NIGHTLY BUSINESS REPORT for April 14, 2016, PBS - Part 1

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(NASDAQ:MSFT); Government; Lawsuits; Technology; Clear; Business; Safety;

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

SHARON EPPERSON, NIGHTLY BUSINESS REPORT ANCHOR: Something`s missing. The fewest number of Americans in four decades filed for unemployment benefits. So why is there so much anxiety among workers?

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Landmark lawsuit. Microsoft (NASDAQ:MSFT) sets the stage for another high-profile battle between the tech industry and Washington.

EPPERSON: Avoid the lines. What one company is doing to take the headache out of security check.

All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday, April 14th.

Good evening, everyone, and welcome. I`m Sharon Epperson, in tonight for Sue Herera.

GRIFFETH: And I`m Bill Griffeth, in tonight for Tyler Mathisen.

Remember 1973? I do, I was in high school.

The job market does too. A new report today from the Labor Department shows that the number of Americans filing applications for unemployment benefits unexpectedly declined last week to levels not seen since November of 1973. So, that`s a more than 42-year low.

Add to that, a jobless rate at an eight-year low. More people looking for work, a healthy outlook from economists, and most say the labor market is in good shape.

But despite the solid numbers, there`s still a lot of angst among American workers.

(BEGIN VIDEO CLIP)

SEN. BERNIE SANDERS (I-VT), DEMOCRATIC PRESIDENTIAL CANDIDATE: This campaign is sending a message to corporate America -- you cannot have it all!

GRIFFETH: You hear it almost every day on the campaign trail.

DONALD TRUMP (R), PRESIDENTIAL CANDIDATE: Is anybody working up here? We got to change this, huh? It`s terrible.

GRIFFETH: You can see it and hear it if the streets.

PROTESTERS: What do we want?

GRIFFETH: Protests, calls to raise the minimum wage, improve health benefits, or today in Washington, D.C., it was about protecting pension benefits for retirees.

All that frustration, though, would seem to belie our economic data. Last week`s initial claims for state unemployment benefits, a measure of layoffs, fell to 253,000 -- the second time in two months it`s hit a low not seen since 1973.

Unemployment is at 5 percent, a number once thought to be at or near full employment. But clearly something`s wrong.

LARRY SUMMERS, FORMER U.S. TREASURY SECRETARY: What markets are telling you is that nowhere in the industrial world is there an expectation that inflation is going to reach the 2 percent target over the next decade. That`s telling you that something is off.

GRIFFETH: One thing that`s off, the types of jobs that we are filling. Some argue too many are minimum wage-level positions.

CHRISTINE LAGARDE, IMF MANAGING DIRECTOR: Clearly, there have been job creations in a much larger volume than was expected. The quality of those jobs needs to be looked at, in our view.

GRIFFETH: U.S. companies argue there`s a skills gap. That`s why, they say, 85,000 high-skilled foreigners are admitted to the U.S. each year using government-granted H-1B visas and the number of foreign applicants for those visas is up more than 30 percent in two years, hitting a new record again more than 236,000.

Forty thousand Verizon (NYSE:VZ) workers went on strike this week. It`s the biggest labor walkout the U.S. has seen in five years. And with corporate profits sagging, it`s a problem that isn`t going away any time soon. Recession fears may have subsided for now. But growth? That`s a lingering problem.

BEN MANDEL, J.P. MORGAN ASSET MANAGEMENT: It`s translated into more of a sort of business as usual type of disappointment and consistent with our view that we`re still in the middle of a very long, very flat business cycle.

(END VIDEOTAPE)

EPPERSON: William Lee joins us now to talk more about the disconnect that we`re seeing in the labor market. He`s the head of North America economics at Citi.

Thanks for joining us.

WILLIAM LEE, CITI HEAD OF NORTH AMERICA ECONOMICS: Thanks for having me.

EPPERSON: You know, there does seem to be this great disconnect. We have presidential candidates on both sides of the aisle promising they`ll be able to create more jobs. But the reality is many businesses, many small businesses, are not hiring traditional workers because they`re hiring contract workers or temporary workers.

Is that what is really causing this dilemma that we`re seeing in the labor market and the anxiety among many workers?

LEE: Sharon, we have a dual economy here, and we have a disconnect between what`s going on in the labor market, which is a lot of job creation, yet we have very she growth in GDP. Economists call that productivity problem. And for you and me, it means that the workers who are getting jobs are not getting jobs that pay a middle-class wage, the living wage everyone`s demanding, because their productivity`s not up to it.

