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Quest Means Business
US Jobs Number; Fed Officials Assess US Economy; US Unemployment Lowest Since 2008, But Long-Term Unemployment Still High; US Stocks Surge; Brazil Goes to Polls Sunday; Brazil's Currency and Markets React to Election; Extent of JPMorgan Hack Exposed; A Search for Security: Apple Versus Google; Some Senators Want Tighter Ebola Screening at US Airports; Make, Create, Innovate: Smarter Security at Airport
Aired October 03, 2014 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(NEW YORK STOCK EXCHANGE CLOSING BELL)
(CROWD CHEERS, CHANTING)
POPPY HARLOW, HOST: Up 200 points at the close, the New York Stock Exchange wraps up a volatile week for the US Stock Market. It is Friday
the 3rd of October.
Good news for the weekend, the US unemployment rate hit a six-year low.
JPMorgan reveals its 76 million households and 7 million businesses have been exposed in a cyber attack.
And Google's executive chairman fights back against Apple's privacy critics.
I'm Poppy Harlow, this is QUEST MEANS BUSINESS.
Good evening, welcome to the program. Tonight, the world's biggest economy is back on track. The US added 248,000 jobs in September. That is
better than economists had expected and a big relief after last month's weak jobs report.
August numbers were revised higher, though. The unemployment rate here in this country fell to 5.9 percent. That is the lowest since July of
2008, before the financial crisis took hold.
Investors are picking over the numbers, trying to figure out when the Federal Reserve will begin hiking those interest rates. Janet Yellen has
hinted that rates could soon rise, maybe sooner than expected if the labor market improves significantly.
Yellen famously uses a "dashboard of economic indicators" to help guide her decisions. While the job headlines do look strong, let's take a
look at what she really looks at. The unemployment rate is at its lowest point since July of 2008, that we know.
Under-employment, though, is still higher than it was six years ago, although things are improving. But nearly 12 percent of all Americans are
still unable to find full-time work. Also -- this is something important - - labor force participation, that has fallen to its lowest point since 1978. That is partly because older Americans are retiring, but it's also,
frankly, a sign of a lack of good jobs and good-paying jobs.
Also, even as the economy has added jobs, wages, the amount of money workers take home, has stayed relatively flat. They've risen by just about
2 percent over the past year, just in line with inflation.
Earlier, I spoke with US labor secretary Thomas Perez. He says the latest jobs reports shows the economy is improving, but I asked him how
concerned he is with the fact that 3 million Americans have been out of work for six months or longer.
(BEGIN VIDEOTAPE)
THOMAS PEREZ, US LABOR SECRETARY: When you look at the data, over the last year, a year ago, it 7.2 percent, the unemployment rate, now we're at
5.9 percent. The bulk of the drop has actually been in the long-term unemployed.
And so, we're moving in the right direction, but you're absolutely right that it -- the long-term unemployment rate is still way too high, and
that's why as an administration, we've been making unprecedented investments in this area.
We're about to give out $150 million in competitive grants to communities that are doing innovative things around -- designed
specifically to get the long-term unemployed back on their feet. And we're working with state and local governments on this issue, and we're making
progress, but we've obviously got to pick up the pace.
HARLOW: You've got wage growth that is really incremental, it's just about in line with inflation. So, that means that Americans just aren't
feeling any better, getting jobs that pay a bit more. And that's also something that the Fed looks very closely at when deciding when to raise
rates. Your take on the wage growth issue?
PEREZ: I think the biggest challenge moving forward is the challenge of ensuring shared prosperity. You look at productivity growth since 1979,
it's been over 90 percent, and then you look at wage growth, and wage growth has been 2, 3 percent. We should have shared prosperity.
When businesses reap the benefit of productive workers and productive technology, historically, we have shared that. But that's not happening
right now, and that's --
(CROSSTALK)
HARLOW: So, what are you saying? Are you saying the onus is on these companies to pay more?
PEREZ: Well, we have ample examples in every business model of companies who understand that you can take care of your shareholders and
you can take care of your workers. Also, as we put more money in the economy and stimulate consumption, that's going to put upward pressure on
wages.
HARLOW: The president this week on the road and highlighting the economic achievements and successes that we've seen, some of them reflected
in this jobs report.
