BUSINESS-01
Nine-Year Low; Referendum Campaign Wraps Up in Italy; Bank of Mexico Boss
Explains Decision to Leave; Deputy U.S. Labor Secretary Discusses Trump
Deal with Carrier; Study Suggests Link Between Golf and CEO Performance - Part 1>
Augustin Carstens, Chris Lu>
back home. U.S. unemployment falls to its lowest level since the financial
crisis. Italy's banks are in for a nervy weekend as the country goes to
the polls. The bank of Mexico governor tells me why he's leaving for
Switzerland.>
[16:00:00] ISA SOARES, CNN ANCHOR: Markets snapped their three-day winning streak and are finishing the week flat. It is Friday, December 2nd. Tonight, just the job, U.S. unemployment falls to its lowest level since the financial crisis. Italy's banks are in for a nervy weekend as the country goes to the polls. And the bank of Mexico governor tells me why he's leaving for Switzerland. I am Isa Soares and you are watching QUEST MEANS BUSINESS.
Very good evening, we'll have the rest of the day's business news in just a moment. First, the bodies of the Brazilian victims on the plane crash in Colombian, if you remember, headed home. Right now, you're looking at live pictures from the airport in Medellin in Colombia. This is where the bodies, including those from the Chapecoense football team are flying back to Brazil for burials. Sixty-five Brazilians where amount the 71-people died, killed in a crash on Monday. CNN's Shasta Darlington is live for us in Medellin, Colombia at the airport. She joins us now. Shasta, talk to us about what we're seeing right now, these live pictures.
SHASTA DARLINGTON, CNN CORRESPONDENT: Sure, Isa, I mean this is just a terribly long, agonizing wait for the relatives and the victims and the relatives of the families of the victims. The bodies have been brought to the airport here in Medellin. They are -- the coffins in hearses, a caravan from funeral homes. They're very simple tributes. The line the coffins up in front of these Hercules aircraft that you see out here. There is a priest who's giving a very simple blessing, and then they load the coffins on to the aircraft. One aircraft is already taken off. They've just loaded up a second one and it is about to take off. And they will begin the process all over again with the third aircraft.
There are 50 people being carried on these aircraft. There are some private planes who will be taking the Brazilian journalists back to Brazil, who also died in the crash. But just an incredibly emotional and difficult time for everyone here. Also for the Colombians who've been showing so much solidarity. Organizing tributes for the crash victim. As you can see a lot of journalists are now running by because there's going to be an impromptu press conference with the ambassador here. He's going to talk about what a difficult moment it is, but how much they have appreciated the solidarity from the Colombians here.
This comes days after the crash when the Lamia flights 2933 crashed into the mountains just outside of Medellin. And the bodies were relatively quickly identified because there had been an explosion. There had been a fire. This is due to the fact that the plane was out of fuel. So, this means that they are finally ready to be carried home, Isa.
SOARES: And Shasta, I believe many of the families of the deceased are indeed have travelled from Brazil to Medellin. I believe you have been able to speak to some of them. What questions are they asking, if any, Shasta?
DARLINGTON: For the relatives and the families, the real issue is just getting the bodies back home. But there are lots of questions about the investigation. While Colombia has now confirmed that the plane was without fuel, and that brings us a lot of questions. How can the flight plan have been approved knowing they were going to arrive at the destination so low on fuel? Or was the flight plan misrepresented? The Lamia charter company in Bolivia is now formally under investigation as well. We know that the director -- one of the directors of the civil aviation in Columbia, is actually a relative of one of the executives at Lamia. So, a lot of questions to be answered.
We spoke to the head of Colombia Civil Aviation just a short while ago, and he said the investigation of the black boxes is going to take months. Both Brazilian, Bolivian and even British officials are involved. So, that is going to drag on, but the focus is differently on the lack of fuel and how that could have happened, Isa.
SOARES: For the viewers just now joining us, just so you're aware, you're looking at live pictures from Medellin in Columbia where the bodies of those who died in that plane crash in Medellin, being now repatriated to Brazil.
[16:05:00] Many of which 71 people died, many including members of the Brazilian soccer team, football team Chapecoense. Shasta Darlington for us in Medellin. Thanks very much, Shasta.
Now let's turn our attention to the business news. Because tonight, the U.S. economy looks like it will be in pretty solid shape when Barack Obama hands over the White House keys to Donald Trump. New job numbers show an economy that is almost at full employment. And only a few blemishes that need to be made right again. Unemployment was down to 4.6 percent in November. It is the lowest since 2007, as well as the lowest of the Obama presidency, as you can see there, 170,000 jobs were added last month. That slightly ahead of expectations.
