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Why Businesses Aren't Investing in the US: CEO

Friday, 27 Apr 2012 | 8:58 PM ET
Source: International Paper

Businesses aren’t investing in the United States because of a lack of consumer demand, International Paper CEO John Faraci said Friday.

“I think this was all about consumer spending and demand. You know, the problem we have is there’s inadequate demand to create jobs. We know how to respond when there is demand,” he said on CNBC’s “The Kudlow Report.”

The U.S. Commerce Department estimated that gross domestic product expanded at a 2.2 percent annual rate in the first quarter, falling short of analysts’ expectations it would grow 2.5 percent and slowing down from the fourth quarter’s 3-percent rate.

Consumer spending has been damped partly because the nationwide housing market has yet to recover, he said.

“Until it does, we’re not going to see the kind of consumer spending you would expect coming out of a recovery,” he said.

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Asked again by host Larry Kudlow why companies were not investing, Faraci once more pointed to demand that has not materialized.

“Productivity has obviously been very good, so we’re creating more capacity with less resources. But at the end of the day, this is really about responding to demand, whether it’s automobiles or packaging products we make for a whole variety of industries and end users,” he said.

“We’re investing in India. We’re investing in Russia. We’re investing in Brazil. Not to ship products back here but because demand exists in those markets,” he said. “At the end of the day, this is really about responding to demand. We’re not going to go out and invest unless there’s demand.”

Earlier in the day, International Paper posted a better-than-expected quarterly profit on strong sales of shipping boxes and paper.

“I feel very good about the rest of the year,"Faraci told Reuters. "It’s not a macro-bullish story. It’s a macro-positive story.”

Don Peebles, CEO of Peebles Corp., a real estate developer, said that housing remains a drag on the economy.

A strong market, cheap money and high leverage fueled growth before the financial crisis, he said.

“What’s happening now is the housing market is not able to carry the economy,” he said. “Americans’ wealth has been decimated as a result of the lost value in their homes.”

Peebles also acknowledged, as the only small-business owner, that rising health-care costs and uncertainty over taxes were a challenge. But, he added, the No. 1 issue was access to capital.

Mort Zuckerman, founder of real estate investment trust Boston Properties and publisher of the New York Daily News and U.S. News & World Report, took aim at the slow growth.

Zuckerman blamed the housing-market collapse, as well as health-care costs and what he called an “inadequate, badly structured stimulus program.”

“Clearly, you should’ve had a GDP growth now of somewhere between 6 and 8 percent, with the degree of monetary and fiscal stimulus,” he said.

Tune in:

"The Kudlow Report" airs weeknights at 7 p.m. ET.

Questions? Comments, send your emails to: lkudlow@kudlow.com

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  • Lawrence Kudlow is a CNBC senior contributor. Previously, Kudlow was anchor of CNBC's prime-time program "The Kudlow Report"