At the same time, a recent CNN-ORC poll shows that many Americans are not feeling that material difference in their lives because of stagnant
wages, not enough full-time work, 57 percent of those polled said the nation's economy was poor. That's compared with 42 percent describing
conditions as good. A lot of people are not feeling this.
PEREZ: Well, it's always important to remember where we were when President Obama took office. In the three months before he took office,
the economy lost 2 million jobs -- 2 million jobs over three months. We now have seen the longest sustained period of private sector job growth in
history, 55 months of sustained private-sector job growth, to the tune of 10.3 million jobs.
And the growth that we're seeing last month and in the previous months has been broad-based. The leading sector is business and professional
services. And so, we're moving in the right direction, but when we had to dig out from a hole of that magnitude, it takes a lot of digging.
And as a result of the president's leadership and the resilience of American businesses and the American people, we're moving in the right
direction. But for some people, it's just not fast enough.
(END VIDEOTAPE)
HARLOW: Our thanks to Secretary Perez for his time today on that. Let's take a look at the numbers today on Wall Street, a really big gain
across the board on the Street, reflecting the strong jobs numbers.
The jobs report did push US stocks higher, helping reverse four days of straight losses, investors hoping that weak wage growth will keep the
Fed from raising interest rates too quickly. The Dow ended the day up more than 200 points. We also saw sharp gains for the NASDAQ and the S&P 500.
Alison Kosik joins us at the New York Stock Exchange. What's your read on this, Alison? Is it all a reflection of the jobs report?
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: At this point, that's certainly the -- that's what instigated the rally that you're seeing today.
But we've been seeing volatility all week. And you look at the broader economy, and you'd say, OK, the US is doing better than, let's say, Europe
and Japan at this point.
So, you see the US, Poppy, winding down its stimulus. The ECB is ready to rev it up. But there are questions right now about the growth
outlook for Europe, for Japan, and for China, and everybody looking at the US and saying, look, you're seeing this momentum in the jobs market, things
are definitely looking better, but once again, we are seeing that volatility that we saw all week.
The third quarter earnings season, that gets started next week, and a big reason for the big sell-off that we saw in the Dow earlier this week of
more than 200 points is caution about what those reports are really going to show, what those earnings reports will show knowing that we've got all
these concerns out there, on Ebola, on ISIS, on Russian sanctions.
HARLOW: Right.
KOSIK: So, you've still got those worries out there, but you see the rally based on the headline, and the headline is the jobs number.
HARLOW: And also interesting, Alison, to see the president on the road this week, obviously, as he deals with the crisis from ISIS and also
Ebola, trying to pump up the good news about the economy ahead of these midterm elections, because this is the last report we're going to get ahead
of those. But at the same time, he said, look, these gains are going to the one percent.
KOSIK: Yes, he's referring to that income inequality that he says is at a very high rate, one of the highest we've seen in decades, where
there's that shrinking middle class. So, the president did speak at a speech in Illinois taking credit for the economic recovery, trying not to
discount those still without jobs and not making a good wage.
But he did take a moment to blame Republicans for blocking his efforts to boost wages and create jobs, Poppy.
HARLOW: Yes, we certainly heard a lot about the political fight in Washington from the labor secretary as well today. Because again, this
comes ahead of that critical midterm election. Thank you, Alison, appreciate it.
KOSIK: Sure.
HARLOW: Have a great weekend.
The final polls ahead of Brazil's election this weekend showed the current president, Dilma Rousseff, in the lead. Rousseff came in at 47
percent of the valid vote, that is 3 percentage points shy of victory. Marina Silva trailing with now 28 percent.
The once vibrant Brazilian economy is in a technical recession, and the candidates are out to convince voters they have what it takes to turn
things around. Fears over the outcome of this election are hurting Brazilian stocks. We've been closely keeping an eye on the Bovespa.
Brazilian shares did, though, finish higher on Friday.
Over the past month, the Bovespa has fallen about 12 percent. I asked Alberto Ramos, a senior Latin America economist at Goldman Sachs if
Brazil's currency and markets are overreacting.
(BEGIN VIDEOTAPE)
ALBERTO RAMOS, SENIOR LATIN AMERICA ECONOMIST, GOLDMAN SACHS: The market is pricing now an increasing likelihood that President Dilma
Rousseff will be reelected. And what the market is reading from that is that the policy approach that we have seen in recent years, which is a
little bit of an orthodox interventionist management of the economy, will likely continue into 2015, 2016.
