Welch, Buffett: Economy Improving Only ‘Slowly’ as Obamacare, Dodd-Frank Threats Loom
By Dan Weil MoneyNews
The economy is moving forward in fits and starts, says legendary investor Warren Buffett, CEO of Berkshire Hathaway.
“It’s really been remarkably similar since late summer 2009,” he tells CNBC. “It’s just slowly been improving. Sometimes the sentiment gets stronger, and sometimes the sentiment gets weaker.”
Gross domestic product (GDP) shrank 0.1 percent in the fourth quarter, and most economists expect growth of 2 to 2.5 percent this year. “Our businesses have steadily gotten better, but not at a fast clip, and that continues right to this day,” Buffett says.
Jack Welch, former CEO of General Electric, tells CNBC he agrees with Buffett’s view. “It’s steady, it’s slow,” Welch says.
And the economy’s torpor can be attributed to two policies from the Obama administration, he maintains.
“We got Dodd-Frank [financial reform], which isn’t out yet, really,” Welch explains. “And we got Obamacare. When you look at the complexities in that plan, healthcare costs are going to go up.”
The Affordable Care Act requires businesses with 50 full-time workers or more to offer health insurance or face a financial penalty. That gives businesses an incentive to push some full-time workers into part-time status and to cut their hours. “Retail has got a hell of a problem,” Welch argues.
“So my concern about acceleration [for the economy] is regulatory.”
Surprisingly, Buffet, a staunch Obama supporter in the past, didn’t take issue with Welch’s remarks. “I agree with everything Jack has said. He’s absolutely right about what’s happening in healthcare and everything,” Buffett states. “But I don’t come away as pessimistic as he does.”
Welch disputes that characterization of his view. “I’m not pessimistic, Warren,” he says. “I just think we’re at a position where we could really take off if we had the right policies.”
In any case, Buffett remains bullish on America. “America really is doing better than the rest of the world,” he says. “Everybody thinks we’re lagging. But from what I see the U.S. is the strongest part of the world, but it is not galloping back at all.”
And despite what some analysts say, the United States remains the best country in which to invest, Buffet maintains. Berkshire spent a record $9 billion on plant and equipment last year, and 95 percent of that was right here at home.
“We’re going to spend even more this year, and again it will probably be 95 percent in the United States,” Buffett says. “There’s a lot of opportunity in America.”
Problems are always around us, Buffett notes, but “in the end, I go with that new country song [by Gary Allan] that Every Storm Runs Out of Rain. And I think we will see steady improvement but not necessarily at a fast clip.”
Asked about Obama’s proposal for an increase in the minimum wage, Buffett suggests both sides of the argument have merit.
“I’ve never been able to figure out necessarily whether it’s a plus,” he says. “It drives certain people out of the labor force, and on the other hand, it does have an effect on rates at the lower level. I do not know if I were president whether I’d take that position or not.”
Buffett noted that he once worked for the minimum wage. “And I was glad that minimum wage was 75 cents an hour instead of 60 cents.”
Economists agree with Buffett’s forecast of a continued moderate expansion. A recent Wall Street Journal survey of 52 economists produced an average prediction of 2.4 percent GDP growth for this year.
“We’re definitely in a better place now than at this time last year,” Arun Raha, an economist at Eaton Corp., tells The Journal. She cited strength in auto sales and housing as supportive for the economy.
But there are headwinds too. “The biggest surprise is that under the Obama administration, reductions in federal-government spending have begun and will continue,” Allen Sinai, chief economist of Decision Economics, tells the paper.
“Though not a big portion of real GDP, it was surprise. This is now a theme going forward. It’s going to be hard on a GDP basis to get out of that rut, now that fiscal restraint is entrenched and will continue.”
For more on this story go to:
