particular will need to participate in this market. So, I think that in the long run, it will be healthy.

HERERA: All right. Dan, thank you for joining us.

MENDELSON: My pleasure.

HERERA: We appreciate it.

Dan Mendelson with Avalere Health.

MATHISEN: Still ahead: Hoop dreams. Why this weekend`s college basketball championship game puts Time Warner (NYSE:TWX) to the test.

(MUSIC)

HERERA: A jury today found General Motors` ignition switch was defective but it was not the cause of a 2014 accident. No damages were awarded to the two people who were injured. Lawyers for the automaker argued that the accident was caused by ice on a bridge. The verdict was the first involving GM`s ignition switch and there are more than 200 pending cases that allege injury or death was caused by GM vehicle defects.

MATHISEN: Detroit, of course home to General Motors (NYSE:GM) and other automakers. While sales are now near records, that wasn`t the case just a few years ago. The business, of course, being bail out, housing had collapsed in the city and many who lived in Detroit just up and left.

The long road back for the motor town and as Kate Rogers (NYSE:ROG) reports, small business played a key role.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: After emerging from the largest municipal bankruptcy in history, Detroit is undergoing a revitalization driven by small businesses that believe in the city`s future.

April Anderson launched her bakery, Good Cakes and Bakes, in 2013, serving up organic products made from locally sourced ingredients. Her goal is to see underserved areas of the community come back from the brink.

APRIL ANDERSON, GOOD CAKES AND BAKES OWNER: People are starting to realize you need to move up to the neighborhoods, because the neighborhood is really what keeps the business going.

ROGERS: And April`s in good company. Data from the Kauffman Foundation show there are about 1,000 small businesses for every 100,000 residents in the Detroit metro. And while a dwindling population had been an issue, that exodus slowed in recent years.

Another small business making its way in Motor City is Detroit Denim Company, started in 2010 by Eric Yelsma, a former chemical salesman who lost his job in 2009. He loved jeans and decided to turn his hobby into a business.

ERIC YELSMA, DETROIT DENIM FOUNDER: I could not have done it anywhere else. I could not have done it in Chicago, New York, any other city. I wouldn`t have, I think, the ability to go find a place and start making something.

ROGERS: Today, they employ seven people and are on track to open up a new retail store in a few weeks. The most rewarding part, employing locals and teaching them new skills, something they say was badly needed after the auto industry collapse.

BRENNA LANE, DETROIT DENIM CO-OWNER: Making things is -- we`ve done that in Detroit for hundreds of years. It`s really, really rewarding to kind of revive some of those old skill sets and be able to employ people. That`s a real, real gift.

ROGERS: Both Good Cakes and Bakes, and Detroit Denim Company worked with several incentive and grant programs in the city including TechTown, a non- profit incubator and accelerator that mentors entrepreneurs. They`ve helped 1,600 companies create 1,200 jobs in the past eight years, raising more than $120 million. More broadly, the metro has seen 227,000 private sector jobs added from 2009 through the end of 2015, according to the Detroit Regional Chamber.

Anderson is now employing four part-timers at her bakery. She`s had big successes even baking for Oprah, but she takes the most pride in serving her community.

ANDERSON: It`s more validating when the community supports me because Oprah comes in town, she leaves, people come in town, they leave. But to have the community by you, it`s way more important to me than that.

ROGERS: A community of Detroiters that`s been through so much ready to forge ahead.

For NIGHTLY BUSINESS REPORT, in Detroit, I`m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

MATHISEN: To read more about small businesses in Detroit, head to our website, NBR.com.

HERERA: Boeing (NYSE:BA) plans to cut thousands of jobs and that is where we begin tonight`s "Market Focus."

The company will eliminate more than 4,000 jobs in its commercial airlines unit by June in an effort to reduce costs to stay ahead of competition from European rival, Airbus. Boeing (NYSE:BA) expects most of those cuts to come from attrition and voluntary layoff. Shares dropped nearly 2 percent to $128.58.

Lower fuel costs and an increase in bookings helped lift profit at Carnival (NYSE:CCL) with results topping expectations. Revenue also came in above analysts` estimates. The cruise line also increased its earnings outlook for the year but still expects sales to miss targets. Shares of Carnival (NYSE:CCL) rose more than 5 percent to $52.37.