And this economy is showing a number of imbalances that certainly require corrective policy action, and that's exactly what the market is
pricing, the continuation of the policies we have seen in recent years.
HARLOW: At the same time, under this president, you've got staggering inflation, you've got the budget deficit being the largest it's been, the
widest it's been in 13 years, and you've also got a sovereign debt rating close to junk. So, is there really a belief that things would be different
in the next term?
RAMOS: They'll have to be different at some point. The perception is that this economy is trapped in a very, very poor equilibrium, as you
mentioned, of low growth, high inflation, a noncompetitive economy, a misaligned exchange rate, excessive activism on the fiscal front through
the budget, quasi-fiscal through the public banks.
A number of distortions in relative prices and (inaudible) prices that they have not been updates as they should. A certain casual look at the
inflationary pressures in the economy, we have also seen a significant deterioration of the fiscal fundamentals, of the current economic
fundamentals.
Bottom line: the economy is showing significant macro imbalances that are generating headwinds to growth. And we have to solve them, we have to
fix them. And until we solve them, the animal spirits will remain quite depressed in the economy. It's hard to imagine that investment will pick
up until we sort out those imbalances and we move to a place where the economy can find again the path of sustainable, high-quality growth.
HARLOW: What needs to be done to solve the problem? If you were the next president of Brazil, what policies would you change?
RAMOS: A number of things. I think we need to be more inclined to bring inflation closer to the target. Inflation is very high. Inflation
expectations are misaligned. The currency is significantly overvalued, the economy needs a more competitive currency.
So we need to intervene less in the foreign exchange market. We need the real to seek a more depreciated level. We need the central bank and
macro policy in general to be concentrating on lowering the inflationary pressures.
We need to reduce the significant distortions that you have in relative prices, gasoline and other. We need a more responsible, a more
disciplined management of fiscal policy. That will solve part of those imbalances that will stimulate the economy, that will contribute to
recovering investment confidence in the economy.
(END VIDEOTAPE)
HARLOW: We of course will be watching that election very closely here on this program.
Coming up next, America's largest bank says hackers got away with a lot more than it previously thought. We'll take a look inside the JPMorgan
vault in a moment.
(COMMERCIAL BREAK)
HARLOW: It turns out a summer cyber security breach at JPMorgan was much worse than the bank initially let on. JPMorgan now says 83 million
client accounts were hacked this past June. Previous estimates put that number around only 1 million.
The intrusion was discovered sometime in July. The culprit is still unknown. Executives at the bank say the hackers only stole contact
information, not more sensitive information, like user IDs, account numbers, or social security numbers.
Earlier this year, JPMorgan did say it was supplying, really, a small army of a thousand people with a budget of $250 million a year to try to
prevent cyber crime just like this. Our business correspondent Samuel Burke joins me now to talk about.
That was the headline, that was the message out of JPMorgan. Look, none of your critical information is in the hands of these hackers. But
what did they get, and is there any way to really know that they don't have those critical things?
SAMUEL BURKE, CNN BUSINESS CORRESPONDENT: Listen closely, because they got names, addresses, phone numbers, and e-mail addresses. And while
that may give people a sigh of relief, oh thank God they don't have my bank account number, my credit card numbers, that information is very important
and worth something on the black market.
I presume that that's what's going to happen with this. That information about you, me, and our viewers is going to be sold there. That
could be used to carry out phishing attacks, when you get those e-mails that look like they're from your bank but they're not really --
HARLOW: They're not.
BURKE: -- from your bank, and you may not realize it and type in your account information that way. Or they might be used to guess your
password.
But I want you to look at two numbers that really show the magnitude of this. On the one hand, we have 76 million households, Poppy. That is
more than half of the United States of America, more than half of our households. And in addition to that, 7 million small businesses.
HARLOW: Wow.
BURKE: That tells you just how massive this was.
HARLOW: Interesting report from "The New York Times" said that these hackers were able to gain, quote, "the highest level of administrative
privilege on more than 90 of the bank's servers." So, it's important to note, it's not just that hackers get in and out. They build tunnels. They
can get back in.
And frankly, the fact that they didn't steal money or, apparently, account numbers, the fear is, OK, were they getting in to test the waters
and see what they could get next time?
BURKE: Well, that's what so interesting when you look at how these stories come out little by little. Happened in May, then in August we
heard one number, now we hear another number. That just goes to show you that even once these companies know about this, they know a hack has
happened, they don't really understand the magnitude of it --
HARLOW: Right.
