<Show: NIGHTLY BUSINESS REPORT> <Date: March 29, 2013> <Time: 18:30:00> <Tran: 032901cb.

118> <Type: SHOW> <Head: NIGHTLY BUSINESS REPORT for March 29, 2013, PBS> <Sect: News; International> <Byline: Susie Gharib, Tyler Mathisen, Carl Quintanilla, Diana Olick, Sharon Epperson, Courtney Reagan> <Guest: Anthony Chan, Alan Greenspan> <Spec: Business; Economy; Housing; Real Estate; Education; Federal Reserve; Policies; Stock Markets> <Time: 18:30:00>

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Good evening, everyone. And welcome to our public television viewers.

Tonight, on a special edition of NIGHTLY BUSINESS REPORT, we`ll take a look in-depth at what is arguably the number-one story in business -- how

strong is the American economy, how healthy its recovery?

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: From housing, to energy, to the consumer. We`ll examine the bright spots and the challenges.

MATHISEN: And we`ll also break down the substantial challenges facing the U.S. economy on the long run. And we`ll get perspective from the man who while far from infallible, as he`d be the first to admit, kept the U.S. economy on course for most of his nearly two decades as chairman of the Federal Reserve, Alan Greenspan.

GHARIB: So, as we kick things off, let`s paraphrase the late New York Mayor Ed Koch why are we doing?

Here`s Carl Quintanilla with a look what`s going right in the economy and what`s not.

(BEGIN VIDEOTAPE)

CARL QUINTANILLA, NIGHTLY BUSINESS REPORT CORRESPONDENT (voiceover): That sound you hear is the American economic recovery at its sweetest -the hammers and drills of the housing market.

Across the country, the median price of a home is up 7 percent in just

the past year. Sales of existing homes are at multi-year highs. And since housing is about a fifth of GDP, it may be the best thing we have going.

ANDREW SLIMMON, MORGAN STANLEY WEALTH MANAGEMENT: As housing starts to bottom and recover, that`s invigorated (ph) the economy because at the end of the day, Americans have more of their net worth in their house than any other asset. And so this is a huge part of the confidence, the rebuilding of confidence.

QUINTANILLA: Housing is one of three pillars that are responsible for the recovery as we know it.

Autos is another. The revitalization of the big three carmakers hasn`t brought many new plants, but it has brought new production -- an estimated 15.5 million units this year, up from just 10.5 million at the lows. Some call it the new center of gravity of a manufacturing renaissance.

Also working: high-end retail. Sales at names like Macy`s (NYSE:M), Saks (NYSE:SKS) and Michael Kors suggest the wealthy are holding up their end of the consumer spending bargain.

MICHAEL P. MURPHY, ROSECLIFF CAPITAL: That 1 percent of the population that`s going to those high end retailers really has recovered the fastest from the financial crisis and they`re out there and they`re

spending money.

QUINTANILLA (on camera): But there`s plenty that`s not working. Despite the strength of the stock market, Wall Street banks are retrenching, laying off workers, adjusting to an environment where a return on equity isn`t what it once was.

(voice-over): Big-ticket exports, the countries like China have been a challenge for companies like Caterpillar (NYSE:CAT), facing a new wave of lower-cost competition.

And for all the enthusiasm about natural gas in this country, some say regulatory uncertainty has kept a lid on production, handicapping what may be one of the biggest long-term goals: energy independence.

BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: We`ve seen some signs of improvement.

QUINTANILLA: In the end, the main uncertainty to this recovery involves this man: Ben Bernanke and the Federal Reserve.

BERNANKE: We are getting some traction in the housing market.

QUINTANILLA: If the economy truly gains traction, when and how does the Fed pull back on its monetary stimulus? What happens to mortgage

rates, to government debt payments?

In short, can the economy survive the Fed`s band-aid coming off four years after a bruising economic crisis? No one, it seems, has a good answer for that.

