Economists See Election-Induced Uncertainty Harming U.S. Economy



The White House at sunset. ENLARGE
The White House at sunset. Photo: Jason Reed/Reuters

For the first time in this election cycle, most economists surveyed by The Wall Street Journal believe uncertainty from the coming election is crimping economic activity.

While every election spurs some economic uncertainty, more than 80% of respondents to the Journal’s latest survey of economists rate the current cycle as presenting an unusual muddle. A majority—57%—said the economy has suffered, at least somewhat, as a result.

“This election introduces a Mount Everest of uncertainty,” said Kevin Swift, chief economist at the American Chemistry Council.

Economists have long believed that, in general, uncertainty has the potential to restrain consumer spending and business investment, if people and businesses have significant questions about the taxes and regulations they will face down the road. Until this month’s survey, however, the majority of economists thought even an election like this year’s didn’t rise to the level of posing a macroeconomic problem.

Views shifted after a report last month from the Commerce Department showed that business investment through June declined for the third consecutive quarter.

“Investment spending clearly shows the detrimental impact of the election,” said Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida.

Initially, many had attributed the decline to possible fallout from lower oil prices, which had crimped investment among U.S. oil producers.

But during her June press conference, Federal Reserve Chairwoman Janet Yellen noted the decline in investment was broader than could be explained by energy.

“Business investment outside of energy was particularly weak during the winter and appears to have remained so into the spring,” she said.

Data since then has confirmed that investment weakness had, indeed, continued.

The Journal surveyed 62 business, financial and academic economists from Aug. 5 to Aug. 9, though not every economist answered every question.

The respondents trimmed their forecasts for economic growth over the course of 2016. The panel now expects growth of 1.8% over the course of 2016, down from an estimate of 2% last month and 2.5% at the beginning of the year. Their forecasts for the unemployment rate were little changed.

Never have the options for policy been less well understood in an election cycle.

Amy Crews Cutts, economist for Equifax

While 1.8% growth would be another disappointment, it shows most economists think the uncertainty will crimp but not cripple the U.S. The average estimate for the odds of the U.S. entering a recession over the next year was 21%, compared with 22% last month. Still, the figure was double the estimate from a year ago.

At the heart of businesses’ uncertainty is the question of what government policy changes might occur in coming years.

“Never have the options for policy been less well understood in an election cycle,” said Amy Crews Cutts, chief economist for the credit-rating firm Equifax.

On trade, both Hillary Clinton and Donald Trump have opposed the 12-nation Pacific trade deal that the current administration negotiated, and both have expressed doubts about the two-decade-old North American Free Trade Agreement.

Mrs. Clinton has proposed higher taxes on the wealthy and corporations. Mr. Trump has proposed large tax cuts without proposals to reduce spending, a shift many economists believe would balloon the deficit.

Mr. Trump has proposed dramatic policies to curtail immigration, withdraw from trade pacts and label China as a currency manipulator, moves that by design would have far-reaching economic consequences. Mrs. Clinton is scheduled to give a speech on the economy Thursday that is expected to spell out her stances in more detail.

This year, it is also unusually tricky to gauge how their proposals would translate into actual policies.

Even if Mrs. Clinton wins the election, she seems likely to have a House of Representatives still under Republican control, which has shown little inclination to embrace the policies she has discussed thus far. Mr. Trump’s ideas could prove difficult to pass, as many of his ideas cut against the views of many congressional Republicans. Further adding to the uncertainty is the fate of the Senate, which either party could potentially win in November.

“The range of potential political outcomes is much greater in the abstract,” said Lou Crandall, chief economist at Wrightson ICAP. “The market has doubts about how that uncertainty will translate into concrete action.”

Josh Zumbrun at


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