BURKE: -- and only over months --
HARLOW: They still don't know who did it.
BURKE: Of course. They don't know -- interestingly, at the top of the FBI's suspicious list, let's say, is always Russia and East Europe,
just suspicions. And just remember, this happened at a time when there was increased tensions between the West and Russia --
HARLOW: Right.
BURKE: -- over Ukraine because of those economic sanctions.
HARLOW: JPMorgan chief Jamie Dimon sent a letter to shareholders, as he does every year, that annual shareholder letter, but in it, he talked
about cyber security and hackers, and he wrote that the battle against hackers is, quote, "continual and likely never-ending." This is the new
reality for businesses large and small, whether you're Target the retailer or JPMorgan Chase the global bank.
BURKE: And if you're sitting at home right now thinking that this doesn't affect you, think again, because get a load of this number: $250
million. That is what JPMorgan is going to spend next year to try and defend itself against cyber criminals. And if you think they're just
paying that, at the end of the day, it's you, me, our viewers, who all eat that price.
HARLOW: Fees, et cetera.
BURKE: Passed onto us.
HARLOW: Yes. Wow, it is a real, real danger, and now we know the number of how many millions of Americans affected. Thank you, Samuel,
appreciate it. Have a good weekend.
Google has been under fire recently, as you know, from Apple CEO Tim Cook for the way it manages users' information. Google's response:
internet users need to rely more on their technology, not less, to protect privacy. Our chief business correspondent Christine Romans sat down with
Google chairman Eric Schmidt and former Google executive Jonathan Rosenberg.
(BEGIN VIDEOTAPE)
CHRISTINE ROMANS, CNN CHIEF BUSINESS CORRESPONDENT: Is Apple doing privacy better than Google, do you think? Tim Cook has made some comments
recently about selling search history to make money.
ERIC SCHMIDT, CEO, GOOGLE: Someone didn't brief him correctly on Google's policies.
(LAUGHTER)
SCHMIDT: It's unfortunate for him. First place, in Google's case, we have always been the leader in security and encryption. Our systems are
far more secure and encrypted than anyone else, including Apple.
They're catching up, which is great. And aside from the fact that we show ads in Gmail, which we've done for a decade --
ROMANS: Right.
SCHMIDT: -- and used that information for nothing. All the other things he implied we're doing, we don't do.
ROMANS: And what about Julian Assange, who just recently said that your business model is the same business model as the NSA?
(LAUGHTER)
SCHMIDT: I think Julian needs to do a little bit more research from the safety of the embassy. First place, the NSA does not have a business
model, they're funded by the US government. And second, the NSA does not collaborate with Google in any way --
ROMANS: Right.
SCHMIDT: -- and Google has not talked to the NSA and we have organized our systems to protect ourselves from unwarranted attacks.
ROMANS: All of these conversations show that privacy is still --
SCHMIDT: Of course.
ROMANS: -- front of mind, here, front and center.
JONATHAN ROSENBERG, FORMER GOOGLE EXECUTIVE: Computers and software can get better and better at helping you, helping you make better decisions
so you can live a better life. And the more we know about you, and the more you're willing to share with us, the more we're able to help you make
those decisions and also help you figure out what to do next and alert you to problems that you wouldn't otherwise be aware of.
SCHMIDT: I also think people are concerned -- the average person I know has so much of their lives tied up, computers and the internet and the
services, that they are worried that that information would somehow by misused either by other companies or by the government or by some leaker.
We work incredibly hard to keep the information that you give Google private, right? And we also give you controls to take it away. Notice
there's been no significant data breaches of Google.
ROMANS: There's been a lot of scrutiny on Silicon Valley for being largely white and largely male, especially leadership.
ROSENBERG: There's no question that historically, tech has been largely dominated by white males, but Google's doing all sorts of
investments to try to get more women, to try to get more minorities to major in computer science and the sciences.
SCHMIDT: Two of the most successful businesswomen in American today worked for Google.
ROMANS: That's right.
SCHMIDT: And are now running their own operations.
ROMANS: You hired Sheryl Sandberg without even having a job for her, right?
SCHMIDT: That's correct.
ROSENBERG: We did.
SCHMIDT: And I knew her, and I remember taking her to the -- her resume to the hiring committee, and everyone said, "We don't need her."
