US Businesses Grapple with Election Uncertainty: Economic Impact Looms Large

Uncertainty surrounding the 2024 election has forced many companies to pause investments, potentially stifling economic growth as firms await clearer policy directions.

As the 2024 US election approaches, businesses across the country are feeling the effects of heightened uncertainty, with many companies freezing investments and scaling back operations. This year’s election is marked by two presidential candidates—Vice President Kamala Harris and former President Donald Trump—who offer starkly different approaches to taxes, regulation, and economic policies, leaving businesses in a state of flux. Additionally, control of Congress hangs in the balance, further intensifying concerns about the future economic landscape.

According to a recent survey by the National Federation of Independent Business (NFIB), small business uncertainty has reached an all-time high. The survey, which tracks business sentiment, underscores how deeply anxious business leaders are about the potential outcomes of the election. The economic impact of this uncertainty is already being felt. Nearly a third of decision-makers in finance roles have delayed or canceled their investment plans, according to a Federal Reserve survey, which also suggests that these delays could hurt company growth and the broader economy.

Election Uncertainty Freezes Investments

The Federal Reserve’s quarterly CFO survey, conducted in collaboration with Duke University’s Fuqua School of Business, found that a significant number of businesses have put their growth plans on hold due to election-related anxieties. The survey includes responses from leaders of small businesses and major firms alike, spanning diverse industries across the United States.

Daniel Weitz, survey director at the Atlanta Fed, noted that the number of businesses impacted by election uncertainty is “pretty remarkable” compared to previous elections. This has led to a noticeable pause in hiring and capital investment, which could, at least temporarily, hinder the broader economic recovery.

Similarly, the Fed’s Beige Book, a collection of business survey responses, revealed that manufacturers, commercial builders, and even nonprofits are experiencing slowdowns due to the looming election. Some manufacturing firms have opted to hold off on placing new orders, and commercial builders are delaying projects until after the election, hoping for more clarity. Nonprofits are also reporting declines in donations, citing economic and political uncertainty as reasons for donor hesitancy.

The Broader Economic Impact

Brent Meyer, assistant vice president at the Atlanta Fed, highlighted how this election’s impact is uniquely severe compared to prior cycles. He pointed out that Vice President Kamala Harris’ late entry into the race, along with her competitive polling against Donald Trump, has created an unusually tense atmosphere for businesses.

However, Meyer emphasized that this uncertainty will likely ease once the election results are finalized and the policy path ahead becomes clearer. He predicts that once businesses gain more confidence in the post-election landscape, a rebound in investment and hiring could follow. Still, he warns against interpreting current economic weakness as a long-term trend, noting that election-related slowdowns tend to be temporary.

Interest Rates and Tax Policies Add to Business Worries

The uncertainty surrounding the election is compounded by other pressing concerns, including fluctuating interest rates and the expiration of key provisions from the 2017 Tax Cuts and Jobs Act. Many small business owners, in particular, are feeling the pinch. Holly Wade, executive director of the NFIB Research Center, explained that businesses are struggling to access affordable borrowing despite recent rate cuts by the Federal Reserve. As a result, the share of small businesses making capital investments is shrinking, with more companies reducing inventories rather than expanding them.

Wade added that if the Fed continues to lower rates in the coming months, businesses could regain confidence and restart their investment plans, regardless of the election outcome. However, until the election uncertainty is resolved, many companies remain in a holding pattern, waiting for clarity on the policies that will shape the future of the economy.

A Temporary Slowdown with Potential for Recovery

While the election has clearly cast a shadow over US businesses, the economic slowdown it has triggered is likely to be short-lived. As Meyer from the Atlanta Fed points out, once the election is over and the policy direction is clearer, companies should feel more confident in moving forward with their plans. However, the extent of the recovery will depend on how quickly businesses can regain certainty and whether interest rates continue to fall.

In the meantime, businesses across the country remain cautious, delaying critical decisions and preparing for any potential economic shifts that may follow the election. As the country waits for the outcome, the uncertainty that currently grips the business world is likely to persist, creating ripples that may be felt in the broader economy for months to come.