Transcripts For KQED Nightly Business Report 20170524

Tyler mathisen. The one thing the Housing Market needs is housing. A lot more homes. But there arent enough existing properties to meet the demand for prospective homebuyers. You might expect sales of newly constructed homes to be strong. That wasnt the case in april. There was an 11. 5 decline in the sales of new family homes and the biggest decline in two years. Diana olick explains why. Reporter april was not particularly pretty for the nations homebuilders. Sales of their properties dropped dramatically during the month and were essentially flat compared to a year ago. The builders should be benefiting from the meager supply of existing homes for sale. But theres a problem price. The most Housing Demand is coming from those least able to afford it. Millennials may want to buy homes but the builders claim they cant afford to build for them. Regulatory issues put in by state and local governments, capital constraints independent builders are facing, labor shortages in a lot of markets, have all conspired to make this a difficult recovery for new homebuilders. Reporter the median price of a new home sold in april did fall slightly but it was still about 90,000 higher than the median price of an existing home. Builders are starting to roll out brands aimed at millennials with slightly lower price tags. But these are by no means low priced homes. Theyre smaller or stripped of amenities and still a very small fraction of total home production. And production is still nowhere near normal levels. For nightly Business Report, im diana olick in washington. Michelle meyer joins us to talk about whats troubling the Housing Market, chief housing economist at merrill lynch. They say its location, location, location in real estate. And in some parts of the country this is the tightest Housing Market weve seen almost in history. Yet millennials trying to buy homes are getting priced out of the market. Talk to me about the imbalance, if you will, thats in the Housing Market right now. Sure. I think you touched on it very well. You have this supply demand imbalance where demand has been growing, seemingly picking up with stronger income creation. Millennials, new households, need a place to live. But they need that supply. The challenge is the pace of new construction to the market has been pretty slow. So if you look at a good gauge of the balance, which would be the month supply figures of existing homes, were hovering now close to cycle lows again for the supply figures. And whathat does is it puts upward pressure on home prices and it probably also puts upward pressure on rents. So my question is a Pretty Simple one, probably naive. Why arent the Builders Building more . Is the land too expensive . Is there just not enough land . What is going on . That is the big question. Unfortunately there arent great answers. So one you touched on, availability of lots and land. There certainly seems to have been this desire to move closer to urban centers, which means builders want to concentrate their construction closer to big cities as well. You start to face constraints in that respect. The other constraint is labor. A complaint on the part of builders is they are having a difficult time finding skilled labor. That slows down the pace of construction. And then perhaps its also just the fact that the memories of the crisis are still influencing business decisions. So for builders to come out and build brandnew starter communities on the outskirts of the city, im not sure that they think thats necessarily the best business decision. What about Interest Rates . In the past, history has said that when Interest Rates start to edge up as they are expected to do later in the year, people get off the fence and they will pay up if they have to to get into a home at a relatively low Interest Rate before things move higher. Is that still true this time around, do you think, or not . Well, historically theres this kneejerk reaction where those on the fence see rates move up and they try to lock in quickly and make that decision. But that is somewhat temporary, because then you have potential new entrants into the market, who are looking at the affordability a little differently, they say we cant quite make the math work. Its that kneejerk reaction that proves to be temporary. In this cycle, because of the nature of this economic recovery, its been slow, rates have been persistently low, we havent seen that major adjustment in rates. Theres a lot of skepticism that it will come. So people are staying on the sidelines a bit more. Michelle, thank you as always, with bank of America Merrill lynch. To read more about the need for newly built homes, head to our website, nbr. Com. On wall street, the dow rose for the fourth straight day as financials lifted the overall market. Investors however kept one eye on developments in manchester following that suicide bombing at the concert that killed more than 20 people. Late today the british Prime Minister raised the terror level in england for that country. The dow when all was said and done gained 43 points to close at 20,937. Nasdaq added five. The s p was up four points. In washington, the white house sent its First Complete Budget Proposal to capitol hill. The 4 trillion blueprint is for the next fiscal year. The Trump Administration says the plan balances the budget in ten years while increasing spending for the military. To do that, its calling for major cuts to some safety net programs. John harwood is covering the story for us from washington. Good evening, john. What are some of the specific domestic programs that the white house is targeting . Reporter the biggest one, sue, is medicaid. You remember that the Republican Health care bill earlier, which has passed the house, not moved in the senate, cut 800 and some billion dollars out of medicaid. Part of that was reversing the expansion of medicaid that occurred under obamacare. But these cuts go much deeper than that. Even though the American Health care act, the trumpcare replacement, has not become law, theyve assumed that and added some more medicaid cuts on top of that in this budget. Youve also got cuts in food stamps and welfare and significant cuts in disability benefits. 