Carl Quintanilla for NIGHTLY BUSINESS REPORT, New York.

(END VIDEOTAPE)

MATHISEN: Let`s dig a little deeper and break out some sectors. You heard Carl mention the Fed and mortgage rates. So, let`s talk about housing.

Diana Olick from the epicenter of the housing crisis, Las Vegas, on how far the housing market has comeback and how far it still needs to go to regain full health.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS CORRESPONDENT (voice-over): Chris and Candice Rodgers wanted to move to a bigger house. With Las Vegas homes costing half of what they did during the housing boom, they figured it was the perfect time, except there was nothing to buy.

CHRIS RODGERS, RECENT HOME BUYER: We looked at a lot of the existing homes and some were bank-owned and they were in pretty bad shape.

OLICK: So, the Rodgers turned to new construction, which is suddenly sprouting up all around the city, with national and local builders alike coming back to what was until very recently a ghost town of unfinished lots. As for the Rodgers` old home, rather than sell it at a loss, they rented it out.

RODGERS: With the rental income, that reduces it by about 40 percent.

OLICK: The Rodgers are a big part of why supplies of homes across the nation are so low. Few want to sell at the bottom while millions of others are still under water.

KLIF ANDREWS, NEVADA PRESIDENT, PARDEE HOMES: The overall economy has gotten better. The buyers understand now that these low interest rates are a real dramatic opportunity for them. And most of all, the resale inventories dried up.

OLICK: And not just in Las Vegas. Nationally, the number of homes for sale today is down 25 percent from a year ago, according to the National Association of Realtors. Even as the spring market begins, potential move up buyers are not putting their homes on the market.

NOAH HERRERA, GREATER LAS VEGAS ASSOCIATION OF REALTORS: What`s holding people back from buying a property is the fear of selling their property and not being able to find one. That`s what the problem is.

OLICK: Lack of homes for sale coupled with huge demand from all cash investors for distressed properties are a boon to the builders. They are still producing about half the homes they would normally, but they are seeing big jumps in new orders. Housing is finally helping, not hurting the economy.

MIKE BRUNSON, REAL ESTATE DAMAGE ANALYTICS APPRAISER: The only thing that concerns me is we have been here before, and the market itself is not what`s driving the price increase.

OLICK: Appraiser Mike Brunson saw the very worst of the Vegas housing boom when speculators and builders pushed prices beyond rational levels, until it all came crumbling down. Something he says is missing from this recovery.

BRUNSON: It`s not that we have new employers coming in and creating tens of thousands of new jobs that are leading to people buying new houses. It`s Las Vegas is on sale and investors are buying up everything they can in the used market.

OLICK (on camera): And those he argues are not healthy fundamentals. Houses and prices are going up again, but the recovery is still not on solid ground.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Las Vegas.

(END VIDEOTAPE)

GHARIB: Looking at the energy sector, a big focus in the United States on the surge in oil and gas production here that`s transforming the global energy landscape, and helping to lead America`s economic recovery.

But as Sharon Epperson reports, there are still challenges.

(BEGIN VIDEOTAPE)

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voiceover): It was unthinkable a few years ago, but now U.S. energy independence appears to be within reach. The United States is virtually self-sufficient in natural gas supply and currently has the highest rate of growth in oil production in the world, producing more oil than it has in two decades.

By the end of the decade, this nation is expected to become the world`s top oil superpower, outpacing Saudi Arabia in terms of production.

DANIEL YERGIN, IHS (NYSE:IHS) VICE CHAIRMAN: With a combination of hydraulic fracturing otherwise known as fracking, and horizontal drilling, the U.S. gas position has been turned around and today, the United States is the largest producer of natural gas in the world. And by the end of the decade, we may exceed Saudi Arabia to be tonight world`s number one oil producer. We`ll certainly give Saudi Arabia a very good race for its money.