And I think one of the things that`s a shame about this recovery is that the bulk of the jobs have been in the slower-wage sectors -- the retail, hospitality, health care. And even when you see where the wages are going up, it`s really associated with those lower-wage, near-minimum wage jobs. So, there really is a huge disconnect.

GRIFFETH: But is that a -- does it mean something is broken? We have had how many years, a full generation, maybe 30 years of an obsession to bring costs down in this economy. And we`ve done it. Jobs have gone overseas, so we could produce things more cheaply. And the service sector gave rise because they could pay workers less money.

I mean, this is what we`re going through. This is what we`ve been working toward, isn`t it?

LEE: Well, Bill, we`ve had a hollowing out of the job market. We`ve had a lot of the Middle American jobs shift abroad, or replaced by computers. And we are left with a tremendous demand for very skilled workers.

If you go to any house builder, he`s going to tell you the reason I can`t build you affordable housing is because I can`t find the skilled labor, the roofers, the framers, the skilled plumbers able to build at a reasonable cost. And at the same time, you have stock boys who are in department stores now who are college graduates, now they`ve gotten jobs college graduates should have, and these department stores are not able to find stock boys. And so, they`re having to raise these minimum wages.

But that`s unfortunately the only segment of the labor market that`s experiencing wage gains.

EPPERSON: It seems like the disconnect really is between technology and automation on one side and actually a healthy economy. But it just -- there is this disconnect and we cannot find the skilled workers to find of fill some of these jobs. What can be done about it?

LEE: Well, the key is whether you`re a substitute for a computer or you`re a complement for a computer. With technology, it`s inevitable that the jobs are going to change. Are you going to be someone who`s going to be able to work with a computer and work with technology so that the technology enhances your productivity? Or you`re going to be the buy who gets a bazillion dollars.

On the other hand, if you`re a substitute, if a computer replaces you, you`re going to be on the unemployment line. That`s the split in the economy we`ve seen.

EPPERSON: Very good point. William Lee, thank you so much for joining us. William Lee with Citi.

GRIFFETH: Elsewhere, stocks took a breather after a big two-day rally but the small gains squeezed out by the Dow were just enough to put the blue chip average at its highest level since July. By the close the Dow rose by 18 points, it closed at 17,926. The NASDAQ lost a point. The S&P rose just fractionally.

EPPERSON: To the economy now where consumer prices rose ever so slightly in March. The consumer price index which measures everything from rent to medical care was up 0.1 percent. Though small, it was the first gain in four months. Some economists say the weaker than expected inflation increase points to a soft global economy that`s still keeping price gains in check.

GRIFFETH: Speaking of which, oil prices finished slightly lower today as traders started to doubt what, if anything, will be achieved at that producers meeting this weekend. As we`ve been reporting, oil producers will discuss whether to curb output to support prices. And today, the international energy agency said that even an output freeze would have a limited impact on supplies globally. Domestic crude today fell slightly to $41.50 per barrel.

EPPERSON: The federal government today issued new tougher offshore drilling rules to make equipment safer and reduce the risk associated with digging wells. The rules aim to prevent another oil spill like the one six years ago when one of BP`s blowout preventers failed. Industry leaders warn the rules could make it too costly to drill in some places.

GRIFFETH: And today BP shareholders voted against the company`s executive pay policy following its annual meeting. The oil giant stead that investors rejected a 20 percent pay increase for CEO Bob Dudley. BP reported a loss meanwhile of $6.5 billion last year, its worst annual loss in 20 years. The company also warned it may have to cut its dividend and that pressured shares in today`s trading down 1.5 percent.

EPPERSON: The slump in oil prices is hurting the most valuable bank in the U.S. by market cap. That`s Wells Fargo (NYSE:WFC).

Despite reporting better than expected earnings, the bank`s profit dropped from a year ago. Its oil and gas portfolio remains under "significant stress" and last quarter, it had to set aside more money to cover its exposure to oil and gas.

(BEGIN VIDEO CLIP)

JOHN SHREWSBERRY, WELLS FARGO CFO: Which is both a price issue as well as a leverage issue for the sector. I`ll say at Wells Fargo (NYSE:WFC), though, we managed to produce $5.5 billion worth of net income while increasing reserves for energy loans and taking some charge-offs as well. So, we feel like we`ve got a good balance and a great outcome.

(END VIDEO CLIP)

EPPERSON: Shares fell slightly today and are down more than 10 percent this year.

GRIFFETH: There`s a new front to tell you about in the standoff between Silicon Valley and the government. Today, Microsoft (NASDAQ:MSFT) filed a landmark lawsuit against the Justice Department. The tech company is taking a stand against the way federal agencies search e-mails and other communications.

