Transcripts For KQED Nightly Business Report 20161207

Good evening, everyone. And welcome. Boeing finds itself in the crosshairs. The Worlds Largest Aerospace Company was the subject of a tweet by donald trump. The dow component is the sole supplier of air force one, used to transport the president of the United States around the globe. And has done so since the 1940s. But today the president elect had a complaint. The cost of the new air force one is too high, and the order should be cancelled. Philip lebeau has more on mr. Trumps criticism. Reporter donald trump is at it again. Now hes calling out boeing, the company that made every air force one, and is working on the next generation of 747s that will eventually carry u. S. President s, starting in 2024. He tweeted, costs are out of control, more than 4 billion. Cancel order. A few minutes later, trump blasted boeing again. The plane is totally out of control. Its going to be over 4 billion. For air force one program. And i think its ridiculous. I think boeing is doing a little bit of a number. We want boeing to make a lot of money, but not that much money. Reporter how much will the next payer of president ial airplanes cross . The department of defense said 2. 7ing about to be spent over the next two years and thats before the 747s are even built. They cost billions of dollars, because of the technology and defense capabilities built into each plane. Boeings response to the president elect, we are currently under contract for 170 million to help determine the capabilities of these complex, military aircraft that serve the unique requirements of the president of the United States. We look forward to working with the u. S. Air force on subsequent phases of the program to allow us to deliver the best planes for the president at the best value for the american taxpayer. For its part, the Current White House staff says the numbers dont appear to reflect arrangements between boeing and the department of defense. Now both are under pressure to keep costs in check for the next air force one and a duplicate 747. Those planes are needed, because the current pair of 747s that carry president obama around the world are 23 years old, and by the middle of next decade, they will be due for retirement. Phil lebeau, nightly business report, chicago. Well, as the Defense Department comes under pressure to keep costs in check, the pentagon suppressed a study to find ways to cut 125 billion in waste. The Washington Post reports the study was buried amid Fears Congress would use the findings as a reason to cut the pentagons budget. Among other things, the data showed that almost a quarter of the Defense Budget is spent on back Office Business operations. Eamon javers has been following the story for us from washington. Eamon, what else was in the study today . Hi, tyler. This was the lead of the Washington Post this morning. And bob woodward of woodward and bernstein fame is why this story is getting attention and because of the details you rattled off. This was the defense business board, experts brought in by the department of defense to analyze what was going on in terms of the back office employment, all the functions and accounting and Business Development functions of the pentagon that dont necessarily relate to fighting wars. One of the things they found in addition to those numbers that you just cited was that more than 1 Million People are involved in that back office effort, as employees or contractors or nonuniform personnel. That is a big, big number. And its bigger than anyone suspected. The ultimate conclusion here was that the u. S. Government is spending a lot more for this back office stuff than anyone really new before this. Well, what about the timing of all of this . Why was this leaked now . Yeah, you know, i talked to mia mcginn us about that today. Shes one of the leading balance budget advocates here in washington, d. C. , and she said that this is definitely not an accident. There is always a reason. Heres what she had to say. Im sure that people who have seen this going on for a long time, and now understand that the defense spending budget is likely to increase under a president trump, given what he said, wanted to get this information out there. So leaks happen when people put in a lot of work and want to make sure the information is out there. But there is also a political motivation. So read this very much as a message directly to donald trump from deep inside the pentagon bureaucracy. The question now will be, what will mr. Trump do with this information now that its been put on the cable . And so what is he likely to do about it . Well, i think youve got to look at the mix of what the trump team are talking about and then also what congress is likely to do. You remember, donald trump has said that marine general james mattis is likely to be his secretary of defense. Hes a warfighting expert. Hes an expert on logistics and planning. He might have one take on it. But the members of congress will have a very different take. They like to preserve jobs in their district, and thats what a lot of these millionplus jobs are all about, spread across the country by contractors who are very savvy about making sure that every key member of congress has a lot of jobs in their district to vote for keeping this structure the way it is. Eamon javers, thanks very much. Eamon in washington. So with waste allegedly being a problem in washington, should the government take a hard line approach to get things cleaned up . Tom shats is president of citizens against government waste, an advocate group and joins us to talk about that. Welcome, nice to have you here, tom. Thank you. Obviously from the name of your organization, you do think there is some government waste that should be addressed. Let me start with boeing, and then well broaden out the discussion. Specifically, mr. Trump made his comments this morning. Your reaction to them. He is basically talking about cost overruns on a lot of Pentagon Spending and projects and weapons systems. For example, the giant strike