EPPERSON (on camera): Here in Texas unconventional oil and gas drilling is helping to fuel the state`s economy, directly and indirectly -creating nearly 580,000 jobs last year and expected to account for 930,000 jobs by 2020.

(voice-over): According to research from IHS (NYSE:IHS) CERA, over 1.7 million jobs are tied to unconventional oil and gas development today, extending to every one of the lower 48 states and rising to 3 million jobs by the end of the decade. Building more pipeline capacity, including the Keystone XL Pipeline, stretching from the Canadian tars and through the middle of the country to the refinery-rich Texas coast is also expected to drive employment growth.

ALEXANDER POURBAIX, TRANSCANADA ENERGY & OIL PIPELINES PRESIDENT: Keystone is going to support, according to the State Department, 42,000 jobs in the U.S., just in terms of the construction alone in the states that we`re going through. We`re going to put 9,000 Americans to work.

EPPERSON: Despite the surge in U.S. oil and gas development, challenges remain as global forces continue to push oil prices higher.

JACK GERARD, PRESIDENT & CEO, AMERICAN PETROLEUM INSTITUTE: There are various factors that contribute to the cost of crude oil -- unrest in the Middle East, the demand coming out of Asia, particularly China and India, and elsewhere around the world, the value of the dollar. A lot of things contribute to that price.

EPPERSON: And drive up gasoline prices, too.

With the national average for regular gasoline near the highest it`s ever been for this time of year, some consumers may wonder when their wallets will see the economic benefit of this energy boom, but without the surge in U.S. oil and gas supplies, fuel prices in this country would be much higher.

For NIGHTLY BUSINESS REPORT, I`m Sharon Epperson in Houston.

(END VIDEOTAPE)

MATHISEN: Coming up, a look at the underpinning of the economy, the consumer.

(MUSIC)

MATHISEN: The backbone of a healthy economy, certainly one like ours, is a healthy consumer. After all, consumer spending accounts for about two-thirds of our economic activity.

Courtney Reagan takes a look at that spending and the pressures keeping a lid on it.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voiceover): Higher payroll taxes and rising gasoline prices continue to streak across the headlines with good reason. These head winds appear at the very least to be impacting how much consumers are buying.

ROBERT SUMMERS: These things will take dollars out of consumer`s pockets. It`s disproportionate for low earners, and I think it`s reasonable to expect some moderation in that consumer demographic going forward.

REAGAN: Walmart is certainly feeling the pressure. The world`s largest retailer catering largely to lower-income consumers blamed a delay in tax refunds for its slow February sales start.

BOB DRBUL, BARCLAY`S RETAIL ANALYST: It does put a lot more pressure on March. You know, February`s a smaller spending month than March from a U.S. consumer`s perspective. It`s something that we`ll be watching that very, very closely.

REAGAN (on camera): Well, consumer confidence rebounded in February, executives from Target (NYSE:TGT), Abercrombie & Fitch (NYSE:ANF) and Lowe`s are also expressing concern about continued consumer uncertainty, though not everyone thinks retailers should worry too much.

DOUG HART, BDO USA CONSUMER PRACTICE PARTNER: I don`t think there`s this new normal. Obviously, if paychecks are lower, there is going to be some reduction, but I believe over time, if that`s the only factor, I think consumers are going to adjust and I think that consumer spending is going to stabilize.

REAGAN (voice-over): But higher payroll taxes aren`t the only head wind. The average price for regular unleaded gasoline has increased 40 cents per gallon or 12 percent in just three months.

According to Barclay`s analyst Bob Drbul, a 10-cent increase at prices at the pump takes away an additional $100 to $110 from consumers` disposable income, or as much as a $13.8 billion drain on total consumer spending in other areas.

Because of the current pressures, it appears lower-income Americans are on the sidelines of the American recovery, but then again, American consumerism often prevails, even in times of economic hardship.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

GHARIB: Joining us now to talk more about the consumer, Anthony Chan. He`s chief economist at JPMorgan`s Chase Private Client Group.