And as our Eamon Javers reports, Microsoft (NASDAQ:MSFT) no longer wants to keep those searches secret.

(BEGIN VIDEOTAPE)

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Microsoft (NASDAQ:MSFT) filed a lawsuit against the U.S. Department of Justice in a federal court in Washington state today. The company`s challenging the government`s ability to examine data held by Microsoft (NASDAQ:MSFT) while blocking Microsoft (NASDAQ:MSFT) from telling customers that the government has accessed that information.

"We believe that with rare exceptions, consumers and businesses have a right to know when the government accesses their e-mails or records," wrote Microsoft`s president and chief legal officer Brad Submit in a blog post. He wrote, "Yet it`s becoming routine for the U.S. government to issue orders that require e-mail providers to keep these types of legal demands secret."

Microsoft (NASDAQ:MSFT) said it received 5,624 federal demands for customer data over the past 18 months and 2,576 of those came with gag orders that blocked the company from telling the customers in question.

The Department of Justice had no immediate reaction to the suit. A U.S. government source said the feds only learned of the legal action through media inquiries today. The filing comes in the wake of a dramatic standoff between Apple (NASDAQ:AAPL) and the FBI over iPhone encryption, a different issue but one that was also focused on the tension between user privacy and government security.

For NIGHTLY BUSINESS REPORT, I`m Eamon Javers in Washington.

(END VIDEOTAPE)

EPPERSON: Still ahead, avoiding security lines, from the airports to the ballpark.

(BEGIN VIDEO CLIP)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Phil LeBeau in Denver. Take me out to the ball game, just get me into the park quicker. That`s fine as long as you`re willing to use your fingerprint. That story next on NIGHTLY BUSINESS REPORT.

(END VIDEO CLIP)

(MUSIC)

GRIFFETH: Eighty-five million more vehicles here in the U.S. could face a Takata air bag recall. The nation`s highway safety watchdog says that number is in addition to the nearly 29 million inflators that are already slated for replacement. Those air bag inflators of course can explode with too much force and send shrapnel into drivers and passengers. This is already the largest automotive recall in our nation`s history.

EPPERSON: American Airlines is joining a growing chorus of critics including a lot of passengers who say security lines at airports are too long. In a statement, American Airlines said, "The lines at TSA checkpoints nationwide have become unacceptable. The result: our customers are waiting in TSA lines greater than one hour."

The airline went even further to say that during a week in March, nearly 6,800 passengers missed flights because of those long wait time.

GRIFFETH: And while some airlines do warn about longer security lines and wait times, consumers are asking if there`s a faster option than a TSA pre- check. Well, the private firm Clear believes it has that solution for those willing to pay for speedier access.

And as Phil LeBeau reports from Denver, the firm is taking its biometric identification technology beyond the airport.

(BEGIN VIDEOTAPE)

LEBEAU: Most of us know the frustration of waiting in long lines for airport security. But at Denver international airport, the private firm Clear rarely has a line and its members rarely wait.

UNIDENTIFIED MALE: Anything other than waiting is awesome. Just hopping through the line and being done is wonderful.

LEBEAU: Clear offers biometric identification. Pay $179 a year, enter your fingerprints and iris images into the Clear database, and you`re in. Then when members go through an airport, they put their fingers on a scanner and a few seconds later they go to the front of the TSA security lines. But Clear is at just 13 airports and with space limited at many airports, expanding to add Clear lines has been slow.

So, the CEO of the company is taking biometrics identification to new venues. Like pro sports stadiums such as Coors Field in Denver.

CARYN SEIDMAN-BECKER, CLEAR CEO: It makes a ton of sense for places where, you know, there`s lines, there`s waits, where you have hand security, give customers a better experience.

LEBEAU: With big league ballparks and other sports arenas ramping up security, experts believe biometric screening could become more popular, especially if the price is right and the chance to use it is expanded.

DAVID HEYMAN, ASPEN INSTITUTE: There`s going to be a huge and growing market in biometrics, the ability to use that to reduce risk of identity theft and to increase opportunities, whether it`s access and otherwise, is going to be quite large.

LEBEAU: Fans using clear to see the Colorado Rockies loved getting through the gates without waiting.

UNIDENTIFIED MALE: It sure beats having to wait in line and kind of come through the gates with a crowd. And the new technology I saw today I really, really like.

UNIDENTIFIED FEMALE: Much slower on the other lines, yes. This is -- I`m looking forward to this on promotion nights because I`ll be able to get in quicker and maybe get promotional items.

LEBEAU: A new approach to solving the growing headache of long lines and tighter security.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Denver, Colorado.

