Why Does Business Uncertainty Hurt the Economy?

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So businesses are uncertain about the future.

So what?

You might think that businesses can be as uncertain as they want, but if the economy is strong, that's all that matters.

Well, business uncertainty actually influences businesses behavior and therefore the economy.

Let’s start with an analogy.

You want to put some money into a project with a friend but you’re very unsure anybody will really buy what you’re selling. What are you gong to do? You’re going to hold off on buying things for the project. You might need fewer people to begin with.

That’s the crux of business uncertainty.

When businesses don’t have a clear idea of how much demand there will be for what they sell in the future, they invest less. Likely, they’re buying fewer long-term assets for production. Not immediately, but soon, they’ll cut back on hiring workers.

If enough companies do this, job growth will slow down and so will spending. Of course, this would hurt the economy.

Business certainty or uncertainty is usually tracked by a business confidence index, which tells you exactly that — how confident in the future are businesses?

The phase one trade agreement between the U.S. and China is likely to cause an uptick in business confidence.

To see how that impacts your investments, watch the quick video above. 

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