And I said, "But we will."
ROSENBERG: When the world is changing as quickly as it is today, you need somebody like Sheryl who can come in and say, my goodness, we need to
create a different kind of support operation to help us scale. And you get that from a brilliant generalist who can adapt.
SCHMIDT: The company is about hiring incredible talents --
ROMANS: Right.
SCHMIDT: -- and then fitting it to the job later. Our engineers are mostly hired without knowing what engineering project they're going to work
on.
ROMANS: What is the goal of Google?
SCHMIDT: We're trying to work on the most important problems in the world, and we're asking people rather than a factor of 10 percent better,
make it 10 times better. The kind of person who's attracted to work at Google loves that.
They want to work at a company where their finest ambitions are at least understood as being possible. We encourage them to try, and if they
fail, we say try again.
(END VIDEOTAPE)
HARLOW: Fascinating interview. Christine, thanks so much for that. You can see more of it, of course, on cnnmoney.com.
Now to transparency of quite a different kind. Going through airport security in the United States and globally could get a lot less tedious
thanks to a new invention which can scan while you walk.
(COMMERCIAL BREAK)
HARLOW: In the US, some senators are calling for greater screening at the airports to try to, of course, prevent the spread of Ebola. Ohio
senator Rob Portman is among those who want checks on passengers who arrive in the US from any Ebola hot spot.
As you'll know, getting through airport security already takes quite a while. Scientists say that soon there may be no need to remove your belt,
your jewelry, your shoes, or frankly, wait in line or go through one of those pat-downs.
A new system, which can scan people while they're on the move, could save time and perhaps lives. Nick Glass reports.
(BEGIN VIDEOTAPE)
NICK GLASS, CNN INTERNATIONAL CORRESPONDENT (voice-over): We've all experienced them, we all dread them: long queues at airports security.
How do you improve screening and simultaneously speed up the whole process?
GLASS (on camera): Well here in a small unit in an industrial park near Madrid, they think they've cracked the problem.
NAOMI ALEXANDER, CO-INVENTOR, ALFA3: We've invented and developed a security scanner that can automatically detect objects that are hidden on a
person as they're walking through the system.
GLASS (voice-over): Dr. Naomi Alexander is a physicist. Her expertise is a bit of a mouthful: passive millimeter wave imaging.
ALEXANDER: It's a type of thermal imaging. We can see through clothing, and so we can detect any object that's hidden under clothing and
on the body.
GLASS: In 2006 at the age of 25, she co-founded a company, ALFA3 Imaging, to develop an improved scanning system.
ALEXANDER: The main advantage is that it's a walk-by solution, which means that it detects while the person is moving past the system.
GLASS: Like something from science fiction in the 1990 film "Total Recall," x-ray scanners catch Arnold Schwarzenegger's character trying to
slip past security with a gun.
In reality, Dr. Alexander's system works more like a camera, but instead of taking your picture with harmful x-rays, it detects your body
heat. If you're hiding anything, it'll be a different temperature to your body. The system picks this up and raises the alarm. Everyone will be
scanned on the move. There'll be no need for individual scans or pat- downs.
GLASS (on camera): So, let's hide something that could be drugs or explosives, tuck it in my wallet pocket and give this system a go.
GLASS (voice-over): Sure enough, it found the bag. I thought I'd give it one more go and pop the packet somewhere else.
(BEEPING)
GLASS: NATO has show interest. In 2010, Dr. Alexander and her team were invited to test the system at an airfield in Kandahar in Afghanistan.
ALEXANDER: We were there for a week, and we would screen, I think it was something like 3,000 people were coming onto base.
GLASS: The system is expensive. Currently a single unit costs over a $0.25 million. But still, Dr. Alexander is beginning to sense serious
commercial interest out there.
ALEXANDER: You have the entrance to a government building, for example, the sporting events, concerts, and the police are very interested.
GLASS: There's clearly an excitement here and a pride at what their machine could do beyond cutting the queues.
ALEXANDER: But of course it would be fantastic to see that we've actually developed something here that is useful and that can potentially
save lives.
(END VIDEOTAPE)
HARLOW: We have some breaking news just into CNN, very disturbing news that I want to tell you about. British hostage Alan Henning has been
murdered by ISIS militants.
(PREEMPTED BY BREAKING NEWS)
END
