A recent survey reveals that an increasing number of American companies are postponing significant investments as they await the results of the upcoming presidential election. The CFO Survey, conducted by the Federal Reserve Banks of Atlanta and Richmond in collaboration with Duke University’s Fuqua School of Business, found that 30% of firms have either delayed, reduced, or canceled investment plans due to election-related uncertainty. This marks an increase from 28% in the previous quarter.
The survey, which concluded on September 6, also showed a rise in the proportion of businesses taking multiple precautionary measures ahead of the election, increasing from 6% to 11% since the second quarter. Brent Meyer and Daniel Weitz, researchers at the Atlanta Fed, noted that companies affected by election uncertainty display less optimism and are more inclined to invest in cost-cutting measures rather than expanding or maintaining capacity. These firms also anticipate slower revenue and employment growth in 2024 compared to their unaffected counterparts.
The impact of this hesitation appears to be long-lasting. While affected companies expect their revenue and employment growth to align with non-impacted firms by 2025, they do not foresee catching up entirely. The report suggests these businesses may permanently lose 1 to 2 percentage points of growth this year.
This trend aligns with anecdotal evidence indicating that many firms are in a holding pattern due to the election. An analysis by Goldman Sachs found that executives are mentioning the election in corporate earnings calls “earlier and more abruptly” than in previous election cycles. The frequency of election mentions in second-quarter earnings calls has increased by more than 5 percentage points compared to the same periods in 2020 and 2016.
The hesitancy to invest extends beyond mere caution. Companies that are scaling back investments are also preparing for reduced revenue and employment growth this year. This suggests a broader impact on economic activity and job creation in the lead-up to the election.
The survey’s findings highlight the significant role that political events, particularly national elections, can play in shaping business decisions and economic outcomes. The uncertainty surrounding the election appears to be causing a ripple effect throughout the business community, potentially slowing economic growth and job creation in the short term.
This cautious approach by businesses could have wider implications for the U.S. economy. If a substantial number of companies are delaying investments and scaling back growth plans, it could lead to a slowdown in economic activity, potentially affecting everything from consumer spending to employment rates.
The situation underscores the interconnectedness of politics and economics, demonstrating how political uncertainty can directly influence business decisions and economic performance. As the election draws nearer, it remains to be seen whether this trend of delayed investments will continue or if businesses will adapt their strategies to navigate the uncertain political landscape.
The impact of this election-related uncertainty is not limited to specific sectors but appears to be a widespread phenomenon across the business landscape. It reflects a broader concern among business leaders about the potential policy changes that could result from the election outcome and how these might affect their operations and profitability.
As the election approaches, economists and policymakers will likely be closely monitoring these trends to gauge their potential impact on overall economic growth and stability. The coming months may prove crucial in determining whether this period of caution translates into a more significant economic slowdown or if businesses will find ways to adapt and continue growing despite the political uncertainty.