Uncertainty Surges

The term "uncertainty" is constantly being heard or seen repeatedly on radio, television, newspapers, and social media in reference to the state of economy, the agricultural economy being no exception. The Cambridge Dictionary defines uncertainty as "a situation in which something is not known, or something that is not known or certain." The current economic angst seems to center on policies and news emanating from Washington-the on-and-off decisions on tariffs, the Department of Government Efficiency's funding cuts and lay-offs, and the deportation of undocumented immigrants to name a few. For agriculture, trade policy is the most anxiety inducing, but pending decisions on the farm bill, biofuels policy, and federal tax policy are creating uncertainty as well.

The rise in uncertainty is being captured by indexes created to measure it. Figure 3 provides an example. It comes from the website Economic Policy Index, created by three economists from Northwestern University, Standford University, and the University of Chicago. The index tracks media coverage, tax policies, and disagreement amongst economic forecasters to create a measurement of the level uncertainty over the economy. There is always an underlying level of uncertainty regarding the economy as the future can never be perfectly known. However, there are times when the level of uncertainty clearly surges. The COVID outbreak, when many sectors of the economy shut down, was one such time. The period ranks as the most uncertain time measured by this index. However, the index has registered another surge in recent months and has hit levels not seen in over 40 years except for the COVID pandemic. In fact, the index today is even higher than it was during the financial crisis and Great Recession in 2007-2009.

FIGURE 3. MONTHLY U.S. ECONOMIC POLICY UNCERTAINTY INDEX

Source: Economic Policy Uncertainty

Uncertainty is an impediment to economic growth. Businesses, including agricultural producers, tend to pull back from making investments when there are high levels of uncertainty. Similarly, consumers delay purchases, preferring instead to wait-and-see. A slumping stock market, deteriorating consumer confidence, and reducing agricultural producer sentiment suggest today's uncertainty is affecting investor, producer, and consumer confidence. The next few months will tell whether the rise of uncertainty and its effects on producer and consumer behavior is just a blip on the radar and more prolonged.