However, the number of workers participating in the labor force was down again in November nearing multi-decade lows. Manufacturing jobs are also falling. Economist Diane Swonk joins us now from Chicago with more. Looking at those numbers, Diane, the U.K. economy looks pretty healthy. What did you make of the U.S. numbers -- what did you make of the numbers? Are they as robust as they look?
DIANE SWONK, FOUNDER AND CEO OF DS ECONOMICS: They certainly were a solid number, that is the good news, the 4.6 percent. A little bit as you said, because the participation rate ticked down a bit. But also, the lowest since August 2007. I think the interesting thing is they're good enough for the Fed to raise rates in December. What we have is better wage growth than we did a year at this time, and higher inflation. So, both of those things with the ongoing economic momentum and low unemployment, all will allow the Fed to raise rates again in December.
That said, I think it is also interesting to look at the 4.6 percent rate is not what it once was. Back in 2007, we had that another measure of unemployment, which we call the U6. Which includes people that are marginally attached to the labor force, maybe discouraged, they have dropped out temporarily, those that are working part-time instead of full- time, and having to choose those jobs because they couldn't find a full- time job. That unemployment rate also came down, but it 9.3 percent it is still almost a full percentage point ahead of what it was in 2007. So, we do have that gap that really underscores the discontent we saw during the election.
SOARES: And that was exactly going to be my point. For our international audience saying look, these are pretty healthy, these are pretty robust numbers, it doesn't really match what we have been hearing from the rest of the American population. That they want to see change, and they're not happy, they're not feeling the benefits of a healthy economy.
SWONK: Exactly, and I think you're seeing here is, one, the gap between the sort of underemployed, people marginalized is still very large. Those people who feel left behind are still large. And wage gains at 2.5 percent. That is up from the lows we saw earlier in the expansion, but it is still well below what we saw in a time like 2007 and 2006 when it was closer to 4 percent. So, we also had a better composition of employment gains. I mean, these employment gains that we've seen since this recovery, they originally started with much lower wage jobs. So, more people having to trade down, and even though lower wages have begun to pick up, because we've seen minimum wages at the state and local level pick up, they're still less then what people were making before. And I think that's where you sort of get lost in the aggregates and you lose what individuals are feeling. And the gap between the overall numbers, the aggregates and then individual uncertainty and angst that we clearly saw during the election.
SOARES: So, I think it's fair to say, Diane, that you have a U.S. President-elect Donald Trump is inheriting a pretty healthy and robust economy. Where can he do from here? Where can he take it?
SWONK: We do have a tail wind, that is the good news. Much of the things that slowed us down in the first half of the year have gone away. We're moving into the year and if you were to do nothing, which may be best thing to do at this stage of the game. We would actually see the economy continue to improve, and we might actually get to the point where wages are really starting to give it up more rapidly. The question is does he overheat the economy by overstimulating with some of his program policies and take us into a lot more debt. Or does he do something really damaging with trade in her trading relationships that then come back to haunt us later on. And that's what we don't know. The uncertainty with this particular administration and where things go next has never been higher, which is not reflected in financial markets. Because I think they're reading the situation in Washington as unity with one party. This is a party that was ready to throw their leader, Donald Trump, off the ticket a month prior to the election.
SOARES: Diane Swonk, always great to get your insight. Thank you very much, good to see you.
[16:10:00] SWONK: Thank you.
SOARES: Now the top economist in the Obama White House says they're leaving the economy just the way they want it for Donald Trump. Jason Furman told me earlier he was encouraged by today's job numbers.
(BEGIN VIDEOTAPE)
JASON FURMAN, CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS: I'm very happy with it. I was working on President Obama's transition eight years ago. We were losing 800,000 jobs a month at that time. We were utterly terrified about what was going to happen. But, you know, we put in place the right policies, and today we have unemployment rate less than half of what it was. We've had 15.6 million jobs. You've seen wages raising this year well above the pace they were rising before we came into office. And this is exactly what we want to be handing over to the next president, which is a strong economy that's moving in the right direction.
SOARES: Of course, a strong economy, but all of this could potential be undone by the President-elect if he is prepared to basically tear up the rule book. Do you fear your hard work will just go out the window?
FURMAN: The American economy is very durable. It's very strong, but we also do need the right policies. We need to continue to invest in education. We need to invest in infrastructure. We should be reforming our business tax code. We should making arc economy more competitive. And we should make sure we're doing that while not adding a lot to the medium and long run deficit. There is more that we can and should be doing to move forward in this country.