fighters, 160 billion over budget. Seven years behind schedule. Boeings pegasus is also overbudget. And the Government Accountability Office Issued a report in march of this year saying that the major defense acquisition program, 79 of them, are 469 billion above the costs that was expected to be used at the time they went into production. So in other words, puns they started to the time theyre completed, 469 billion. So could be 4 billion, could be 2 billion. Something is going to be overrun on the president ial plane, no question. How much as you look at the entire federal budget, tom, would you say is represented in waste or duplicate functions or bureaucracy . How much of the roughly 4 trillion could you cut out if you really took a sharp knife to it . Oh, citizens against government waste issues a prime cuts report every year. This years report has 680 recommendations worth 644 billion in one year. 2. 6 trillion over five years. There are reports all over the place. Government Accountability Office issues reports on duplication and overlap, tens of billions of dollars in overlapping programs. All that information is there. And incoming president can take it and use it and get the Department Heads to look for a lot more waste, and they could certainly cut a fair amount of what were now spending in washington. How much of it also comes down to the bidding process on some of these larger products . Or projects, i should say . Boeing is the only bidder, for instance, on air force one. However, some of these other contractors also are single bidders. Should that be changed and do you think donald trump will advocate for that type of reform . Thats already being done, senator mccain and congressman thornberry, heads of the senate and House Armed Services committee respectively have a number of proposals to change the way the pentagon does business and cut waste the defense business board has identified. About half of the contracts with the pentagon are single bidders and a lot of companies dont want to get involved because there is a lot of favoritism. Specs x, for example, when they wanted to get into the launch business had to sue the pentagon just to get on the list. And thats helping to save money already. All right. Tom, thank you very much. Thank you. Tom shats with citizens against government waste. President elect will have a number of meetings today at trump tower, one with the ceo of japans soft bank who pledged to make a big investment in the u. S. Ladies and gentlemen, this is massa of soft bank from japan. And hes just agreed to invest 50 billion in the United States, and 50,000 jobs. And hes one of the great men of industry, so i just want to thank you. Thank you. Thank you very much. And you if you would like to speak to them, you can. But one of the truly great men. Thank you. Thank you. Well, no details beyond those were given. And it is not clear if soft banks announcement is new. Soft banks ceo did suggest that his company would focus on the technology sector, and that the money will come from a 100 billion Investment Fund that his company set up with saudi arabia. An wall street, the blue chip dow index closed in a record, its 11th high since the election. The small cap russell index also in record territory. As for the numbers, the dow rose 35 points to 19,2 a1. The nasdaq climbed 24, the s p 500 tacked on seven. Opt music about the Business Environment in washington. Also concern about the president elects approach to taking on individual companies. The Influential Group of ceos say they would prefer to see broad policy changes, not oneoff decisions. Ceos are also wary of plans to potentially impose large tariffs on companies that move jobs abroad. New orders for goods made at factories rose by the largest amount in nearly oneandahalf years. The Commerce Department said the 2. 7 increase marked four straight months of gains and more than economists had expected. Unfilled orders were also higher, ending four straight months of decline. Worker productivity rebounded sharply in the Third Quarter to its best level in two years. And some economists say well need to see more of that if the continue is to continue its expansion. Steve liesman splanls. Reporter if president elect donald trump will succeed at higher growth, he has to boost the tagging proddiest. Economists warn thats no easy task. Theres really only two parts that go into growth. How much the nation works and how efficiently it works. And how much it works, thats governed mostly by labor force growth, and thats on the decline. We just have Slower Growth in the labor force, the baby boom entering the retirement phase, Slower Growth in the number of people working. So that leaves growth and productivity to boost growth and it has been sluggish. Even after 3. 1 , year over year gains were flat compared to a year ago. Since 2007 productivity up 1. 3 on average each year. Thats half of the growth rate from before the recession. Economists debate where the productivity went and how to get it back. Some, including those advising mr. Trump, point to overregulation and say productivity growth can be brought back by getting rid of all those rules on the books. Others point to a lack of Capital Spending that resulted from the great recession. Workers havent been given the machines to increase their efficiency. So a rebound of Business Investment could boost productivity. Government spending on roads and bridges is another area to look at. Lets imagine that we had a lot of fiscal spending on infrastructure. More spending on infrastructure would actually increase productive capacity in the economy. It would resolve bottlenecks. All of that only gets you so far. To really amp up productivity and growth, you need whiz bang technology. Despite more and more computers and cell phones and circuitry and sensors, the evidence so far is none of it is, well, whiz bangy enough, at least not yet. To meaningfully move the needle on productivity. For nightly business report, im steve liesman. Still ahead, did the Supreme Court just usher in a new era of Insider