Impact of Policy Uncertainty on Economic Activity

This report analyzes the effects of rising policy uncertainty on business investment, hiring, and consumer spending. It notes that measures of policy uncertainty have exceeded levels from the first Trump administration and could increase further due to new policies and international responses to US tariffs. The report estimates a significant drag on business investment growth, projecting it to be roughly flat over the next year, with a 45% probability of a decline in capital expenditures. Hiring is also expected to be negatively impacted, with estimates suggesting a reduction of approximately 20,000 jobs per month due to trade policy uncertainty and federal spending cuts. Consumer spending is anticipated to decelerate as labor supply growth slows, and tariffs reduce disposable income. The report emphasizes the importance of monitoring economic data for signs of these impacts, particularly in capital goods orders and payroll growth across various sectors. Overall, the analysis highlights the interconnectedness of policy uncertainty and economic performance.