MATHISEN: The athletic apparel maker Lululemon Athletica (NASDAQ:LULU) posted better than expected quarterly profit, thanks to strong sales during the holidays. The company also laid out an ambitious goal, saying it expects to double sales to $4 billion by 2020. Shares spiked more than 10 percent today to $67.80.

The Food and Drug Administration has rejected the application for a new kidney cancer drug from the pharmaceutical company, Opko Health. The FDA cited issues unrelated to the drug with Opko`s third-party manufacturer. Opko`s CEO said the company will work with the FDA and manufacturer to resolve the matter. Shares plunged more 10.5 percent on the news to $9.90.

HERERA: Big money is being thrown at the big dance. Advertisers are going all in on March Madness spending which is at record levels. But as the cable television industry changes, there`s one company in particular that has a lot at stake.

Julia Boorstin has that story.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: March Madness has turned into advertising madness. The annual NCAA Division 1 men`s basketball championship sold a record $1.2 billion of advertising last year for CBS (NYSE:CBS) and Turners Networks, and this year, it`s on track to grow by at least 5 percent. As advertisers turn to live events, the viewers want to watch in real time, along with ads.

JON SWALLEN, KANTAR MEDIA: Live sports programming has been steadily increasing, ad rates across March Madness, across other professional sports, college sports as well. As audience ratings have shrunk for other types of programming, audience ratings for sports programming have held up fairly well. That also adds to the attractiveness of the investment for advertisers.

UNIDENTIFIED MALE: Are you guys ready for our March Madness road trip?

BOORSTIN: Analysts say broadcasting the tournament has been increasingly profitable for Time Warmer and CBS (NYSE:CBS) because advertising has been growing faster than the cost of TV rights.

This year`s tournament is particularly important for Time Warner (NYSE:TWX). Its stock dropped on concerns of the future of the TV bundle. This is the first time a championship will be shown on a cable network. Monday`s game is airing on TBS.

Time Warner (NYSE:TWX) has been doubling down on sports. More than a third of Turner`s $4 billion in programming costs this year will go toward sports rights. Paying $7.3 billion to the NCAA over the next nine years.

SWALLEN: For Turner, it`s a continuation of their increasing involvement and increasing participation in the sports marketplace. They`ve had an NBA contract for -- an NBA presence for a number of years.

BOORSTIN: Now the question is how sports will help Time Warner (NYSE:TWX) hold on to subscribers and battle the cord-cutting trend. TBS and TNT each lost more than $2 million subscribers last year according to Nielsen.

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

(END VIDEOTAPE)

MATHISEN: NCAA also recently announced this weekend`s Final Four and championship game will be live streamed in virtual reality. If you own a Samsung Gear VR -- it`s a sexy look -- you can download the NCAA March Madness live app in the oculus store and watch the game as if you were courtside. I suggest you do it in your own home.

HERERA: Yes. I`d be a mess.

All right. Coming up, the value of a dollar. What parents are and are not teaching their kids about managing money.

(MUSIC)

MATHISEN: All right. Headlights on roughly a third of mid-sized cars do a poor job. In its first ever study of headlights, the Insurance Institute for Highway Safety said only, only that Toyota (NYSE:TM) Prius-V earned a good rating. While most headlights currently meet government standards, the institute said better headlights could reduce accidents and improve safety.

HERERA: Lockheed Martin (NYSE:LMT) has landed its first contract for its hybrid airspace -- airship, I should say. Straightline Aviation has signed a letter of intent to purchase a dozen of them for roughly $480 million.

The airships are nearly the length of a football field. As we reported earlier this month, they will be able to carry 20 tons of cargo to remote places. Lockheed says they`re a cheaper, more environmentally friendly way to deliver supplies and equipment. You can read more about that deal on our website, NBR.com.

MATHISEN: More money is something many parents would welcome, especially with the cost of raising a child from birth to age 18, topping a quarter million dollars now.

New study by T. Rowe Price provides some insight on just how many parents are sacrificing to provide for their children and Sharon Epperson is here with more on that study.

What could do the spending patterns reveal, Sharon?