Trading prosecutions . In washington, the Supreme Court sided with samsung in its fight with apple. The justices said that samsungs violation of apples smartphone design patent attention may involve only one component, not the entire product. That means samsung may not have to pay hundreds of millions of dollars in penalties. A separate Supreme Court ruling will make it easier for prosecutors to bring Insider Trading cases. This was the courts first Insider Trading case in two decades. And as Hampton Pearson reports, the ruling was unanimous. Reporter a unanimous Supreme Court clarified the legal ground rules for prosecutors fighting Insider Trading on wall street. The justices rule that sharing corporate secrets with friends or relatives is illegal. Even if the insider providing the tip doesnt receive anything of value in return. In the process upholding a chicago mans conviction. Lawyers on both sides of Securities Law enforcement say the ruling reaffirms an important historical legal standard. In all of these cases, the further down the road one gets from the original tipper, in this instance it was an investment banker tipping his brother, who tipped his friend. In all the cases, the more remote you get from the original insider, or temporary insider, the harder those cases are for the government to make. Reporter its an aboutface from a ruling two years ago when a federal Appeals Court in manhattan overturned convictions for Hedge Fund Managers todd newman and anthony chasen, saying they were too far removed from the inside information chain to be prosecuted. That ruling forced manhattan u. S. Attorney to drop some cases and put others on hold. Today his office praised the high court decision. Quote, in its swiftly decided opinion, the court stood up for common sense, and affirmed what we have been arguing from the outset. That the law absolutely prohibits insiders from advantaging their friends and relatives at the expense of the trading public. This decision is important, because i think it clarifies precisely what the decision to do said, what it stood for, and because it was a unanimous decision. Reporter not only was the decision unanimous, it was speedy. The eight justices taking just two months to decide the case. For nightly business report, im Hampton Pearson in washington. The clothing retailer francesscas raises its market for the year. The decision follows better than expected Quarterly Earnings and revenue. Which were helped by a strong back to School Shopping season and higher ecommerce sales. Shares surged nearly 29 to 20. 01. On the flip side, michaels slashed its earnings outlook for the year after reporting a decline in quarterly samestore sales. The company added, it expects comparable sales to be flat to down oneandahalf percent in the current quarter. Shares were off almost 2 at 23. 85. And chipotle ceo, steve els admitted today he was nervous about the burrito chain being able to meet its sales and earnings targets for the year. In an investor conference, els said he was not satisfied with the rate of recovery following a norovirus outbreak that has dented the Financial Results and foot traffic. Shares fell 7 to 366. 37. Toll brothers said an increase in home sales and higher average selling prices helped lift revenue above expectations. The luxury home builder saw profit fall more than expected, but still gave a strong outlook for 2017, citing positive demand trends in many regions. Shares rose 5 to 31. 93. Microsoft has cleared its last regulatory hurdle in its purchase of net working site linked in. Today the European Union approved the 26 billion merger after microsoft agreed to several concessions that are aimed at protecting competition. Microsoft shares were down 27 currents to 59. 95 while linked in rose to 95. 94. There may be an unintended consequence to keep workers at an indiana plant instead of moving to mexico. Air conditioner maker carrier end by United Technologies made the decision. The Company Received 7 million in tax breaks over ten years and said it would invest 16 million to keep the plant updated. But as the ceo of United Technologies said in an interview yesterday with cnbc, updating the plant will result in more automation and an important consequence. Were going to make up 16 Million Investment in that factory in indianapolis to automate to drive the cost down so we can continue to be competitive. Now, it is as cheap as moving to mexico . No. But we will make that plan competitive because well make the Capital Investments there. Also means there will be fewer jobs. Fewer jobs is also what many say amazons new concept Grocery Store will result in. As we reported yesterday, the seattle store uses Artificial Intelligence technology that eliminates checkouts and cashiers, all consumers need is a phone. There was big reaction today. Headlines ranged from the New York Post calling it a joh jobkiller to vanity fair saying were moving to a World Without jobs to the wall street journal calling checkout a thing of the past. And its that increase in auto medication and Artificial Intelligence that reflects the shifting nature of work so are technological advances the biggest threat to workers . Martin ford is author of rise of the robots and joins us now. Good to have you with us. Are we too focused on the wrong thing, namely moving jobs overseas and missing as a result the really big idea, which is that automation could end up killing far more jobs than migration . To a large extent, i think thats true. And, in fact, technology has already had a very big impact, although its not quite as visible as things like global trade. But its going to accelerate in the future. And this new store from amazon is definitely a very prominent example of that. So you say that more jobs will be destroyed than created by technology. Longerterm. Is there a way to remedy that . I dont think there is a way to stop that. What we have to do is try to adapt to it. The thing is that the machines, algorithms, rebots are beginning to think, taking on cognitive capability, not just manipulative, manual