It’s a familiar refrain these days among business owners and policy wonks – uncertainty in Washington isn’t good for business.
I’ve heard it many times among big businesses and small ones. You may have heard it, too, and may share the sentiment. But is it true?
In a nutshell, yes, according to research released Tuesday by the Federal Reserve Bank of Cleveland, which sought to go beyond the talk to look at some hard data on political uncertainty and business trends.
“To contribute some to the discussion, we investigated the statistical association between data on small-business plans to hire and make capital expenditures and a measure of policy uncertainty,” the report’s authors said.
While businesses hire less and spend less during economic downturns, they also appear to spend and hire less when policy uncertainty levels are high – even if the economy isn’t in a slump, they said.
“We cannot say that ‘policy uncertainty’ causes small-business hiring and capital expenditure plans to decline,” the authors said. “That is because a purely statistical model cannot identify fundamental causes. We can say that the correlations between the two are strong enough to reject the argument that policy uncertainty is irrelevant for currently weak small-business expansion plans.”
Politicians should take heed, they said: “In our view, policymakers should take seriously the widespread anecdotal reports that policy uncertainty is adversely affecting small business owners’ expansion plans.”
The report was by Mark Schweitzer, the bank’s senior vice president and research director, and Scott Shane, a professor of entrepreneurial studies at Case Western Reserve University’s Weatherhead School of Management.