PUBLISHED July 28, 2026
According to “The Economic Situation: June 2026”, published by the Mercatus Center on 1 June 2026, the Department of Commerce’s second estimate of real GDP growth for the first quarter of 2026 came in at an improved 1.6 percent, led by growth in investment and exports — an increase following the fourth quarter’s lower 0.5 percent growth, which had reflected an extended government shutdown and sharp reductions in government employment. The government shutdown referenced in the report had produced a measurable, quantifiable drag on the preceding quarter’s growth figures, making the subsequent first-quarter improvement partly a mechanical recovery from that specific, temporary disruption rather than purely reflecting an underlying acceleration in private-sector economic activity.
Manufacturing Employment Tells a More Cautious Story
In January 2026, total manufacturing employment stood at 12.59 million workers, a bit shy of where it stood a year earlier, according to the report — a modest year-on-year decline that complicates any narrative of a straightforwardly strengthening industrial sector, even as broader GDP figures improved. This modest but persistent decline in manufacturing headcount, even as broader economic indicators showed improvement, is consistent with a longer-running structural trend in which American manufacturing output has grown even as manufacturing employment has continued its multi-decade relative decline, driven substantially by automation and productivity gains within the sector.
It’s the Uncertainty, Not the Tariffs Themselves
Deloitte’s 2025 manufacturing survey, cited in the Mercatus analysis, found more than three-quarters of manufacturers consistently cited trade uncertainty as their top concern — a finding the report frames sharply: living with known tariffs is one thing; not knowing what policy comes next is “the real wrecking bar” for capital investment decisions. This distinction, between the cost of a known, stable policy regime versus the cost of genuine unpredictability, echoes a broader body of academic economic research on policy uncertainty that has consistently found unpredictability itself imposes measurable economic costs distinct from and additional to the direct costs of whatever specific policy is eventually implemented.
The report draws on the daily Economic Policy Uncertainty Index, built from the frequency of certain words in ten major US newspapers, as a tool used in statistical analysis to explain capital investment and GDP growth — periods of high uncertainty, the report notes, correspond with pauses and lower investment in core capital goods. This index, developed originally by academic economists and now widely tracked by market participants and policymakers alike, has proven a genuinely useful real-time gauge precisely because it captures shifts in sentiment and expectations well before those shifts show up in slower-moving official economic statistics such as GDP or investment figures themselves.
The report draws on the daily Economic Policy Uncertainty Index, built from the frequency of certain words in ten major US newspapers, as a tool used in statistical analysis to explain capital investment and GDP growth — periods of high uncertainty, the report notes, correspond with pauses and lower investment in core capital goods. This index, developed originally by academic economists and now widely tracked by market participants and policymakers alike, has proven a genuinely useful real-time gauge precisely because it captures shifts in sentiment and expectations well before those shifts show up in slower-moving official economic statistics such as GDP or investment figures themselves.
Mercatus places the current moment within a much longer historical arc, noting that the United States became the world’s dominant economy by 1860, and its lead over China, the world’s second-largest economic power, has widened since 2020 — a reminder that near-term trade-policy volatility, however consequential, is playing out against a backdrop of enduring US economic dominance. This long historical framing serves a specific rhetorical purpose within the report, situating the current period of trade policy uncertainty as a genuinely consequential but ultimately bounded episode within a much longer trajectory of sustained American economic pre-eminence rather than a threat to that underlying position itself.
For global auto producers and other capital-intensive industries, the report singles out the unpredictability of policy — not knowing what changes might come next month or next year — as the factor most directly undermining planning and investment decisions, more so than the specific tariff levels currently in effect. The automotive sector’s particularly acute sensitivity to this dynamic reflects the industry’s characteristically long investment horizons, since decisions about new plant construction or major retooling typically require multi-year commitments that are considerably harder to justify when the underlying trade policy environment those investments depend upon remains genuinely unsettled.
The Mercatus Center’s analysis makes a case that deserves wider attention: in 2026’s environment, policy predictability itself functions as an economic input, almost as tangible as capital or labour. Manufacturers, the report suggests, could adapt to a stable, even elevated, tariff regime far more readily than they can to genuine ongoing uncertainty about where policy heads next. Until that uncertainty resolves — in either direction — the pause in core capital investment that the Economic Policy Uncertainty Index is currently signalling seems likely to persist, a conclusion the report’s authors frame not as a partisan critique of any specific policy but as a straightforward empirical observation about how businesses actually respond to different types of policy risk.
Mercatus places the current moment within a much longer historical arc, noting that the United States became the world’s dominant economy by 1860, and its lead over China, the world’s second-largest economic power, has widened since 2020 — a reminder that near-term trade-policy volatility, however consequential, is playing out against a backdrop of enduring US economic dominance. This long historical framing serves a specific rhetorical purpose within the report, situating the current period of trade policy uncertainty as a genuinely consequential but ultimately bounded episode within a much longer trajectory of sustained American economic pre-eminence rather than a threat to that underlying position itself.
For global auto producers and other capital-intensive industries, the report singles out the unpredictability of policy — not knowing what changes might come next month or next year — as the factor most directly undermining planning and investment decisions, more so than the specific tariff levels currently in effect. The automotive sector’s particularly acute sensitivity to this dynamic reflects the industry’s characteristically long investment horizons, since decisions about new plant construction or major retooling typically require multi-year commitments that are considerably harder to justify when the underlying trade policy environment those investments depend upon remains genuinely unsettled.
The Mercatus Center’s analysis makes a case that deserves wider attention: in 2026’s environment, policy predictability itself functions as an economic input, almost as tangible as capital or labour. Manufacturers, the report suggests, could adapt to a stable, even elevated, tariff regime far more readily than they can to genuine ongoing uncertainty about where policy heads next. Until that uncertainty resolves — in either direction — the pause in core capital investment that the Economic Policy Uncertainty Index is currently signalling seems likely to persist, a conclusion the report’s authors frame not as a partisan critique of any specific policy but as a straightforward empirical observation about how businesses actually respond to different types of policy risk.
