How Economic News Consumption Can Create Greater Uncertainty

Yu-Ting Chiang, an economist with the St. Louis Fed, discusses macroeconomic uncertainty during a Timely Topics Podcast episode.

When economic growth starts to falter, the average person tends to keep a closer eye on macroeconomic news. This could simply mean searching for the latest updates on unemployment or spending more time watching videos about energy and food prices.

An individual’s heightened attention to economic news doesn’t impact the broader economy. But what happens when that level of scrutiny is multiplied by millions?

In a June 2023 Timely Topics Podcast episode, St. Louis Fed economist Yu-Ting Chiang discussed his research examining how increased consumption of economic news during an economic downturn can generate greater uncertainty among firms and consumers.

Why do people pay more attention during an economic downturn?

“The reason people pay more attention is that they want to avoid making mistakes,” he said. “And during economic crisis, or downturns, making mistakes are more costly.”

He explained that the information people learn from the news changes how they think about the economy, which impacts how they react. For example, he pointed out that certain news could affect a firm’s decision on how many people to keep on its payroll or a person’s decision to buy a new house.

“When everyone is paying attention to the same event at the same time, that generates larger response in aggregate,” he said.

Though everyone is reacting to the news, they’re also reacting to slightly different observations and perceptions about what’s going on with the economy, which means everyone is reacting in a slightly different way, he added.

“When that happens, each of them may face higher uncertainty about what’s going on in the economy because they know they are reacting, and they also know other people are reacting as well, but they don’t know exactly how other people are reacting,” he said.

So what is the impact of this heightened uncertainty?

When households or businesses face more uncertainty, they usually postpone their purchases or investment, and that has a large impact on the economy, Chiang said, adding that when things are volatile, it’s difficult for the policymaker to design policy or responses to new events.

While this economic impact of uncertainty is well understood, what is less known is why people may face more uncertainty initially during a crisis, he stated.

Chiang said his research helps explain this cycle of increased uncertainty by focusing on people paying more attention to macroeconomic news.

For more on Chiang’s thoughts, listen to the podcast. (Transcript available here.)

For more on Chiang’s work related to macroeconomic uncertainty, see his 2022 working paper “Attention and Fluctuations in Macroeconomic Uncertainty.”