Chair Powell, in his post-FOMC meeting press conference 
last week, noted that "Surveys of households and businesses ...report a sharp decline in sentiment and elevated uncertainty about the economic outlook, largely reflecting trade policy concerns. It remains to be seen how these developments might affect future spending and investment."
Indeed, uncertainty over trade policy has spiked to historic levels in recent months across a variety of measures . Going back to that press conference to hear from Chair Powell again, "There's so much uncertainty. If you talk to businesses, or market participants, or forecasters, everyone is just waiting to see how developments play out..." It's precisely this waiting to see how "developments play out" that can lead businesses, en masse, to pull back on capital investment and hiring.
To assess this concern, we put special questions to nearly 1,000 business executives in the latest Survey of Business Uncertainty, which was fielded from April 14 to 25. We first asked, "How has uncertainty about tariffs, taxes, government spending, monetary policy, or regulation affected your firm's plans for hiring [investment] over the next 6 months?" Forty percent of the executives plan to scale back hiring at their firms due to policy uncertainty, while 45 percent anticipate pulling back on capital investment for the same reason. Only a small percentage plan to ramp up hiring and investment in response to policy uncertainty (see the chart below).
Manufacturing firms, as well as those operating in the trade and transportation sectors, reported a somewhat more broad-based pullback of investment in particular. Just over 50 percent of durable and nondurable manufacturers and slightly less than half of all retail trade, wholesale trade, and transportation firms plan to scale back investment over the near term.
We also investigated which sources of policy uncertainties are weighing most heavily on the minds of execs. If a respondent indicated either pulling back or ramping up hiring or investment due to policy uncertainty, we asked, "What is your firm's top concern with respect to uncertainty affecting your firm's hiring [investment] plans over the next 6 months?" Here, tariffs are overwhelmingly the top source of uncertainty (see the chart below). Monetary policy ranks a distant second, followed by government spending and regulation. Perhaps unsurprisingly, manufacturing firms and those in the trade and transportation industries also more frequently cited tariffs as their top source of policy uncertainty.
Finally, we asked business executives how much policy uncertainty would lead them to alter investment and hiring plans at their firms. Averaging over all survey responses, businesses plan to slow hiring by 13 percent and scale back investment by 16 percent during the next six months due to policy uncertainty.
For executives anticipating hiring cuts, a large group of firms sits at minus10 percent, with a long left tail. More than 5 percent of firms plan to cut hiring by at least 90 percent—essentially imposing a hiring freeze—until key uncertainties resolve. The picture is very similar for near-term investment plans (see the chart below).
Across the firm-size dimension, the survey results noted modest variation in hiring and investment plans by firm size and industry ranging from minus 10 percent to minus 17 percent. Across industries, the mean causal impact of policy uncertainty on hiring was minus 11 percent to minus 17 percent, with the largest impact again observed on manufacturing and trade and transportation industries. For investment, the pattern is similar with a mean response range of minus 13 percent to minus 18 percent across the firm-size dimension and minus 12 percent to minus 24 percent across broad industries.
To add some context, the magnitude of these declines (at least in capital investment) are similar to what executives told us about the restraint induced by key uncertainties back in October 2020 , during the first year of the pandemic. And are much more severe than they anticipated at the onset of the war between Russia and Ukraine. These earlier results were borne out in the pattern of real business fixed investment during the late 2020–22 period, which was marked by tepid (at best) equipment and software spending and a sustained decline in structures investment.
To sum up what the survey results tell us, heightened policy uncertainty (particularly over tariffs) is leading a large share of firms to scale back near-term hiring and investment. On average, the impact of policy uncertainty is lowering hiring and investment by 13 percent and 16 percent, respectively. To paraphrase Chair Powell, businesses are in wait-and-see mode at the moment. Should uncertainty over trade policy continue to go unresolved, its dampening effect will continue to weigh on the near-term growth trajectory of the US economy.
By Jose Maria Barrero , assistant professor of finance at Instituto Tecnológico Autónomo de México Business School,
, assistant professor of finance at Instituto Tecnológico Autónomo de México Business School,
Nick Bloom , the William D. Eberle Professor of Economics at Stanford University,
, the William D. Eberle Professor of Economics at Stanford University,
Steven J. Davis , the Thomas W. and Susan B. Ford Senior Fellow and Director of Research at the Hoover Institution and Senior Fellow at Stanford Institute for Economic Policy Research,
, the Thomas W. and Susan B. Ford Senior Fellow and Director of Research at the Hoover Institution and Senior Fellow at Stanford Institute for Economic Policy Research,
By Kevin Foster, survey director in the Atlanta Fed's Research Department,
Aaron Jalca, economic research analyst in the Atlanta Fed's Research Department, and
Brent Meyer, assistant vice president and economist in the Atlanta Fed's Research Department