work any more. And thats going to have a much broader impact. Is it that different in other words, the evolution of Artificial Intelligence, not to mention robotics and other things, that make it different this time, and what im driving at here, mr. Ford, the idea that we have gone through technological change many times before. From agriculture to machines and we didnt need as many farmers or as many croppickers but those people turned out to get jobs. Why is this different this time . Thats right. This time its much more broadbased, and, again, i focus on the fact that the machines are thinking. Theyre taking on cognitive skills, you know, beginning to make decisions and most importantly to learn. If you look back at agriculture, that was a very specific mechanical impact. It did disrupt the agricultural sector. Millions of jobs were lost. But, of course, those people moved on to manufacturing and then later on moved on to the service sector. This time, we have got this very broadbased Scaleable Technology coming for everything all at once. Its going to hit every part of the economy. There really isnt going to be some new rising sector thats going to absorb the millions and millions of people that are impacted by this. Usually when we see technological innovation, its a net positive for the economy. All things considered. And for a society. But you argue that may not be the case this time. Because of the income inequality and the social inequality that this may develop into. Thats right. I mean, the Positive Side of this is definitely still going to be there. There are going to be many, be many positive aspects to this. Just look at that amazon store. You can walk in and walk out without ever standing in a line. Were going to have selfdriving cars at some point that will save millions of lives, because theyre going to be safer. So those are all good things, but the inequality aspect of it, the fact that its going to remove opportunity, especially for a lot of average, typical people is a problem. What we have to do is figure out a way to adapt to that, to address that negative side of it, so that we can embrace the Positive Side. Martin, well discuss this more, im sure, in the future. Martin ford, author of rise of the robots. Coming up, Stocking Stuffers, the shares that have historically done well this time of year. The Justice Department is reportedly investigating advertising agencies. According to the wall street journal, the department is looking into whether ad agencies steered business to their inhouse units over Third Party Firms by rigging the bidding process. The production and post production of commercials is a 5 billion business. The report pressured shares of two of the largest ad firms, Interpublic Group and omni com. A lot of people spent a lot of money this time of year. Consumers spend it on gifts, investors on stocks. And as dominic chu reports, some names have historically performed far better than others at this special time of year. tis the season for making that list and checking it twice. And its not just about whether the kids have been naughty or nice. Its also about taking stock of whats in your investment portfolio, and how theyre doing. Historically speaking, some parts of the market have fared better than others during the Holiday Season. According to data, kensho, over the past 20 years, a handful of stocks have had a track record of being positive performers between thanksgiving and the end of the year. Among those s p 500 stocks that have been nice during that span, try Home Improvement retailer, lowes, which produced positive returns 80 of the time. Also Public Service enterprise group, which is a northeast regional utility power player in the United States, its been positive 85 of the time. And food and beverage container, maker, balance corporation. Thats posted a positive Holiday Season return 90 of the time. And as for the historically naughtier performers, youve got oil and gasrelated stocks like chesapeake energy, which is positive 45 of the time. Youve got toymaker, hasbro, positive maybe 30 of the time. And then Payroll Processor paychecks a positive trade a quarter of the time during the Holiday Season over the past 20 years. Now some experts are looking at bigger themes beyond just straight stockpicking. Theres 3. 5 trillion in fixed income products in the mutual fund industry. And Everybody Knows that Interest Rates are going to go up and so these people are going to get crushed. When i look at the nice side, the nice side is the market. You should be in the market. The amount of moneys corporations are making today and any kind of relief out of washington on either health care, regulations or taxes, the stock market is going to go right through the roof. This is the time of year when youll hear a lot about seasonal performance trends. Always remember that past performance doesnt necessarily mean the same in the future. And always keep your tolerance for risk in mind when making those financial decisions, whether its for a seasonal trade or longerterm investment. For nightly business report, im dominic chu. Youre always on the nice list. Yes, never naughty. I dont know whether i want a Stocking Stuffer is a share of stock, though. No. Well sweeter. That does it for us on nightly business report. Im sue herera. Thanks for joining us. And thanks from me, as well. Im tyler mathisen. Have a great evening, everybody. And we will see you back here tomorrow. Jacques pepin heart soul is brought to you by. For those who cook with heart and soul, we present a kitchen made with passion. Introducing the completely reimagined suite of appliances from kitchenaid. You can see more at kitchenaid. Com. Oxo good grips thoughtfully yours. Vine connections, proud importer of luca, boutique argentine wines from fourthgeneration wine maker laura catena. Bertolli proudly crafting olive oil since 1865. Viva bertolli riedel, the wine glass company. Oceania cruises worldwide destinations, fine dining, personalized service. Your world. Your way. How important the equipment is in the kitchen