72 billion cut out of those. John, what about the potential for the tax cuts that have been hoped for since the election . Are those built into the assumptions in this Budget Proposal . Reporter well, yes. The tax cuts are built in in terms of their effect on expanding economic growth. But it is not clear that those will be widely accepted. And they also in this budget did not account for the cost of the tax cuts. Some people like former treasury secretary Larry Summers accused the administration of double counting. One of the challenges of course for the administration is President Trump has said his agenda is those working class voters who have been overlooked for years. But his tax plan, at least as he proposed it in the campaign, had huge benefits for people at the top. I asked Steve Mnuchin today in an interview whether the administration would commit to a tax plan that doesnt increase taxes for people at the top and only focuses on the middle. He would not commit. The president s objective is to create a middle income tax cut. Were going to be working closely. But again, thats our intent. I cant pledge what the results will be since theyll be the combined effort of the administration, the house, and the senate. Reporter and of course in order to get to tax reform, republicans have got to find a way to Reach Agreement on a 2018 budget. The president s budget today starts that process. Only when health care is done and when that new budget passes can they begin action in earnest on tax reform, guys. I guess that begs the question, whats next. Whats the budget path . Reporter first of all, the house and senate have to have a compromise budget outline. Now, you have criticism today of the trump budget from both parties, republicans as well. John mccain saying dead on arrival. They have to come up with something, whether its the trump budget or their own. That will allow them to have the special rules needed to speed it through without democratic votes, a republicanonly tax plan. John harwood in washington, thank you. As we reported, the Trump Administrations budget plan is based on upbeat growth forecasts. But how realistic are those forecasts . Steve liesman takes a look. Reporter the Trump Administration coming under fire in its first budget release for growth projections that some say are too optimistic. Actually growth in 2015 and 16 was just below 2 . Both the Congressional Budget Office and wall street economists think the next decade will be more of the same. Not the Trump Administration. Its projecting 3 growth or 50 more than the other economists. The focus is sustained 3 economic growth. We have been attacked, stunningly, by some folks on the left, and even in the mainstream, who say thats an unreasonable assumption. You should stop and think how absurd that is, to think that 3 growth in an American Economy is to some people an absurd assumption. It used to be normal. Reporter criticism of these growth figures goes beyond just democrats. Being at 1. 9 as opposed to 3 is probably more realistic. Unless there is some kind of big surprise and they pass all of this. But i think right now, thats not the current trend, either politically or economically. Reporter of course no one knows what will happen in the future. The administration could end up being right. But its been the practice of most administrations to keep their forecasts within a tenth or two of cbo and the consensus wall street forecast. Trying to avoid the charge of pollyannalike projections. The president s budget includes assumptions that his spending cuts will pass along with his massive tax cut proposal. So it sees the deficit dropping down to zero in a decade. But if the growth doesnt appear and taxes are cut, the trump plan would be a recipe for much higher deficits. For nightly Business Report, im steve liesma the budget plan also aims to trim the National Debt by selling off half of the nations Emergency Oil stockpile and the entire backup gasoline supply. That sale would be done over time. And according to estimates it would generate over 16 billion over the next decade. The federal government has about 700 Million Barrels of oil to protect americans from spiking gas prices. But over the past few years, the u. S. Shale boom has dramatically changed the Global Energy landscape. Today the price of oil settled above 51 a barrel. Still ahead, a major ruling. Why a Supreme Court decision could affect business everywhere, but especially in silicon valley. The Justice Department is suing fiat chrysler, alleging that some pickup trucks and suvs cheat on emissions tests. The lawsuit claims more than 100,000 vehicles have software that enables them to emit lower amounts of pollutants during lab tests than would be normal otherwise. Volkswagen was part of a similar probe, that cost the automaker 25 billion. That involved many more cars. Fiat chrysler says its working to clarify some of the issues and that it is disappointed the lawsuit was filed. Shares of the company fell by 4 in todays session. A controversial retirement rule will be allowed to move ahead. The socalled fiduciary rule requires advisers to act in the best interests of their clients and will go into effect next month as scheduled. In a wall street journal op