So, Anthony, you heard our report. Consumers are a very important part of our economy. So, how would you describe right now the financial health of the consumer and the mood of the consumer?

ANTHONY CHAN, CHASE PRIVATE CLIENT GROUP CHIEF ECONOMIST: I really see the consumer making some real -- showing some real signs of improvement. I`ll tell you why. When you look at the loss of wealth, it was pretty significant. From 2007 to 2009, you essentially saw $16 trillion of household net worth disappear. But since then, we`ve seen household net worth picking up again.

And we`re now just short $1.3 trillion as of the fourth quarter, the latest numbers the Federal Reserve has in their flow of funds. But if you look at movements in housing prices, movements in equity prices in the

first quarter -- I think by the end of the first quarter, the consumer will have gotten all of their $16 trillion back. It is no wonder that consumer confidence is picking up. It is no wonder why retail sales held in so well, despite the payroll tax and despite all the other headwinds.

GHARIB: Those are very interesting thoughts and statistics. But we know that on the jobs front, there are a lot of people who are still out of work. Some companies are still laying off. Some companies are holding off from hiring.

So what kind of progress is there on the jobs front?

CHAN: I think there`s significant progress. When we look at the last three months, for example, we have seen that non-farm payrolls have averaged about 191,000. When we look at how many jobs we need to create just to absorb the natural growth in the labor force, about 110,000 or so.

So believe it or not, we are making some progress in terms of lowering the unemployment rate. So the net change is an improvement, even on the job front, believe it or not.

GHARIB: You just heard Courtney`s report where she was talking about a 10-cent increase in the price at the pump and the impact that has on the economy. Billions of dollars come out of the economy.

What is your forecast on prices at the pump for the rest of this year?

CHAN: Well, there`s no question that higher gasoline prices are not positive for consumers, because it does siphon money away from the consumers for other products. But, in fact, if you`ve seen gasoline prices, they basically went up. And through the end of February, they continued to go up. But they have been coming down steadily. My suspicion, over the next couple years, gasoline prices will be heading higher, because it basically mimics what happens to economic growth here and abroad. And economic growth is, in fact, accelerating.

But, again, I think that gasoline prices are important, but how wealthy the consumer is, or what the balance sheet of the consumer is, is even more important. How else can you explain the resiliency and the sales of cars in the first quarter, despite the fact that gasoline prices went higher?

GHARIB: I want to also get your forecast on two very important indicators of consumer confidence. There`s back to school sales, and holiday sales. And I know that we`re far off from both of those events.

But what is your forecast? Based on the trends you`ve seen right now for the consumer, how well are those holiday sales going to do at the end of the year?

CHAN: I have to believe that there are going to be a lot better than last year. And why do I say that? Because consumer confidence seems to be creeping higher. Whether you look at the monthly numbers, whether it`s the conference boards, Michigan or whether you look daily Rasmussen numbers, they`re moving closer and closer, especially the daily ones, closer to five-year highs.

So with the improvement in consumer confidence, we`re going to see better back to school numbers and certainly better holiday sales in the month November and December.

GHARIB: All right. Lots of good information. Thank you so much, Anthony.

Anthony Chan, chief economist at JPMorgan`s Chase Private Client Group -- Tyler.

MATHISEN: Well, actually, coming up, the structural challenges the economy faces moving forward.

And the former chairman of the Federal Reserve, Alan Greenspan. We`ll weigh in.

(MUSIC)

MATHISEN: Tonight, we have examined where the economy is growing and where headwinds remain. But let`s shift to the bigger picture and explore what the long-term significant obstacles could be to America`s economic primacy and prosperity. Four challenges we face.

(BEGIN VIDEOTAPE)

MATHISEN (voice-over): Challenge number one: health care. We will spend $2.8 trillion on it this year, that`s about $1 out of every $6 the U.S. economy will generate.

