By Ben Casselman
It is an axiom heard countless times in business school lecture halls and on corporate earnings calls: Uncertainty is bad for business.
The U.S. economy is about to test that proposition like never before.
The first weeks of the second Trump administration have been a dizzying whirlwind of economic policy moves: A spending freeze was declared, then rescinded. Federal programs, and even entire agencies, have been suspended or shut down. Tariffs have been threatened, announced, canceled, delayed or enacted — sometimes in a matter of days or even hours. Measures of economic policy uncertainty have soared to levels normally associated with recessions and global crises.
Business leaders — many of whom cheered President Donald Trump’s election victory, expecting lower taxes and reduced regulation — have been left shaking their heads.
“Your guess is as good as mine what’s happening in Washington,” said Nicholas Pinchuk, CEO of the automotive toolmaker Snap-on.
“So far, what we’re seeing is a lot of costs and a lot of chaos,” Jim Farley, the CEO of Ford Motor, told investors at a conference in New York this week.
“It’s like your head is spinning with what’s coming down; you just never know,” said Chad Coulter, founder and CEO of Biscuit Belly, a chain of breakfast restaurants based in Louisville, Kentucky.
Yet for all their concerns, the three CEOs say that they are pushing ahead with planned investments and that they feel good about their prospects. So do many of their peers: Measures of business confidence soared after the election, and while there are hints that gleam has dulled to some degree, business leaders, as a group, remain upbeat.
A gauge of small-business sentiment from the National Federation of Independent Business ticked down in January but remained higher than in any month in the Biden administration.
“You’ve really got a battle between greater business optimism and greater business uncertainty, and they’re kind of opposing forces,” said Nicholas Bloom, a Stanford University professor who has studied how uncertainty affects the economy.
The costs of uncertainty
Economists in recent years have tried to study the effect of uncertainty with academic rigor, developing measures to assess the phenomenon over time and across countries. Their research has consistently found that uncertainty makes businesses more reluctant to hire and invest, and leads to lower sales — beyond the policies’ own impact.
“Uncertainty itself is harmful to business activity,” said Steven J. Davis, a Stanford economist who has studied the issue. When rules change, even in harmful ways, businesses can typically adapt, he said. But when it isn’t clear what the rules will be, businesses can find themselves in limbo.
Economic policy uncertainty has risen sharply since the election, according to an index developed by Davis, Bloom and Scott Baker, an economist at Northwestern University. The recent rise has been unusual: Past spikes have been associated with recessions, financial crises or other global developments.
“Traditional uncertainty shocks happened after negative world events,” Bloom said. “In this case, it’s almost like a deliberate move to surge uncertainty.”
That makes it hard to predict how businesses will respond. It is possible, Bloom said, that they will bet on an easing of uncertainty and will focus on the potential benefits of a Trump presidency. He noted that investors appeared mostly unconcerned by the torrent of news out of Washington: Measures of financial market volatility have generally been docile since Trump took office.
But executives are likely to be cautious about making long-term investments, Bloom said — particularly those that are hard to reverse, like moving a factory, or that take a long time to pay off, like investments in research and development.
Pulling back
Pinchuk, of Snap-on, said he already saw signs of caution among customers, which include both auto repair shops and individual mechanics. They are less interested in buying big-ticket items like tool storage boxes and diagnostic computers that cost thousands of dollars and can take years to pay off. Instead, they are buying less expensive items that they can pay off quickly.
“When we talked to them, we could tell that they weren’t going to want to embroil themselves in a three- or four-year payment scheme,” he said. “They prefer to use whatever resources they have to buy stuff where they say, ‘OK, I’ll pay it off in 15 weeks, and then after 15 weeks, I’ll do it again if things are still good.’”
In response, Snap-on has shifted to making more lower-cost items, Pinchuk said, and it has adapted to uncertainty in other ways, like moving materials and inventory into place as a hedge against potential tariffs.
“We try to prepare ourselves so that we’re not completely caught with our pants down,” he said.