ed, the president had ordered a review of regulations that included the fiduciary rule. That rule, they say, will help retirees. Critics say it could have unintended consequences. Tech companies and App Developers like apple and google are breathing a sigh of relief after the u. S. Supreme court ruled yesterday to limit where patent lawsuits can be filed. According to the Washington Post, this could be a major blow on socalled patent trolls. Brian fung wrote about it for the Washington Post and joins us tonight. Brian, thanks for joining us. Thanks for having me. As i understand it, when a company would bring a patent lawsuit, the plaintiff could choose the venue where the suit would be heard, and they most often chose portions of texas and delaware that were considered more friendly to the plaintiffs. The Supreme Court ruling changes this, but how does it change it . So the Supreme Court ruling interprets the law such that a new patent lawsuit can only be filed in a jurisdiction where the company thats on the receiving end of the lawsuit is actually incorporated. So before patent lawsuits could be filed basically in any state because, you know, the law was interpreted such that the lawsuit can be filed in any state where the company that was on the receiving end of the lawsuit actually had business. Now, those lawsuits are limited to only those states where the company is actually incorporated. That would have the effect of limiting were patent lawsuits actually get filed, potentially giving smaller companies, defendants, a leg up against these patent lawsuits. This is especially important to technology companies, primarily because a lot of these, quote unquote patent trolls own a lot of separate patents. Silicon valley has been concerned and has been on the receiving end of a lot of these lawsuits. Thats right. To understand why this is a big deal for silicon valley, you have to talk about patent trolls, essentially companies that stockpile patents and dont really do anything with them but simply make a living by finding companies to sue for infringement and hoping they settle for cash as opposed to taking the bluff and taking the company to court. So the Simple Reasoning is that now, with this ruling from the Supreme Court, it will become more expensive for the patent trolls to sue and cheaper for the companies to defend themselves that are being sued. Is it that simple . Thats basically right. Were essentially seeing a shift of lawsuits away from jurisdictions that are historically viewed as being favorable to patent trolls and forcing them to File Lawsuits in courts where, you know, they may not have as good of a chance or as good, you know, a chance of winning against the defendant. Ultimately this could be a good thing for companies that require a lot of specialized innovation or have developed a lot of new technologies. And, you know, this change means that they could potentially see their technologies flourish without the threat of patent litigation. Brian fung with the Washington Post, thank you very much. My pleasure. Auto zone posts an unexpected drop in same store sales. Thats where we begin tonights market focus. The car parts retailer cited tax refund delays which the company says caused customers to hold off on spending earlier in the quarter. While sales did eventually pick up, it wasnt enough to offset the weak start. Both profit and revenue were shy of estimates. Shares plunged more than 11 to 581. 40. Despite operating in a quarter it called challenging, dfw posted revenue that rose and beat expectations. The shoe retailer also topped same store sales estimates. Profit missed expectations as an acquisition and clearance activity hurt its results. Dfw shares were off 8 to 16. 21. The luxury homebuilder Toll Brothers said it is experiencing the best spring selling season in more than a decade. The company said its increase in Home Deliveries and orders resulted in higher than expected earnings and revenue. Toll brothers also said it expects to sell more homes this year than it previously thought. Shares still fell just a fraction to 37. 78. Wells fargo downgraded a chip maker citing valuation concerns. The bank acknowledged the company will likely gain market share in the programmable Device Market but said it is not convinced the company will hit street forecast this year because of its unimpressive Sales Outlook for 2018. Shares are down 5 to 63. 97. Constellation brands are reportedly im going to a takeover of jack daniels maker brownforman. According to cnbc, constellation, which owns corona beer among others, approached brownforman about a deal that was turned down. The report added that constellation is still interested in combining. Consolation brands was off 4 . Brownforman initially surged on those reports but then fell by 6 to 53. 38. A group linked to north korea is likely behind the recent Global Ransomware attack. According to symantec, that attack resembles that of a crime ring, no a government campaign. The suspected group is believed to have been behind the Sony Entertainment hack in 2014 which north korea has denied. That cyberattack struck 300,000 computers in 15 countries earlier this month. And its likely far from over. In the wake of the attack, experts now say businesses need to do more to keep their Critical Systems from being hacked. Andrea day has more on the story for us tonight. I think when all the dust is settled, there will be millions of victims to this. Reporter a massive attack that spread like fire, knocking down companies, even paralyzing hospitals in the uk. The situation was extraordinarily bad. Reporter experts blame ransomware, which locks down files and holds them for ransom, combined with tools allegedly developed by the nsa and leaked online. Many