Business planning during political uncertainty
Monday, 18 November 2019
In June 2016 BBVA Chief U.S. Economist Nathaniel Karp, citing BBVA Research's Political Uncertainty Index, said companies large and small were adopting a “wait and see" approach ahead of the election.
Many planned to be a “little more cautious" until they knew, definitively, how things were going to pan out. A year later, Karp says uncertainty among businesses overall has decreased and optimism appears to be on the rise. "Within the business community, the perception is that things are only going to get better," he says.
Q: How is this new administration impacting businesses nationwide?
A: I see three groups of businesses. One group involves businesses in sectors where there really isn't going to be an impact. Maybe the only things that would impact them would be changes in corporate tax rates and healthcare alterations, which haven't happened yet.
Another group involves businesses that have a very positive view on the current administration because of perceived deregulation or tax cuts that may help their bottom lines. And a third group involves industries that may feel the current administration may take action that will be detrimental to their sector.
Q: What has surprised you so far?
A: One interesting thing has been the increase in optimism within the small business community. Regardless of industry, we are seeing expectations surge within that sector. The Small Business Optimism Index, which is run by the National Federation of Independent Businesses, or NFIB, is seeing incredibly high optimism numbers. We haven't seen levels this high since 2004 when we were at the peak of the housing bubble, the construction sector was booming, and we had high employment.
Q: Why hasn't it been that high since?
A: It's come down to a variety of factors, among them taxes, government requirements and quality of labor.
Q: What is happening now?
A: We didn't really see anything change in December 2016 and January 2017 because we were still with the Obama administration, but there were high expectations. Now that Trump is in office, it is impacting perception. While taxes are still an issue, government requirements have come down. Small businesses tend to be conservative and lean toward more Republican strategies. Many of them appreciate less government intervention and lower taxes. I think that is why optimism is so high now.
Q: What are we seeing in the larger business sector?
A: With big businesses, we are seeing optimism, but it is similar to what you'd see in any environment. I think many big businesses are optimistic, but there aren't any abnormal numbers there right now.
Q: Could you talk a little about BBVA's political uncertainty index?
A: Sure. We try to measure uncertainty related to the financial sector, geopolitical uncertainty or policy uncertainty. We take Google data—thousands of data points—and combine them to measure this.
Q: What are you finding now?
A: Things have gone up and down. Around the election, uncertainty levels were high. You could argue that the business community and financial sector became less worried during Trump's victory speech, where he congratulated Clinton and talked about business issues in a non-aggressive way.
From January to now, uncertainty has slowly come down. That said, even though we are at our lowest level of uncertainty for this year so far, we are still at higher levels than during the normal days of the Obama administration.
Q: How do you see things changing or staying the same in the future?
A: Within the business community, the perception is that things are only going to get better. If your sector was suffering during the previous administration, many people think that the new administration will be the end of that suffering, or at least that it won't get any worse than it was for you. But more likely than not, businesses will realize that as much as Trump isn't a "usual" president, the system is still the same and things will take time to change.
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