Adverse Uncertainty, Limited Relief: U.S. Industrial Output under Economic Policy Uncertainty

Abstract

Using monthly U.S. data from 1985 through 2025, we estimate sign-dependent local projections to study whether industrial production responds asymmetrically to changes in economic policy uncertainty. Rising uncertainty is followed by broad industrial weakness, with the largest relative response in business-equipment output, a category closely tied to deferrable capital spending. At the 24-month horizon, an event-sized EPU increase is followed by a larger decline in business equipment than in total industrial production, manufacturing, or utilities. Measured declines in EPU do not generate equal-and-opposite rebounds. Direct relative-output projections show that business equipment underperforms broader and lower-exposure benchmarks after EPU rises. The evidence points to a timing-sensitive industrial margin in the response to policy uncertainty rather than a symmetric aggregate response.

Figure 1: Core Output Responses

Business equipment and manufacturing output responses to positive and negative uncertainty changes

Citation

Orlowski, Lucjan T., and Nicholas R. Pusateri. 2026. “Adverse Uncertainty, Limited Relief: U.S. Industrial Output under Economic Policy Uncertainty.” Working Paper. URL: https://nicpusateri.com/adverse-uncertainty.

@article{pusateri2026adverse,
  title={Adverse Uncertainty, Limited Relief: U.S. Industrial Output under Economic Policy Uncertainty},
  author={Orlowski, Lucjan T. and Pusateri, Nicholas R.},
  journal={Working Paper},
  year={2026},
  url={https://nicpusateri.com/adverse-uncertainty},
  }