Volatility, Uncertainty and Bears, Oh My!

It’s been a wild ride so far this year for the economy, and there are few signs that anything will change anytime soon. Looming trade wars, government shake-ups and a general air of unpredictability from Washington have made business owners and corporate boards more than a little nervous. And that could mean rough seas for the economy.

While Wall Street is riding the volatility rollercoaster, with the Dow Jones Industrial Average and other indices swinging wildly up and down, consumers seem to be getting nervous waiting to see if things will settle down. The Federal Reserve Bank of Atlanta’s GDP Now measure has growth in the first quarter of the year down nearly 3% and its only March.

Inflation is still running above the Federal Reserve Board’s 2% target while retail sales, manufacturing production, home sales and consumer confidence are all trending down. And it’s that last one – consumer confidence – that is most troubling.

It is a truism that businesses don’t like uncertainty. It makes it harder to plan for the future and can keep CEOs and CFOs up at night. But uncertainty can be even more of a problem for consumers. Just five years ago the world was turned upside down with the Covid-19 pandemic and the ensuing economic turmoil. While it has been long enough to get over some of the financial pain of lockdowns and layoffs, the institutional memory of when things didn’t work the way they are supposed to still lingers like the remnants of a bad dream.

The beginning of a new presidential administration always brings some confusion and discomfort, even to those eagerly anticipating a change in policy. But the flood of executive orders, departmental turmoil and general uncertainty adds a layer of volatility that makes business owners uneasy and could keep consumers cutting back on expenditures.

With so much going on every day, it is difficult to get a handle on exactly how all of these new ideas and new directions will impact the economy, so the natural tendency is to sit back and wait. But for how long?

The global supply chain is only just now recovering from the aftereffects of the pandemic and the game of mutually assured tariffs is likely to upset the delicate logistical balance that keeps imports and exports moving efficiently. While many people still think of the stock market as the primary bellwether of the economy, in reality the economic system is comprised of many pieces and all of the parts have to work together. When you add the injection of artificial intelligence into the mix and new directions for cryptocurrency and financial regulation, the picture gets even more muddled.

With much uncertainty in the air, maybe the best thing we can all do is slow down, take a breath and remember not to lose sight of the forest for the trees. After all, Dorothy and her friends eventually found a way out of the woods. And maybe we can avoid those flying monkeys while we wait for things to calm down.