SOARES: You mentioned the tax code. We've heard yesterday from the President-elect, and we also heard from the new Commerce Secretary as well, about this. Do you think the Obama administration should have done more to reform the tax code?
FURMAN: We put forward a business tax reform frame work six years ago, and I think a lot of the ideas are ones that we would like to see carried forward and embodied in the future. And there's two really important ones. One, is we do need to cut our rate to make our economy more competitive, to reduce the distortions. But we also need to pay for business tax reform. Because if on the one hand you're cutting the tax rate, but on the other hand you're adding a lot to the budget deficit, then you're going to end up hurting the economy rather than helping it. So, that idea that you need to be revenue neutral, that you need to cut up loopholes, broaden the tax base, that's a really important one that we need to carry forward as well.
SOARES: What are you most proud of in terms of what you achieved with the Obama administration when it comes to the economy. What do you think was your main goal, and what do you think it will be for your baby or so that you've held on to it for so long.
FURMAN: Well, the first goal was to save the economy from a second great depression. And we've done that. The United States recovery has proceeded further and faster than what you've seen in most of the major economies around the world that were affected by financial crisis. We feel good about our fiscal response, our monetary response, rescuing the auto industry, what we have done in the financial system. But at the same time there have been a bunch of long run structural problems. And we haven't solved those, but we've gotten a good start on them.
Something like the Affordable Care Act, people think of that in terms of covering 20 million people with health insurance. That's really important, but it's also contributed to a dramatic slowdown in the growth of health costs and that's helping our businesses create jobs, raise wages, and lower our budget deficit over time. So, that's a really important economic policy that gets to the structural issue in our economy.
(END VIDEOTAPE)
SOARES: Jason Furman there.
Well, Wall Street fluctuated a bit after those jobs numbers. It was a mostly flat finish as you can see. The Dow down just 21 points or so. CNNMoney's Paul La Monica is with me now. To talk about these numbers, what this means, what this means for the Fed? What you make of those numbers?
PAUL R. LA MONICA, CNNMONEY CORRESPONDENT: Yes, I think the numbers were pretty solid. We got another nice month of job gains. The drop in the unemployment rate was obviously something that I think everyone was happy with. Wage growth did slow a little bit. That was the one negative, but there was nothing so negative here to derail the Fed from raising rates in a few weeks. Janet Yellen is going to do it.
SOARES: So, is going to have to do it. Because she said it last meeting, there was a lack of change in major economic indicators. This points to no reason for them not to do it, correct?
LA MONICA At this point there is really not a compelling reason for the Fed to stand pat. The question now is do they do one rate hike and then sit tight all of next year, like they wound up doing this year? But will have to wait and see.
SOARES: What's the sense you're guessing on that.? Because I've been hearing from a couple of people that say they'll be two or three quite early on.
LA MONICA: Yes, I think the Fed will barring a major market selloff in the beginning of the year, if that happens, then I think all bets are off. If we have a continuation of the Trump rally, actual fiscal stimulus plans to go along with monetary policy stimulus, the Fed could probably do two or three rate hikes and it won't derail the economic recovery.
SOARES: What about oil? We've seen OPEC reach that deal. If oil prices rise, do you think that could put the brakes on Janet Yellen's rise?
LA MONICA: That's going to be the wildcard. In the Fed, has been wanting more inflation. And oil prices going up will help that come along. The big concern will be are higher oil prices going to dent consumer spending. If that happens, we'll see it in GDP pretty quickly, and that will be something the Fed would not want to do and they would have to hold off on future rate hikes. But this is all big speculative bet on the consumer having to pull back drastically because of a huge spike in oil prices.
[16:15:00] SOARES: We have seen, of course, the rally, the honeymoon Trump rally we've been having the last couple of days. But I want to ask you about New Oriental because shares are down 14 percent, why is that?
LA MONICA: Yes, this is a company that trades in the U.S., and their ticker symbol, EDU. They are a Beijing based company that help Chinese students apply for colleges in the U.S. There are reports on Reuters suggesting that some of what this company has done. They have falsified transcripts for students. They have written recommendations entirely. Written applications for students. So, that's something that is now being looked into by regulators. The stock falling 14 percent today. It was down as much as almost a quarter of its value, lost at one point, 24 percent. So, this is a company that regulators are going to be looking at pretty closely.
SOARES: Right, do keep us posted to see what they say, and us posted as well on that share price. Paul La Monica, always great to have you.
LA MONICA: Thank you.