We pay more for health care than the next 10 biggest spenders combined, and we don`t get better results. We have higher rates of disease and injury of every age up to 75 and shorter life spans than any of 17 other wealthy nations.

We rank 50th in the world in infant mortality. According to "Time" magazine, Cuba is number 41.

PAUL KRUGMAN, NOBEL PRIZE-WINNING ECONOMIST: We have to do something about health care costs, that which is what the main driver of stuff. But that doesn`t really mean cutting benefits, that means cutting costs.

MATHISEN: Bottom line: even though health care creates jobs, an expected 5.5 million this decade, what we spend on it is a weight on our

economy and our future prosperity.

Challenge number two: America`s infrastructure -- roads, bridges, water system, transit, the electric grid, all outdated or crumbling, or both, and it`s costing.

According to the World Economic Forum, the U.S. ranks 25th in overall infrastructure, behind Barbados and Oman and one spot ahead of Qatar.

PATRICK NATALE, AMERICAN SOCIETY OF CIVIL ENGINEERS: We`re going to lose 3.5 million jobs.

MATHISEN: Pat Natale heads up the American Society of Civil Engineers.

NATALE: We`re looking at a $3,100 negative impact on your pocketbook.

MATHISEN: Natale`s group, which admittedly has a vested interest in infrastructure spending, says that by 2020, the U.S. could lose almost $1 trillion a year in commerce, unless we invest more in our physical plant.

Case in point, he says --

NATALE: We lose about 6 billion gallons of good clean drinking water out of our system every day.

MATHISEN: Bottom line: the U.S. spends 2 percent of GDP on infrastructure, half what it did 50 years ago. Europe spends 5 percent, China, 9 percent.

That`s a competitive risk, which brings us to challenge number three: global competitiveness. We`re number seven now, down two spots in the World Economic Forum`s latest ranking. It`s the fourth year in a row the U.S. has slipped.

High labor costs are hurting. Damaging, too, is a complex tax code, regulation, and a political system that critics say is dysfunctional.

But perhaps most troubling of all, we`re shortchanging research and development. U.S. R&D spending grew just 3 percent as a share of GDP from 1987 to 2008. Meanwhile, China`s rose 110 percent, Korea`s 91 percent.

In part, that lack of investment has left America with a skills gap, and that leads to challenge number four: education. We spent $810 billion a year on it for primary and secondary schooling alone, close to $8,000 per school-aged child, far more than any other developed country. Yet, American students ranked 17th in science, 25th in math, out of 34 industrialized nations.

Of the 1.6 million bachelor`s degrees awarded in 2009, only about 6

percent were in engineering, half the average for rich countries. Only 15,000 degrees were in math, that`s half as many as were awarded in parks, recreation, leisure and fitness studies, which is nothing against parks and recreation, but which does show the education challenge we face.

(END VIDEOTAPE)

MATHISEN: Well, for nearly two decades, from 1987 to 2006, Alan Greenspan was the world`s most influential banker, as chairman of the Federal Reserve.

For much of that term, he was lauded as the maestro, the wizard who kept the economy on track through stock market crashes, 9/11 and more. Since leaving office, he`s been criticized for easing money policies that some say led to the housing bubble and the subsequent financial meltdown.

But hero or not, however, remains a keen observer of the global economy. I began a recent conversation with him by asking about stock prices.

(BEGIN VIDEOTAPE)

ALAN GREENSPAN, FORMER CHAIRMAN FOR THE FEDERAL RESERVE: Nowhere close. The characteristics of what`s been going on, basically, are actually more related to the removal of various types of what we call major

areas of uncertainty. And the so-called terror risk, meaning the risks very unlikely to happen. But if they do, they have a very large impact.

