Recession watch: US policy uncertainty hits second-highest level since 1985 as tariffs and sentiment deteriorate
Mar 14, 2025
Key Points
- US policy uncertainty hits its second-highest level since 1985, with only the COVID-19 pandemic onset ranking higher, as companies freeze capital spending waiting to learn which products face tariffs and at what rates.
- Sales of miniature liquor bottles surge as a recession indicator, signaling consumers are shifting from party-sized to cheapest options and cutting discretionary spending despite no major structural crack in the economy.
- Business confidence declines as references to 'soft landing' collapse in earnings calls, yet no analyst has articulated a crisp thesis for why recession is imminent beyond uncertainty itself creating drag on investment.
Summary
US policy uncertainty hits second-highest level since 1985 as tariffs and sentiment deteriorate.
The policy uncertainty index, based on mentions in US news articles, recently hit its second-highest level since 1985. Only the early days of the COVID-19 pandemic saw higher readings. Companies face whiplash over which products will face tariffs and at what rates. One founder shifted manufacturing to Canada to avoid China tariffs, only to get hit anyway. The result is that businesses in wait-and-see mode are not investing in new manufacturing capacity, which slows economic growth.
White House officials have suggested the economy might need a "detox period," in Treasury Secretary Scott Bassant's words. At the same time, some Trump policies—less regulation, tax cuts—could spur business investment and hiring. The data remain mixed. Small business uncertainty is elevated, though it was already rising before Trump took office. References to "soft landing" in corporate earnings calls have collapsed, pointing to declining business confidence. Consumer sentiment is dropping and delinquency rates are rising, though both trends predate the current administration.
Miniature liquor bottles, or "nips," are flying off store shelves. Whiskey and tequila makers report surging sales of 50ml and 375ml bottles, a historically reliable recession indicator. When consumers shift from party-sized bottles to the cheapest options, it signals financial stress and reduced discretionary spending.
Vice President JD Vance said yesterday that the economy's fundamentals remain strong and that fear and sentiment can drive slowdowns even when underlying conditions are sound. There is no obvious bubble or structural crack in the US economy the way there was in 2008 or the dot-com era, and no major analyst has articulated a clear thesis for imminent recession. Yet uncertainty itself about tariff rates, immigration enforcement, and regulatory direction creates economic drag by making it harder for businesses to commit capital.