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: We`re spoiling our kids basically.

MATHISEN: Oh, shocking.

HERERA: Really.

EPPERSON: That`s what we`re doing. About half of the parents in the survey said that they spend money on items the kids really don`t need, and many of them are going into debt to do it, nearly half of them. And over half of them admit they`re spoiling their kids.

But what`s really interesting is kids were surveyed in this report as well and they`re also saying that they expect their parents to buy them certain things and they`re getting them.

HERERA: Yikes. OK. Note to self.

On the flip side, though, are parents really talking to their kids about money? For instance, I said to my kids one day, you know, this month we`re trying to save extra money for, you know, the family vacation so we`re on a budget.

EPPERSON: Right.

HERERA: Do many people do that or not?

EPPERSON: The majority do not, and they`re uncomfortable doing it.

HERERA: Oh.

EPPERSON: About 58 percent of parents say that they`re uncomfortable talking about family finances with their kids. That`s about the same amount that say they`re uncomfortable talking about death with their kids. So that`s the way they`re equating it.

It`s a scary subject to the parents and don`t forget, the kids are learning the most about money from us.

HERERA: Right.

EPPERSON: So if we`re afraid to talk to them about it, they get that. Many of them understand we`re uncomfortable. It makes them uncomfortable, too.

MATHISEN: Yes, I wondered whether that was the reason parents are evade of creating insecurity. If they -- if the child picks up on their anxiety about --

HERERA: Right.

EPPERSON: Exactly. I think that is a big part of it so one of the things parents need to do is keep it simple, keep it age appropriate. When you`re talking about money, vacations, the kids can understand that.

HERERA: Right.

EPPERSON: For my kids, I talk to them about buying a new refrigerator. They know where they go to get the food, they know how much it costs when you have to buy a new one, which is use anecdotes from real-life experiences.

And then don`t be negative about it. Even if you are anxious about money, don`t let the kids know that, don`t express your anger or your anxiety with your spouse in front of the children. Try to keep that private. And explain to them, have a strategy out there. If you don`t have one yet, come up with a way to make them feel comfortable, like we have this control, trying to get this under control.

HERERA: Yes, don`t be worried about it, we`re going to try to handle it.

And there`s a great website that I really want to urge parents to go, it`s moneyasyougrow.com. It was started by President Obama`s financial capability counsel. It`s now on the consumerfinance.gov website and really great way to figure out how to start that conversation with kids at various age groups.

MATHISEN: Sharon, thanks. Sharon Epperson.

HERERA: All right. Are you looking for something to celebrate? Well, just look at your calendar, because according to one company, every day has a story and today is National Little Red Wagon Day. Yesterday was National Lemon --

MATHISEN: You didn`t know that?

HERERA: No, I did not.

And as Jane Wells -- but now I do -- tells us, there is big money behind these unofficial offbeat holidays.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Happy National Pencil Day. Yes, an object we no longer use is commemorated with its own day in America. Not only that, Wednesday was also National I Am in Control Day, Turkey Neck Soup Day, Take a Walk in the Park Day, Little Red Wagon Day, National Doctors` Day, and Manatee Appreciation Day.

What is going on? Blame, or thank, this guy.

MARLO ANDERSON, NATIONAL DAY CALENDAR FOUNDER: Because we became kind of this authority with national days, people started asking to see if they could register for a national day.

WELLS: Marlo Anderson founded National Day Calendar as a hobby because he likes fun silly days. But then people started asking him to make days official and offered to pay him, including this year for the first time, the people behind National Prom Day.

KIMBERLY COLLINS, PROMGIRL.COM: It was somewhere between $3,000 and $5,000.

WELLS: Kimberly Collins of promgirl.com paid that to National Day Calendar hoping Prom Day will drive sales and raise money for charity. So, Thursday, Prom Day will have its own official hashtag.

There are now about 1,200 days on Anderson`s National Day Calendar but most requests are denied. There is a vetting process.

COLLINS: They wanted to know more about us, who we are, why we should be declaring Prom Day and why it`s so important to girls. So, yes, they definitely, there`s a process around it.

ANDERSON: We have a committee of four people. They have to go through these and it has to be a unanimous vote between these four people for that day to become a national day.

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