SOARES: Now Italians are going to the polls and there is plenty, I can tell you, at stake including the prime minister's future. We'll have that story for you, next.
(COMMERCIAL BREAK)
SOARES: Italy is in the final hours of campaigning ahead of Sunday's constitutional referendum. A no-vote could really overthrow the government and send shock waves right across Europe. Prime Minister Matteo Renzi, who called the referendum, is staking his political future on it. Most recent polls suggest that he could be defeated. Renzi has hinted in fact, that he'll resign if he loses. If early elections are called, Eurosceptic, anti-establishment parties are likely to be the main beneficiaries. They include the Five-Star Movement led by this man, you're looking at on your screen, his name is Beppe Grillo. Some ordinary Italian is just waiting for the campaign to be over.
(BEGIN VIDEO CLIP)
PIPPO NICOSIA, MARKET STALLHOLDER (through translator): In my opinion, I'm not afraid of anything. Because I think things will carry on as before. We don't have a strong Italy. We don't have a competitive Italy. This we all know. But for the people what will change, we might as well throw in the towel, because no will win. Everything will collapse, so we might as well all go on holiday.
(END VIDEO CLIP)
SOARES: Some Italians found the referendum rather confusing. So, the "Yes" campaign made this video to explain really what what's at stake. Twitted out by Prime Minister Renzi. It tells the tale of a hitchhiker whose reluctance to get in a car reflects Italians reluctance to change. Well, in a nutshell, the referendum is about amending the Constitution. Renzi wants to limit the powers of the Senate in order to streamline the legislative process.
This is what he argues. He argues that the current system is too prone to gridlock. Critics though disagree saying the changes would strengthen the power of the Prime Minister. Well at stake is a package of economic initiatives champion by Renzi. He wants to push through reforms to get the economy moving again. [16:20:00] Third quarter growth was 0.3 percent. And then the Italian banks, they are grave risk if indeed Renzi loses. Many are struggling with bad loans and the no vote could derail the rescue on Monte dei Paschi. That's the oldest operating bank.
Well uncertainty about the Italian referendum drag most European markets lower on Friday. Bancshares were among the biggest fallers you can see there, right across the continent. Investors are worried that a no vote could plunge the Eurozone into crisis once again. Numbers pretty much downright right across the board with the exception of the Zurich SMI.
While markets remain jittery, former European Central Bank, president Jean- Claude Trichet, told me he doesn't believe Italy's vote will cause a European drama and actually thinks Matteo Renzi will keep his job. Take a listen.
(BEGIN VIDEOTAPE)
JEAN-CLAUDE TRICHET, FORMER PRESIDENT, EUROPEAN CENTRAL BANK: I expect -- I might be wrong, because I'm not a specialist of Italian politics. But I expect the president of the public would give Matteo Renzi again, the function to create a new government. So, even if Matteo Renzi had said at a time that he would consider that he has to resigning, I expect that he will continue to be Prime Minister. So, it would not be necessary to be so totally dramatic. I hope that it won't be totally dramatic.
Now to conclude that if the no vote, you have contagion all over Europe, I don't buy that, personally.
SOARES: Why not?
TRICHET: First of all, Europe and belonging to the Euro area and to Europe has proved much more resilient than was expected in the crisis. As you know, we are 15 countries at the moment of the banking crisis. Today we are 19. The 15 remained, including Greece, including Germany, including Italy of course, but for other countries got in. Which tells a lot on the resilience of this particular endeavor. So, I don't think it could trigger, I would say, drama.
(END VIDEOTAPE)
SOARES: Jean-Claude Trichet, speaking to me earlier. With the fate of Italy fragile banks hanging in the balance, there is still fear that's a no-vote could have a domino effect on the entire financial system. As our Nina dos Santos finds out.
(BEGIN VIDEOTAPE)
NINA DOS SANTOS, CNNMONEY EUROPE EDITOR (voice-over): For over five centuries, Monte dei Paschi has been behind some of the great moments in history. It helped finance the Renaissance and sponsored Siena's famous Palio horse race. Now the world's oldest bank has become its most endangered bank and the symbol of Europe's latest crisis.
FEDERICO SANTI, EURASIA Group: Monte dei Paschi is something of a special case in Italian banking system. There's no other bank that that's really in quite -- such a dire state. And it could potentially be the first victim of our return to political instability.
DOS SANTOS: From Spain to Slovenia, euro zone countries have been cleaning up their lenders. Except in Italy where paralyzed by weak governments, the banks were left to rack up almost $400 billion worth of bad loans. Now the country's Prime Minister wants more power to fix the problem, and to kick start an economy still stuck in the late 1990s. To do so, he's called a referendum on changing the constitution.
