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Policy Hub: Macroblog provides concise commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues for a broad audience.

Authors for Policy Hub: Macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.

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April 7, 2021

CFOs Growing More Optimistic, See Only Modest Boost from Stimulus Plan

During the past few months, alongside an increase in COVID-19 vaccinations and amid a fresh round of fiscal support, optimism about the economic recovery from the COVID-19 pandemic has grown. Although reasons for concern over the potential unevenness of the recovery still exist, many economistsOff-site link, policymakers Adobe PDF file formatOff-site link, and market participantsOff-site link have ratcheted up their growth expectations for 2021.

This growing optimism extends to decision makers who participate in The CFO SurveyOff-site link—a collaborative effort among the Atlanta Fed, Duke University's Fuqua School, and the Richmond Fed. CFOs and other financial decision makers in our survey grew more optimistic about the U.S. economy and their own firms' financial prospects, according to the first quarter's data released on April 7. Moreover, these firms see stronger prospects for sales revenue and employment growth in 2021 (similar to results from other business surveys, including the Atlanta Fed's Survey of Business Uncertainty).

Many people think the recently passed $1.9 trillion American Rescue Plan ActOff-site link (ARPA) is behind these brighter expectations. However, the results of our CFO Survey suggest that many firms anticipate that the fiscal stimulus will have only a modest impact on their own future business activity.

In the first-quarter CFO Survey (fielded March 15–26, 2021), we posed a question asking respondents about the impact that ARPA might have their own firm's revenue growth, number of employees, representative price (the price of the product, product line, or service that accounts for the majority of their revenue), and total wage and salary costs (see chart 1). Firms had five response options, ranging from "decrease significantly" to "increase significantly." A majority of firms expect the recent fiscal measure to have "little to no impact" across all areas of their business activity. The results are perhaps most striking for employment, as nearly 80 percent of firms anticipate ARPA to bring little to no change in that area.

Chart 1 of 1: Anticipated Impact of Recent Fiscal Stimulus

Considering the tepid impact of the stimulus on employment expectations, the survey results for total wage and salary costs are also interesting. Here, nearly 30 percent of the panel anticipates modest to moderate upward pressure on wage and salary costs, with another 5 percent or so expecting "significant" impact on their wage bill. The reasons for the expected effect on firms' total wage and salary costs are unclear, but we should note that labor quality and availability remain very high on CFOs' list of most pressing concerns.

Expectations around ARPA's impact on revenue growth appear a bit more diffuse. Though the survey's typical (or median) firm still anticipates that the bill will bring little to no change in sales revenue growth, nearly 40 percent of respondents expect the legislation to have a positive impact on sales, and a very small share of firms anticipate a negative impact on revenue.

Given the nature of these responses, we were curious whether CFOs who anticipated a positive impact from ARPA also held higher quantitative expectations for firm-level growth than firms who saw little-to-no impact. t. The CFO Survey elicits firms' quantitative expectations for sales revenue, employment, price, and wage growth early in the questionnaire, providing a useful way to check for consistency. Table 1 reports these results.

Table 1 of 1: Average Expectations for 2021 by Anticipated Stimulus Impact

Apart from firms' anticipated growth in wage and salary costs, it does appear that firms that foresee a boost from the fiscal stimulus also hold higher growth expectations. The increase in expectations is particularly stark for employment growth and prices.

If we dig a little deeper into the small share of firms anticipating increased employment due to the stimulus—45 total—we find that 40 of them are in service-providing industries and employ fewer than 500 workers. We know from academic researchOff-site link, government statisticsOff-site link, and anecdotal reportsOff-site link that the COVID-19 pandemic has hit smaller, service-providing firms particularly hard, so it's perhaps not surprising to see these types of firms expecting the stimulus to aid in a rebound. These firms are also anticipating a stimulus-induced boost to the prices they can charge. The price growth for services has slowed markedly since the onset of the pandemic. As the economy begins to open up more fullyOff-site link, these firms might believe that measures to bolster household income (among other aspects of ARPAOff-site link) will lead to a bit more pricing power.

Overall, however, our results suggest that the majority of firms anticipate ARPA to have little to no impact on their sales revenue, employment, prices, and wages. The smaller share of firms that do anticipate increased activity resulting from the stimulus largely expect the increase to be modest to moderate.

Importantly, these results do not rule out a surge in growth as the pandemic recedes and the vaccination rollout continues. As we've noted, most CFOs expect growth to occur regardless of ARPA's role in that growth. But the survey shows that firms, in general, do not pin any surge in demand on the legislation.

