The nascent US recovery could falter because businesses are still reluctant to invest in new equipment and technology, the head of global delivery and logistics company FedEx has warned.
“Business investment went up somewhat in the fourth quarter but is far below what it ought to be in a cyclical recovery like this,” Fred Smith, chairman and chief executive of FedEx, told the Financial Times.
He added that companies were being held back by continuing “uncertainty” over the outlook.
During the downturn many companies, including FedEx, cut their capital expenditures in response to falling demand, moves that in turn intensified the drop-off in economic activity. The levels have yet to recover.
Boosting investment spending was crucial to catalysing a sustainable recovery, Mr Smith said, because it created jobs. When people were worried about unemployment, they tended to spend less, undercutting a driver of the economy.
Mr Smith’s views on macroeconomic issues are widely sought because FedEx is seen as a bellwether of the global economy with connections to most big companies and insights into their planning. Last month Barack Obama, US president, singled out Mr Smith, a long-time supporter of Republican Senator John McCain, as the chief executive he most admired, citing his ability to think “long term”.
FedEx, which reports its fiscal third-quarter results next week, expects US growth to be healthy in the first and second quarters as companies cut inventories less aggressively and even begin to rebuild stocks.
Such actions propelled US gross domestic product growth to its highest rate in six years for the fourth quarter of 2009.
Government data showed that the economy expanded at an annualised rate of 5.9 per cent between October and December. But Mr Smith said growth would probably slow as the restocking fillip passed.
“In my opinion, for consumers to spend you have to get business investment up because that is what creates the jobs,” Mr Smith said.
“I don’t think you will see substantial increases in employment until you see substantial increases in business investment.”
To help encourage businesses to start investing again, Mr Smith has been urging politicians to change the tax rules on capital expenditures to allow companies to recoup money earlier than in the past.
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