(END VIDEOTAPE)

EPPERSON: Bank of America (NYSE:BAC) reports a steep decline in profits. And that`s where we begin tonight`s "Market Focus."

Profits fell 18 percent for the latest quarter. The bank cited impacts from weak trading revenue and low interest rates. However, despite the loss, results came in above analyst targets. Bank of America (NYSE:BAC) shares rose more than 2 percent to $14.14.

Quarterly profits soared at Delta. Low fuel prices and the airliners co- branded partnership with American Express (NYSE:EXPR) (NYSE:AXP) helped lift results, which came in above analyst estimates. Revenue however lagged partly due to the recent Brussels airport bombings. Shares of Delta rose fractionally to $48.49.

Blackrock reported a 28 percent decline in quarterly profit after volatility in the markets during the beginning of the year caused the money manager to bring in lower fees on investments. The company also said it suffered a $76 million restructuring charge related to its planned job layoffs. Shares were up nearly, though, 2 percent to $354.91.

GRIFFETH: PNC financial services reported worse than expected earnings for its latest quarter. The lender attributed the results to weaker equity markets and costs incurred from loans related to the energy industry. Sounds familiar. PNC shares fell fractionally to 84.69 today.

A newly proposed bill threatens to put tax prep company H&R Block (NYSE:HRB) out of business. Today, a senator from Massachusetts introduced the Tax Simplification Act of 2016. This is a bill that would establish a free online tax system to prepare and file taxes. That news sent shares of H&R Block (NYSE:HRB) down nearly 4 percent today to $24.02.

Meanwhile, private equity firm Carlisle Group is reportedly exploring a potential purchase of assets from oil field services provider Baker Hughes (NYSE:BHI) and Halliburton (NYSE:HAL). That deal could be valued at more than $7 billion. The report follows a challenge by the Justice Department to that planned merger between those two companies. Shares of both Baker Hughes (NYSE:BHI) and Halliburton (NYSE:HAL) rose as a result in today`s trading.

EPPERSON: A new report out today is echoing what we`ve heard before -- prescription drug prices are soaring. And there`s no sign of the trend reversing. According to IMS Health, spending on pharmaceutical drugs is expected to climb 46 percent to $640 billion by 2020.

Now, that number is the amount paid to distributors from hospitals or pharmacies. The study also finds that consumers are paying more out of pocket, an average of $44 per medication last year. And those costs can really add up when you figure one out of every five Americans takes five prescriptions.

GRIFFETH: Well, the report comes as outrage over costs grows in Congress. They have been holding hearings lately and presidential candidates say that something should be done. But what? What can be done on this issue?

Len Nichols, director of the Center for Health Policy Research and Ethics at George Mason University, joins us tonight.

What`s your answer on that, Len? It seems like every week, we get a new report that highlights the continued right in prescription drug prices in this country. When will it stop?

LEN NICHOLS, CENTER FOR HEALTH POLICY RESSEARCH & ETHICS DIR: Well, I don`t know about stop. The good news is the data are accurate. So, that`s a relief.

But the big deal here is fundamentally, America has two goals when it comes to drug policy. One is we want to encourage innovation. For that we grant a monopoly and the monopoly allows firms to charge a high price when the drugs are new. That`s pretty much what`s driving drug price growth.

And that`s important to encourage innovation, but then we depend upon competition and we prefer competition to market regulation, of course, and price controls. We want competition to come along pretty soon thereafter to drive price down so that we can benefit from the good drug and lower prices over time.

What`s happened fundamentally is our twin goals here of innovation encouragement and competition are out of balance. We`re now over- encouraging innovation, the drug prices are exceeding what our ability to pay is, and willingness to pay is. And that`s why there`s so much pain.

EPPERSON: So, that`s why it`s happening. But for consumers, what can they do about it? Many consumers are told, if you want to find lower prices, go with a generic brand. But we`ve seen a price rise for wholesale drugs even greater than that for branded names, maybe six times as great over the last year or so.

So, what`s going on here and what can consumers do?

NICHOLS: Well, there`s no question that prices have been increasing across the board. And you`re right, there have been some spectacular examples of generic prices increasing, which is unusual in our history. It had to do with the ability to exploit a temporary monopoly that will go away, but in the short run, they charge a lot of money.

Basically, consumers` best strategy in the short run is find a very good insurer who`s very good at hiring a pharmacy benefit manager who can bargain, who can use leverage to bargain against drug companies. That`s all you can do in the short run. Look and see what your insurer is paying, which drugs are on their formularies, are those drugs the ones you need, in the long run?

