Implications of rising policy uncertainty for Q4 US growth

Economic policy uncertainty is rising earlier than normal for a presidential election year, and this has implications for the Q4 growth profile. Because of heightened uncertainty, we will adjust our forecast for Q4 business investment in nonresidential structures and equipment lower as we update the September baseline. The recent rise in uncertainty threatens to reduce Q4 growth in nonresidential structures by 4.3ppts and in equipment spending by 3.4ppts.

What you will learn:

• Business investment is the most sensitive area of the economy to policy uncertainty, but personal consumption is also at risk, albeit to a lesser extent. Within consumer spending, personal outlays on durable goods have historically responded the most to changes in uncertainty.
• The latest jump in uncertainty could shave 2.8ppts off Q4 growth in real durable goods consumption, but we are skeptical that a hit of this magnitude would materialize in the next quarter. A lot of the recent uncertainty is tied to fiscal policy, where changes after the election will have an impact on household pocketbooks. However, any such fiscal policy changes that directly impact households will not occur until 2026.
• Policy uncertainty seems to have little impact on residential investment, and though incoming data on home sales were unfavorable, we will nudge our forecast for Q4 residential spending higher as lower mortgage rates and higher supply should rekindle sales activity next quarter.