Europe has been hanging over the American markets now for quite a while. And the removal of that risk, at least temporarily, and I think it is only temporary, has enabled the underlying forces of the market to begin to come into vision. And what those forces are, are the deep-seated, exceptional discounting that`s going on of stocks to a point where socalled equity premiums are virtually the highest level in history. That means that it is very difficult to get the stock market to go down significantly from here.

MATHISEN: So you think, then, that earnings aren`t as big a significant contributor to where stock prices are. The Fed isn`t as big as the tail risk disappearing.

What are the other tail risks you would worry about that could unseat this stock market rally?

GREENSPAN: Well, I think the major problem is the longer-term outlook. Because this rally is going to run into problems as it becomes apparent that there is a temporary, at least, limit to upside economic growth and at the moment, as you know, profit margins are not going anywhere. And, indeed, earnings are not going anywhere. And unless you get economic growth coming back in play, earnings are not going to be able

to substantiate the market going up you very much more.

MATHISEN: Let`s pursue the idea of what`s next for the economy. Can it continue to grow, at what speed, and with what effect on unemployment?

GREENSPAN: I don`t look for the economy to get very much more than 2 percent, 2.5 percent, maybe short-term 3 percent. But getting back to where we used to be in the growth rate, at the moment, is not on the horizon.

MATHISEN: How concerned are you or are you concerned at all about the effect of the so-called sequester spending cuts of federal outlays, or additional spending cuts that may be in the pipeline. Do you think that will have a significant effect on economic growth this year or not?

GREENSPAN: I think it will have an effect, but not that much. I think we`re overestimating the impact of what cuts in spending do, provided market values basically of homes and of stocks continue to rise. And I would expect both to be the case.

MATHISEN: Do you believe that housing is on a sustainable, solid footing today?

GREENSPAN: I think it is. And you can see things which are very important in this respect. The demand for owner occupancy is coming back.

And that is likely to give a big push to housing single family housing starts, which is where most of the issues lie.

So I would basically think that it`s looking low. I think the major problem we have, for example, in 2008 when there was mediation of mortgages, half of them failed after six months. Now, that figure of sixmonth mediation is down to 10 percent. That tells you the mortgage market is significantly improving.

MATHISEN: One last question then on the banks, if I might. One of our viewers asked whether you feel that the new regulations governing derivatives, for example, have been effective. And I`ll turn that to ask, do you think that some banks are still too big to fail, and has Dodd/Frank worked or not?

GREENSPAN: I think Dodd/Frank has not worked. It is unlikely to work. It`s too complex, and there are too many regulations. The Fed, in conjunction with the other regulators, this is a load which I don`t think is readily handled. But far more importantly, I think the structure of the economy presupposed by the nature of the regulations in Dodd/Frank is not the real world.

I think a lot of these regulations will fail to do what they`re supposed to do, because of diagnosis or what the problems were, are wrong.

MATHISEN: Chairman Greenspan, the first commentator in the history of NIGHTLY BUSINESS REPORT, thanks so much for joining us.

GREENSPAN: My pleasure.

(END VIDEOTAPE)

MATHISEN: You know what stood out to me as we took a look at the American recovery is both Chairman Greenspan and Anthony Chan, see the economy as growing. But Mr. Greenspan, I felt, felt us growing a lot less strongly than Chan did.

GHARIB: Except there`s one thing, you know, Tyler. All during the economic crisis over the last couple years, the question I ask so many people, you know, when are we going to know we`re turning? They said when the job market picks up and when the housing market picks up.

One thing that Greenspan did acknowledge is that the housing market is doing better. And one thing Anthony talked about is the jobs market is picking up.

So, you know, maybe there is more reason to be optimistic than pessimistic.

MATHISEN: Absolutely the case.

GHARIB: And that`s it for this special NIGHTLY BUSINESS REPORT: "The American Recovery." I`m Susie Gharib. Thanks for watching.

MATHISEN: And I`m Tyler Mathisen. Have a good night.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2013 CNBC, Inc.

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