The Economic Policy Uncertainty Index Is Signaling Bad News For The Markets And The Economy

*Editor’s Note: Earlier we referred to the to Economic Policy Uncertainty Index as proprietary to RBC Capital Markets.  This was incorrect.  It was actually developed by Scott Baker (Stanford), Nick Bloom (Stanford), and Steven Davis (U. Chicago, Booth).  The best part about this correction is that we now know that the index is freely available and regularly updated at

RBC’s Myles Zyblock just published his latest assessment of the economic policy uncertainty index.

The index is not quite as high as it was at the height of last year’s debt ceiling fight, but it is on its way up.  And it could be headed much higher.

“Once again, we will be entering a period of heightened political uncertainty by late summer,” writes Zyblock.  “A partisan fight over the federal debt ceiling seems likely. This will be compounded by presidential and congressional elections, the fiscal cliff and prospects for some monumental battles over taxation.”

And all of this is bad news for both the economy and the financial markets.

“Regardless of European or Fed action, uncertainty created by D.C. might negatively impact consumer spending, hiring, and investment decisions thereby capping a budding rally in share prices before summer‟s end.”

Here’s what the chart looks like:

rbc economic policy uncertainty

Photo: RBC Capital Markets

Here’s how Zyblock recently described the index:

An index of economic policy uncertainty created by Professors Bloom (Stanford) and Davis (Univ. of Chicago) recently rolled over from a very high level. The indicator is consists of: (i) the frequency of references to economic uncertainty and policy in Google; (ii) the number of Federal tax code provisions set to expire in future years; and (iii) the extent of disagreement among economic forecasters over future Federal government purchases and CPI inflation.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.