Buffett says economy recovering but at slow rate
Warren Buffett says economy recovering at very slow rate, consumers still reluctant to spend
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OMAHA, Neb. (AP) — Billionaire Warren Buffett said Monday the economy is improving but at a very slow rate and consumers are still not spending much, so job growth will remain slow.
Buffett appeared on the CNBC cable network for three hours Monday morning — two days after releasing his annual letter to Berkshire Hathaway Inc. shareholders — and he addressed a range of topics, including health care reform and succession at his company.
Buffett said the reports he receives from Berkshire’s 80 subsidiaries don’t show much improvement. And most of Berkshire’s businesses, especially retail and manufacturing businesses, are still performing worse than they were two years ago before the height of the crisis.
“It’s getting better, but at a very, very slow rate,” Buffett said.
Berkshire owns clothing, furniture, jewelry and corporate jet firms, but its insurance and utility businesses accounted for one-third of the company’s profit last year. Its net income jumped 61 percent in 2009 to $8.1 billion largely because the value of its investments and derivatives rose sharply.
Buffett said he expects job growth will remain slow until demand recovers. For instance, Buffett said Berkshire’s Shaw Carpet and Acme Brick subsidiaries both laid off thousands of employees over the past couple years as housing construction slowed. Buffett said Acme and Shaw will definitely employ more people three years from now, but won’t necessarily hire new employees in the next six months.
“The jobs will come back, but it won’t be fast,” he said.
Buffett said health care costs are a major drain on U.S. businesses that put them at a competitive disadvantage. He said America’s health care system needs fundamental reform to attack costs because it’s not practical to continue devoting roughly 17 percent of the nation’s gross domestic product to health care.
Buffett said much of the rest of the world is paying about 9 percent of their GDP on health care and have more doctors and nurses per person.
“That kind of a cost, compared with the rest of the world, is like a tapeworm eating at our economic body,” Buffett said.
He said he hopes Congress will develop a new health care reform proposal that will restrict costs more than any of the current plans would.
“Unfortunately, we came up with a bill that does not deal with the cost system much,” Buffett said.
At Berkshire Hathaway, many investors regularly worry about the 79-year-old Buffett’s health because he will be a tough act to follow. Buffett mostly evaded questions about his successors Monday, but he did offer a few new clues.
Buffett has said the plan to replace him includes splitting his job into three parts — chief executive officer, chief investment officer and chairman.
Buffett said Monday that Berkshire’s investment duties would likely be split among three or more different managers who would report to the next CEO. Those investment managers will be in charge of Berkshire’s roughly $60 billion stock portfolio and its other investments.
Buffett, however, has said he has no plans to retire, still loves his work and remains in good health.
Buffett also said Monday that Berkshire’s culture and the principles the company follows are deeply ingrained, so Berkshire’s managers and board members would reject anyone who tried to change them.
“They think of Berkshire as something special and they’ll keep it special,” he said. “The organization would thrust out anybody that tried to go in a different direction.”
Buffett devoted much of his annual letter to Berkshire shareholders to reviewing the company’s approach to business, which includes a hands-off approach to managing subsidiaries and little effort to woo Wall Street.
Buffett emphasized those principles this year because Berkshire recently gained at least 65,000 new shareholders as part of its acquisition of the Burlington Northern Santa Fe railroad and because Berkshire recently joined the S&P 500 index. But even though Berkshire now has about 257,000 employees, its world headquarters in Omaha includes only 21 people.
Its Class B shares fell 80 cents to $79.33 in morning trading Monday while its Class A shares fell $880 to $118,920.
Berkshire Hathaway Inc.: http://www.berkshirehathaway.com
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