Board of Governors of the Federal Reserve System

Figure 1. The Upside and Downside Components of Real Economic Uncertainty

Figure 1 is a time series chart spanning from 2020 to mid-2025, showing Real Economic Uncertainty (REU) decomposed into upside and downside components. The chart displays a black line representing total REU, with stacked blue and orange bars showing the upside and downside components, respectively.

The chart shows that:

• REU peaked dramatically during early 2020 at the onset of the COVID-19 pandemic, reaching about 5 standard deviations above its historical mean
• After this initial spike, uncertainty gradually declined but remained above its historical average throughout the period
• There was a moderate increase in REU starting around mid-2024
• Throughout the entire period, the upside (blue) and downside (orange) components each contribute approximately 50% to total uncertainty
• By mid-2025, REU remains at approximately 1 standard deviation above its historical mean
• The balance between better-than-expected (upside) and worse-than-expected (downside) components remains relatively stable throughout the period

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Figure 2. The Upside and Downside of Sectoral Economic Uncertainty

Figure 2 consists of two side-by-side time series charts, both spanning from 2020 to mid-2025. Each chart shows a black line representing uncertainty with stacked blue and orange bars showing the upside and downside components, respectively.

Left panel (Trade Flow Uncertainty):

• Shows trade-specific economic uncertainty with a substantial increase in 2025
• The recent rise is dominated by upside uncertainty (blue bars), indicating trade flows have been significantly better than forecasted
• The upside component accounts for approximately 75% of total trade uncertainty in 2025
• Trade uncertainty shows more volatility compared to non-trade sectors throughout the period
• By mid-2025, trade uncertainty reaches approximately 2 standard deviations above its historical mean

Right panel (Non-Trade Economic Uncertainty):

• Shows uncertainty for all economic sectors except trade
• Non-trade uncertainty was extremely high during the early COVID-19 period with balanced upside and downside components
• It declined steadily until reaching near-historical average levels by mid-2024
• Since mid-2024, both upside and downside components have remained small and roughly balanced
• By mid-2025, non-trade uncertainty is only slightly above its historical average
• The chart demonstrates that recent overall economic uncertainty is not driven by non-trade sectors

Both figures are standardized to have zero mean and unit standard deviation over the sample period 1963:01 to 2025:06.

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