DOS SANTOS (on camera): Monte dei Paschi a rejection of those changes could scuttle its plans to plug a five-billion-euro hole on its balance sheet and force it into state hands. Another seven lenders on life support face a similar predicament. In all of this has hit shares of Italy's banks, which are currently down 50 percent this year. Monte dei Paschi's stock is down by 80 percent.
KATHLEEN BROOKS, HEAD OF RESEARCH, CITY INDEX: Regardless of whether or not we get a yes or no vote, the Italian banks are in very poor shape and they're going to have to have a period of intense and painful reconstruction going forward.
DOS SANTOS (voice-over): But even if Matteo Renzi wins the vote, the success of Italy's financial sector is by no means guaranteed. New laws from Brussels have made it hard for him to bail out the banks without forcing investors to shoulder some of the burden too. That makes any rescue package political dynamite in a country where sways of mom-and-pop savers hold some $250 billion worth of bank bonds. And surprisingly all of this has led to a bleak mood on the streets of Rome.
UNIDENTIFIED MALE (through translator): I don't think there will be great changes in the economy. Even if they save the banks we vote for no and it will create a great depression. I think the situation will remain unchanged, unfortunately.
UNIDENTIFIED FEMALE (through translator): I'm leaning towards the no because they're all liars. The reality is there only interested in their privileges. Politics are filthy, even all of the publicity for the yes vote and the no vote, they're filling our heads with stupidity so you vote for the lesser evil.
[16:25:00] DOS SANTOS: Which means the only thing Italians can bank on for now, is uncertainty itself. Nina dos Santos, CNNMoney, London.
(END VIDEOTAPE)
SOARES: Earlier today, I spoke with Andrea Illy. He's the chairman of the coffee company Illycaffe. I asked him why the Italian vote matters for the economy. Take a listen.
(BEGIN VIDEOTAPE)
ANDREA ILLY, CHAIRMAN, ILLYCAFFE: Well, Italy has been waiting for reform since many decades. As a matter of fact, as a consequence of this long wait, we lost a lot of competitiveness. We are now number 44 on the world economic forum, you know, ranking. And this is due to the fact that we have three key economic indicators that are suffering, which are growth, debt, and employment. Of course, we shall always remember that in Europe, countries do not control the monetary policy any longer. So, that means that the only way for one country to, let's say improve its competitiveness, is through reforms. Which is something that is very highly requested by most of the economic institutions starting from Europe.
SOARES: If the no does win, Mr. Illy, what kind of scenarios is Italy looking at here?
ILLY: If this country doesn't reform itself, it will continue to suffer from a weakening competitiveness. It will not be able to be an actor in Europe. Europe is tricky. Because not only it springs constraints to any European governments, about fiscal policies and any kind of reforms. And of course, the weaker of the country, the weaker they say that his possibility to influence the European Union policy. So, this is also part of the equation.
Then I have other points of concern. Recently coming out struggling to come out from a recession, a long recession, we started in 2008. And we have also a few banks to recapitalize and to restructure. And of course, we will also need to have, in order to do so, a very strong international attractiveness in order to attract foreign capitals. And it is also complicated if we go back into recession. If we go back into a situation where there is no political stability. There are no conditions to grow the economy once again.
SOARES: I was reading your blog on this, on the need for constitutional reform, and you say in your blog, I will vote yes at the referendum. Why did you decide, Mr. Illy, to take a public stand on this? Why does it matter so much to you?
ILLY: Because I believe that the responsibility of an entrepreneur, at this point in society, is even bigger than politicians. We are living a very difficult moment in the society. A moment where we have a systemic unsustainability, in the economy, in the social life, and civil society. and in the environment. We need to find a new balance, a new society founded on new technologies, on a new set of rules, and this will require several decades. And any politician has two short time frame to do any policy which is for the long-term.
(END VIDEOTAPE)
SOARES: Andrea Illy there, the CEO of Illycaffe.
As Mexico braces for the Trump presidency, we speak to its outgoing central bank chief about what he hopes for and fears from the incoming administration, that is next.
[16:30:00] (COMMERCIAL BREAK)
SOARES: Hello, I'm Isa Soares. Coming up in the next half hour of QUEST MEANS BUSINESS, the Deputy Labor Secretary tells me he agrees with Bernie Sanders of a Donald Trump's deal with Carrier. And how a round of 18 holes can put a hole in your balance sheet. A new study suggests CEOs shouldn't play so much golf. First though, these are the top news headlines we're following for you this hour.