Economic Impact of Election Uncertainty

By Howard Schneider

WASHINGTON (Reuters) – Nearly a third of company financial officers report that risks related to the Nov. 5 U.S. presidential election have led to delays or reductions in investment plans, posing a potential short-term setback to economic growth.

In a nationwide survey conducted by the Atlanta and Richmond Federal Reserve Banks in collaboration with Duke University's Fuqua School of Business, 21% of 479 responding CFOs indicated that their companies postponed investments due to "uncertainty related to the upcoming U.S. Presidential and Congressional elections."

Additionally, over 15% had scaled back their plans. Companies could select multiple options, leading to a total of 30% acknowledging that election-related uncertainty affected their investment plans. Conversely, just over 64% reported no impact.

According to Atlanta Fed economist Brent Meyer and survey director Daniel Weitz, firms most affected by election uncertainty appeared less optimistic about future prospects and were less inclined to invest in expansion or asset upgrades. These companies also focused more on investments aimed at cost reduction, rather than growth.

Furthermore, those firms did not anticipate recuperating the slower growth experienced this year by 2025, Meyer and Weitz noted.

Despite these concerns, the survey revealed overall optimism among CFOs, with 69% expressing confidence in their own company and 60% in the wider U.S. economy. These figures remained relatively stable compared to the second quarter.

However, the survey indicated that divisive political dynamics, coupled with the stark choice between Vice President Kamala Harris (the Democratic candidate) and former President Donald Trump (the Republican challenger), had influenced investment decisions.

While the survey did not seek partisan views about which candidate would better serve the economy, it did identify key areas of concern among CFOs. Approximately 60% labeled "regulatory policy" as their primary concern in light of the Nov. 5 election, with 59% selecting monetary policy and 54% choosing corporate tax policy.

For over a year, monetary policy has dominated CFO concerns, particularly in relation to the Federal Reserve's efforts to maintain restrictive interest rates to combat high inflation. The Fed began reducing rates last week. Interestingly, inflation-related worries have fallen, with only 8% citing it as their top concern.