of the exploits being used first appeared publicly in the nsa breach. You put those together, and its far more dangerous than its ever be. Reporter the nsa technique is a worm that spreads from computer to computer through open holes. After the socalled wannacry attack, a series of followup hits that leveraged the same hole. How much worse can this get . It can get pretty worse if companies and organizations dont rush to put security around these files. Reporter we reached out to the nsa but got no response. Microsoft issued a patch months ago that closed many of the holes being exploited. So why is this stullill a probl . The answer is cost. It costs money and resources to secure this information. Were playing catchup because of how much data and how much complexity and how blind weve been to these kinds of attacks. Reporter he says a lot of data under attack was on systems with gaping holes, no security in place, and data that could be accessed by lots of people that just didnt seem important. What does the finance industry need to change . They need to change how they think about their files. They need to make sure the very basic controls, the systems that these files sit on, are patched, that nobody can access data that they dont need access to and that everything is monitored. Reporter what about the medical industry . Same thing. Its not just patient records or the very Sensitive Data they need to worry about. They need to extend their security to all files. If you take out a companys files or an organizations files, it stops their ability to do business. The health care industry, it stops their ability to process patients or run as a hospital. Reporter and he says some of the latest attacks were seeing are even more dangerous because theyre silent. You wont even know, its sitting there collecting data. Unlike wannacry which locked everything down and let you know about it, you cant catch what you cant see. Im andrea day for nightly Business Report. Coming up, Small Business owners are growing concerned with health care in limbo. Small Business Owners across the country are not only dealing with Rising Health care costs but also increased uncertainty as republican lawmakers try to overhaul the health care system. As Contessa Brewer reports, that uncertainty is playing out in louisville, kentucky. Thats good. Reporter bourbon is big business for nicole and caitlin. The women launched their company in louisville, kentucky almost a year ago, providing concierge bourbon tours. Tourism sites seemed ripe for disruption. We got excited to do something new. Reporter they consider lie per incubator for their business, with its low cost of living. The Health Care Exchange was a big draw. But the democratic governor who had supported obamacare was replaced by a republican who campaigned against Government Health care. Kentucky has since closed its exchange and shifted to the federal exchange. The result has been confusion and uncertainty for many businesses. We would like some stability. And some ability to plan. And obamacare has been what we started our business with. And it would be really difficult at this point to imagine a growth future with it being rolled back. Reporter but the Affordable Care act isnt so affordable for other Small Businesses. They tricked the country into making Small Business and the working person pay for everybody else. Reporter jesse flynn cofounded flynn brothers contracting in the 70s. With 200 plus workers, they build buildings, pave roads, lay pipes, and go through mountains of paperwork for health care coverage. Its an incredible burden. Reporter he says he has to offer Health Care Benefits to compete for quality workers. But premiums and deductibles have more than doubled in the last decade and flynn blames congress for the failure of tort reform, lack of competition, and especially obamacare. Were into the millions when were talking about an annual premium here. And at some point, we need to look at other options. I was hoping that legislatively we would have other options this year other than self insurance. Reporter he says he voted for trump on the promise of repealing obamacare. But now hes not sure if that will happen. We need to come up with fixes for Small Businesses that find themselves in that kind of situation. But the fix is not to throw the baby out with the bath water. Reporter kentuckys obamacare success story, its uninsured rate dropped from 20 to 6 . Leaders say that it improved Overall Health and the productivity of the workforce. Small Business Owners say none of that matters if they dont know whats coming down the pike. Its the instability that is the business killer right now. We dont know what well have access to in three months. Reporter these young entrepreneurs are so close to success they can smell it. Our business is absolutely, absolutely going to hinge its growth on what were able to do for future employees. And if providing health care isnt one of them, we cant have future employees. Reporter that coverage considered crucial to the health of Small Business. For nightly Business Report, Contessa Brewer, louisville. Tyler and i will have to check out that tour sometime. I think you will, absolutely. Thats nightly Business Report for tonight. Ill tag along. Im sue herera. Thanks for joining us. Come on along. Im bill griffeth. Have a good evening, everybody. See you tomorrow this is bbc world news america. Funding of this presentation is made possible by the Freeman Foundation and kovler foundation, pursuing solutions for americas neglected needs. Planning a vacation escape that is relaxing, inviting, and exciting is a lot easier than you think. You can find it here in aruba. Families, couples, and friends can all find their escape on the