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The Impact of the COVID-19 Pandemic on Business Expectations

Author

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  • Brent H. Meyer

    (Federal Reserve Bank of Atlanta)

  • Brian Prescott

    (Federal Reserve Bank of Atlanta)

  • Xuguang Simon Sheng

    (American University)

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 report 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 nearterm 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 impacted by the pandemic. Second, firms (like professional forecasters) have responded to the COVID-19 pandemic by lowering their 1-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’ 1 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.

Suggested Citation

  • Brent H. Meyer & Brian Prescott & Xuguang Simon Sheng, 2020. "The Impact of the COVID-19 Pandemic on Business Expectations," Working Papers 2020-006, The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting.
  • Handle: RePEc:gwc:wpaper:2020-006
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    Cited by:

    1. Armantier, Olivier & Koşar, Gizem & Pomerantz, Rachel & Skandalis, Daphné & Smith, Kyle & Topa, Giorgio & van der Klaauw, Wilbert, 2021. "How economic crises affect inflation beliefs: Evidence from the Covid-19 pandemic," Journal of Economic Behavior & Organization, Elsevier, vol. 189(C), pages 443-469.
    2. Brent Meyer & Nicholas B. Parker & Xuguang Sheng, 2021. "Unit Cost Expectations and Uncertainty: Firms' Perspectives on Inflation," FRB Atlanta Working Paper 2021-12a, Federal Reserve Bank of Atlanta.
    3. Kedwadee Sombultawee & Pattama Lenuwat & Natdanai Aleenajitpong & Sakun Boon-itt, 2022. "COVID-19 and Supply Chain Management: A Review with Bibliometric," Sustainability, MDPI, vol. 14(6), pages 1-21, March.
    4. Muhammad Abdus Salam & Sheikh Marufa Nabila & Tonmoy Dey & Fatema Chowdhury, 2022. "Reflection of Customers’ Preference for Offline Shopping amid Covid-19: A Post Vaccination Analysis in Bangladesh," International Business Research, Canadian Center of Science and Education, vol. 15(6), pages 1-39, June.
    5. Simionescu, Mihaela & Raišienė, Agota Giedrė, 2021. "A bridge between sentiment indicators: What does Google Trends tell us about COVID-19 pandemic and employment expectations in the EU new member states?," Technological Forecasting and Social Change, Elsevier, vol. 173(C).

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    More about this item

    Keywords

    Business Expectations; COVID-19; Demand Shock; Inflation; Pandemic; Supply Shock;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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