Travelers Cos. Chairman and Chief Executive Officer Jay Fishman said that businesses are curbing spending and hiring because U.S. lawmakers haven’t addressed fiscal imbalances the country faces in the next decade.
“The best thing that could happen right now is a bipartisan solution” to the nation’s mounting debt and widening deficit, Fishman, 59, said in an interview for Bloomberg Radio’s “A Closer Look With Arthur Levitt” to be aired next month. “The sense of gloom and despair would lift and, in fact, businesspeople would be more optimistic.”
Executives including BlackRock Inc. (BLK:US)’s Laurence D. Fink and Pacific Investment Management Co.’s Mohamed El-Erian have warned that Congress’s inaction on fiscal policy will hurt economic growth in the world’s largest economy. Businesses see challenges beyond the end of this year, when the U.S. faces a so-called fiscal cliff of automatic spending cuts and tax increases, said Fishman, whose New York-based firm provides insurance coverage to almost a million companies in the country.
“Most businesspeople are worried about the intermediate term,” he said. “They understand there will be some fiscal response to the cumulative debt and deficit situation we’re in. And that response will be challenging to the economy, whether it’s a year from now or two years from now, but it’s coming. And so they hunker down.”
President Barack Obama’s administration forecast July 27 that the country’s budget deficit will be $1.21 trillion this year. Government spending exceeded revenue by more than $1 trillion annually since 2009 as the U.S. sought to stimulate the economy and spur job growth after the longest recession in almost eight decades.
Gross domestic product, the value of all goods and services produced, slowed to a 1.5 percent annual rate in the second quarter from 2 percent in the first three months of the year as limited job growth prompted Americans to curb spending, according to U.S. Commerce Department data released July 27. The jobless rate has remained above 8 percent since January 2009.
Fink, 59, who heads the world’s largest asset manager, said last month that U.S. lawmakers need to provide more certainty about spending and tax policy and have been “snoring away” as European leaders grapple with deficits.
“It’s all about confidence,” he said in a July 3 interview on Bloomberg Television’s “Market Makers” with Erik Schatzker and Trish Regan. “No one is investing for tomorrow.”
El-Erian, 53, CEO of the world’s largest bond fund, said July 2 that inaction on the fiscal cliff could cut economic growth by about 4 percent.
Congressional leaders said July 31 that they will vote in September on a $1.047 trillion, six-month measure that would keep the government operating after the start of the fiscal year on Oct. 1. That would give lawmakers more time to figure out how to avoid spending cuts and tax increases measured by the Congressional Budget Office at $607 billion due to begin Jan. 1.
Fishman echoed billionaire investor Warren Buffett, who said last month that municipal bankruptcies in California have lifted some of the stigma of towns and cities filing for court protection from creditors. Travelers is among the largest investors in state and local debt, with $39 billion in the securities at the end of June, according to a regulatory filing.
“Philosophically, you’ve got to feel not quite as good today as you did a year ago,” Fishman said. “Whatever you own, you don’t feel as good today as you did a year ago.”
Cities and towns across the U.S. have been strained by rising costs for labor, including pensions and retiree health benefits, while the longest recession since the 1930s crimped tax revenues.
Fishman said Travelers has selected safe debt and owns “the right bonds in the right places.” The muni portfolio had a net unrealized gain of $2.8 billion as of June 30.
Levitt, 81, is a former chairman of the Securities and Exchange Commission. He is a director of Bloomberg LP, parent of Bloomberg News.
To contact the reporters on this story: Noah Buhayar in New York at email@example.com; Steven Norton in New York at firstname.lastname@example.org.
To contact the editor responsible for this story: Dan Kraut at email@example.com