GRIFFETH: I`m glad you said that. We`re almost out of time but I want to ask about the role insurance companies play in these price increases. Because they end up masking the suggested retail price, if you will, what was people pay. If people had to pay the actual price of a drug, would we have a very different story here about price increases, do you think?

NICHOLS: Well -- friend, we probably would, but we`ve have an awful lot of people who couldn`t afford drugs. These wonderful new cancer drugs --

GRIFFETH: Would that bring the prices down if demand had to actually fall because they couldn`t afford those drugs?

NICHOLS: It might but it would significantly reduce innovation as well.

What we need to do is re-strike rebalance the incentive to innovate, so we need to figure how to reduce the monopoly power but still encourage innovation.

GRIFFETH: Yes.

NICHOLS: There are things you can do to tweak this. The length of time we grant the monopoly, the conditions under which we grant the monopoly. We refuse to use government bargaining power to complement what the private sector can do.

All of those things could be moved. In a Congress where we can have an adult conversation, which we all hope happens after the election --

GRIFFETH: Let us hope.

NICHOLS: -- we can begin to open that conversation.

GRIFFETH: Len Nichols of George Mason University -- very interesting. Thanks for joining us tonight.

NICHOLS: Thank you.

GRIFFETH: Coming up, heading to the ball? Well, soon, you may not have to if retail and technology continue to collide.

(MUSIC)

EPPERSON: The freeze in the IPO market could finally be coming to an end. That`s global market, a rival exchange operator to the New York Stock Exchange and the NASDAQ, scheduled to start trading tomorrow. The offering comes as IPO activity slows to levels not seen since the Great Recession.

Bob Pisani has more.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The IPO market is finally thawing out.

Tonight, exchange operator Bats Global Markets is set to price its IPO for trading tomorrow. Now, there`s a lot of pressure on Bats for two reasons. First, they tried to go public four years ago on their own exchange but failed due to a technology glitch. Second, they`re the first significant IPO in four months, one of the worst IPO droughts in memory.

So, the entire market and the IPO community is watching how their offer will price and how it will trade. Now, if all goes well, the following week, we`ll see at least three more IPOs -- MTM Growth Properties, that`s a REIT that owns some of the biggest casinos in Las Vegas, American Renal, which runs kidney dialysis facilities, and SecureWorks, the Dell (NASDAQ:DELL) Security spinoff.

All these are pretty big deals. On the horizon is U.S. Foods, and cycling center SoulCycle, though neither have floated a price range yet. This is just the tip of the iceberg. There`s 120 IPOs on file waiting to go public. There`s another 50 or so that have selected banks or may have filed privately.

So, the potential is huge. It all depends how this early group prices and whether the stock market holds up.

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

(END VIDEOTAPE)

GRIFFETH: Finally tonight, we all know the retail industry is changing, but picture this. Instead of hopping in the car and going to the mall, you hop on your couch, you put on a headset, enter a store that may have everything you`re looking for.

Courtney Reagan takes us into the future tonight.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Deciding on options for a new kitchen or bathroom can be overwhelming. Not to mention hard to picture how a sample tile will actually end up looking with the cabinets. But now, thanks to virtual reality, consumers can build models on iPads in just minutes and then step inside their new kitchens.

Oh, wow, OK. So, you can see that I`m looking at the window just over the sink.

Startup tech company Marxent built a platform to support this virtual reality holorooms in 18 Lowe`s locations.

BARRY BESECKER, MARXENT CTO: The desire to use this type of technology is extremely high, consumers are really interested in using it, and we`re seeing trips to the store --

REAGAN: Augmented reality is another tool retailers and manufacturers are exploring to entice customers to buy.

BESECKER: That will project a digital --

REAGAN: Oh, wow.

Augmented reality gives consumers an entirely new viewpoint. In this case, seeing a new oven in your kitchen while you`re standing in it, but without actually having to lug it to your home.

It`s not just startups in the virtual and augmented reality space. Intel (NASDAQ:INTC) has this 3D configurater concept to help consumers picture their home renovations. Diamond company DeBeers is experimenting with what they call forever mark fitting, an augmented reality app that allows shoppers to try on jewelry.

Industry experts hope virtual and augmented realty will change the way consumers buy high-consideration goods, expensive items that are bulky or customized. Consulting firm Digicapital projects virtual reality revenue will grow by a factor of 30 in just four years, eventually becoming another tech platform retailers won`t be able to avoid.

BESECKER: In two or three years, it will be similar to, if you don`t have a virtual product platform, it would be like not having a mobile app or not having a website.

EPPERSON: There is good news for retailers when it comes to cost. Building the spiritual and augmented reality platforms are about in line with the price of building websites and apps.

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