• Business Confidence Rebounds to Pre-Pandemic Levels

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    August 22, 2020

    Business Confidence Rebounds to Pre-Pandemic Level

    Business investment is a key factor driving economic growth. Unfortunately, business investment has been declining recently, even before the pandemic. Getting businesses to invest again will be important for recovery from the recession and after.

    Business investment had been growing slowly in the second and third quarter of 2019, but then fell in the fourth quarter. It continued declining in the first and second quarter this year—significantly by more than 7% in the second quarter. This was the first time it had fallen three consecutive quarters since late 2007 and early 2008, during the Great Recession.

    The drop in investment tracks an overall decline in business confidence since late 2018 and through late 2019. It was improving in early 2020, before the pandemic struck. Business confidence has since rebounded to where it was before the Great Pause of the economy.

    Big picture: Businesses crave certainty. It allows them to plan long-term and make investments to make those plans a reality. During the time when confidence was falling sharply, the global trade war was escalating, especially with China. This was causing businesses to be uncertain about the future. Confidence only rebounded when the U.S. and China paused the trade war in late 2019.

    What’s needed: Businesses will invest more when their confidence is strong. The end of the pandemic will help with that, of course. But so too will a stable policy environment on the trade front. A stable policy environment in other areas, such as tax and spending, would also help.

    —Curtis Dubay, Senior Economist, U.S. Chamber of Commerce