The Impact of the COVID-19 Pandemic on Business Expectations

Brent Meyer, Brian Prescott and Xuguang Simon Sheng

No 2020-17, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: We document and evaluate how businesses are reacting to the COVID-19 crisis through August 2020. First, on net, firms see the shock (thus far) largely as a demand rather than supply shock. A greater share of firms reports significant or severe disruption to sales activity than to supply chains. We compare these measures of disruption to their expected changes in selling prices and find that, even for firms that report supply chain disruption, they expect to lower near-term selling prices on average. We also show that firms are engaging in wage cuts and expect to trim wages further before the end of 2020. These cuts stem from firms that have been disproportionally negatively affected by the pandemic. Second, firms (like professional forecasters) have responded to the COVID-19 pandemic by lowering their one-year-ahead inflation expectations. These responses stand in stark contrast to that of household inflation expectations (as measured by the University of Michigan or the New York Fed). Indeed, firms' one-year-ahead inflation expectations fell precipitously (to a series low) following the onset of the pandemic, while household measures of inflation expectations jumped markedly. Third, despite the dramatic decline in firms’ near-term inflation expectations, their longer-run inflation expectations remain reasonably well anchored.

Keywords: business expectations; COVID-19; demand shocks; inflation; pandemic; supply shocks (search for similar items in EconPapers)
JEL-codes: E31 E32 (search for similar items in EconPapers)
Pages: 51
Date: 2020-09-04
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (5)

Published in 2020

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Related works:
Journal Article: The impact of the COVID-19 pandemic on business expectations (2022)
Working Paper: The Impact of the COVID-19 Pandemic on Business Expectations (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedawp:89448

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DOI: 10.29338/wp2020-17

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