NEW YORK Dec 3 An index that measures levels of
uncertainty weighing on the U.S. economy rose in November but
remained well below its record high, despite the political
standoff over the so-called fiscal cliff.
The Economic Policy Uncertainty Monthly Index, which is
calculated by academics at Stanford University and the Chicago
Booth School of Business, rose to 196 points in November, up
from 172 in October.
The outcome of November's elections, which left the
Democrats in charge of the White House and Senate, with the
Republicans in control of the House of Representatives, helped
push the index up.
The level of uncertainty remained far below its highest
reading of 244 points, reached in August 2011. That was when a
partisan dispute in Congress over the U.S. debt ceiling raised
the prospect of a debt default by the U.S. government.
"I would certainly expect our index would shoot up if
negotiations (over the fiscal cliff) go really down to the
wire," said Scott Baker, a PhD candidate at Stanford University
who is responsible for calculating the index.
A series of tax hikes and spending cuts are due to come into
effect from Jan. 1 unless lawmakers in Washington can find an
agreement on how to avert them. The uncertainty caused by the
partisan standoff has been linked to a drop in investment and
slow hiring by U.S. firms.
First devised by an academic study, the Economic Policy
Uncertainty Monthly index takes a three-pronged approach to
measuring uncertainty: it scans 10 major newspapers for the
frequency of words related to the economy and policy
uncertainty; it considers taxes which are due to expire and
which can cause doubts about possible replacement measures; and
it measures the degree of disagreement about the economic
outlook among professional forecasters.
Baker said the positive impact on the economy of any deal to
avert the fiscal cliff could be much larger than the drag caused
by the lack of agreement.
"Markets and consumers are kind of used to uncertainty and
expecting more of it," Baker said, "so a surprising compromise
and a willingness to compromise over the next few years over
different issues can have a positive impact on GDP growth and
A return to lower levels of uncertainty seen in 2006 could
add between one to two percentage points to the growth of GDP,
he said. A further increase of uncertainty of around 50 points
in the index could detract between half and a full percentage
point, he added.