This year’s election is shaping up to be particularly ugly for the business world, with two presidential candidates who could not be further apart in their approaches to taxes and regulation.
On top of that, control of Congress is also up for grabs, which could significantly hurt or help the chance that Vice President Kamala Harris or former President Donald Trump could see their agendas for the country unfold.
That’s helped push uncertainty among small business owners to an all-time high since the nearly 40-year inception of a monthly survey the National Federation of Independent Business conducts to gauge small business sentiment.
Anxiety about the election has forced businesses of all sizes into an uncomfortable holding pattern that ultimately could negatively impact their bottom lines and the US economy as a whole, experts say.
Nearly a third of people in financial decision-making roles said they “postponed,” “scaled down,” “delayed indefinitely,” or “permanently canceled” their short-term and long-term investment plans because of election uncertainty this year, a recent Federal Reserve survey shows. These leaders predict their firms’ revenue and employment growth this year will be lower than that of firms whose investment plans aren’t impacted by the election.
That’s according to the latest quarterly CFO survey from the Atlanta and Richmond Federal Reserve banks, in conjunction with Duke University’s Fuqua School of Business. The survey panel includes leaders from smaller US businesses as well as at Fortune 500 companies across all major industries nationwide.
The scale of firms whose investment plans are impacted by election uncertainty is “pretty remarkable” compared to prior elections, said Daniel Weitz, survey director at the Atlanta Fed. This could “have a very meaningful impact” on the trajectory of the overall economy, he said, though it could prove to be temporary.
The Fed’s Beige Book, a quarterly collection of survey responses from businesses compiled by the 12 regional Fed banks published Wednesday, highlighted a wide range of businesses that are suffering because of election uncertainty.
For instance, manufacturing firms surveyed by the Cleveland Fed reported some producers were holding off on placing new orders. The regional Fed bank also noted that two commercial builders said, “Many companies were planning to wait until after the general election to undertake construction projects.”
Meanwhile, the Richmond Fed reported that a textile manufacturer surveyed
“expected tepid demand because customers were buying cautiously until the new year due to the ‘usual nervous period’ ahead of elections.”
Even leaders of nonprofit organizations said their operations were taking a hit because “economic and election uncertainty has led to hesitancy to give among some donors,” the Dallas Fed reported.
Leading up to prior presidential elections, firms were much less likely to experience these effects from the uncertain outcome, said Brent Meyer, assistant vice president and economist at the Atlanta Fed. The difference now is Harris’ late entry into the race and how close she’s polling to Trump, he said.
But the blowback that businesses are facing from the election uncertainty should subside once the policy path ahead becomes more clear, at which point we could start to see a rebound in hiring and capital investment businesses make, Meyer told CNN.
That’s why he said people should be careful not to “over-interpret weakness (in the economy) in the moment and over-interpret strength next year.”
A cocktail of uncertainty
The election is undeniably playing a big role in businesses’ uneasiness, but that’s not the only thing unsettling them. They’re also weighing the uncertain path of interest rates since the Federal Reserve began cutting last month, as well as the pending lapse of major provisions of the 2017 Tax Cuts and Jobs Act.
The combination of these three major unknowns is shaping small business owners’ uncertain outlooks, said Holly Wade, executive director of the NFIB Research Center. “We’re still seeing small firms telling us that their rates haven’t eased up as much as some would have expected,” she told CNN, referring to the interest rates they’re paying to borrow money.
That’s why the share of small business owners making capital investments is dwindling, Wade said, citing a September NFIB survey, which also noted that more firms are “reducing inventories than adding to them.”
If the Fed continues to cut rates at upcoming meetings, as expected, that would reduce borrowing costs and could reignite investment plans no matter which party scores more victories this election, Wade said.