February 24, 2021

WFH Is Onstage and Here to Stay

Chances are you recognize the relatively new acronym WFH as "working from home." In less than a year, WFH has become a ubiquitous, inescapable facet of life for many people, so much so that newswires now ask which cities are best for WFHOff-site link, and online job boards compile listsOff-site link of companies that allow remote work on a full-time, permanent basis.

Many people are debating the pros and cons of WFH. For employees, gone are the long commutes and cramped cubicles, but other work-related stresses have emerged. As the pandemic drags on, some workers experience feelings of loneliness and isolationOff-site link, health problemsOff-site link, and challenges related to work-life balanceOff-site link.

Back in May 2020, the Atlanta Fed's Survey of Business Uncertainty (SBU) elicited firms' views on WFH and found that, on average, firms anticipated that WFH would triple to 16.6 percent of paid workdays after the pandemic ends, up from 5.5 percent before it struck. Eight months later, we were curious to see whether and how plans had changed. So, in the January 2021 SBU, we asked two special questions very similar to ones we posed last May. Specifically, to gauge the extent of WFH, we asked, "Currently, how often do your full-time employees work from home?" To assess the future extent of WFH, we asked, "How often do you anticipate that your full-time employees will work from home after the coronavirus pandemic ends?" We asked firms to sort the fraction of their full-time workforce into six categories, ranging from five full days WFH per week to rarely or never.

It turns out that current plans are similar to those in May, with one important exception: firms increasingly favor a hybrid model for the postpandemic economy, walking back plans for the share of staff that will work exclusively from home. Chart 1 summarizes the responses to WFH questions posed in January's SBU and compares them to our May results. We also compare the results to statistics computed from the American Time Use SurveyOff-site link, conducted by the U.S. Bureau of Labor Statistics in 2017–18, which provides a useful benchmark. Aside from the striking similarity in pre-COVID levels of WFH across the surveys, several findings are worthy of note.

Chart 1 or 2: WFH before, during, and after the Pandemic

First, according to the January SBU, more than 35 percent of employees currently WFH at least one day per week. This estimate is plausible in light of work by Jonathan Dingel and Brent Neiman of the University of Chicago's Booth School of Business, which indicates that nearly 40 percent of U.S. jobs can be done at home Adobe PDF file formatOff-site link. Moreover, the current WFH configuration tilts toward multiple days at home. All told, 25 percent of paid workdays are currently performed at home.

Second, firms report surprisingly similar figures in May 2020 and January 2021 for the share of employees whom they expect to work from home at least one day per week after the pandemic. Given the unprecedented nature of the pandemic recession, eight months is a long time over which to hold such stable expectations, suggesting that firms are serious about their intentions.

However, expectations have adjusted in one key respect: last May, firms anticipated that 10 percent of the postpandemic workforce would be fully remote, as compared to just 6 percent as of January. While still double the pre-COVID share, the revised expectation suggests many firms are coalescing around hybrid arrangements, whereby employees split the workweek between home and employer premises. These plans entail a large break from prepandemic working arrangements, but they imply more limited scope for employees to live anywhere—or for employers to hire from anywhere.

Chart 2 shows how the extent of actual and planned WFH varies by industry. Every major industry sector saw dramatic increases in WFH during the pandemic. With the exception of retail and wholesale trade, firms in every sector anticipate that a tenth or more of paid workdays by full-time employees will take place at home after the pandemic ends. For firms in business services, information, finance, and insurance, the postpandemic figure is 30.6 percent. And for the economy as a whole, it's 14.6 percent—nearly triple the prepandemic level.

Chart 2: Paid WFH Days as a Share of All Working Days before, during, and after the Pandemic

Further digging into our survey results reveals the finding that COVID-19 shifted employment growth trends in favor of industries with a high capacity of employees to WFH and against those less able to accommodate remote work. Firms with a high WFH capacity experienced much higher stock returnsOff-site link in the past year than did firms with a low capacity. In addition, urban residences have become cheaper relative to suburban ones since the pandemic struck, suggesting that a shift to WFH has lowered the desirability of urban livingOff-site link. More WFH also means fewer people commuting into city centers and less worker spending on meals, coffee, personal services, shopping, and entertainment near employer premises. A recent study finds that a permanent shift to WFH will directly reduce postpandemic spendingOff-site link in major city centers by 5–10 percent relative to prepandemic circumstances. Of course, such changes also mean lower sales tax revenue for cities that had high rates of inward commuting before the pandemic.

To summarize, firms have largely stuck to their early expectations about the extent of WFH in the postpandemic economy. There has, however, been a notable drop in plans for employees to work from home five days a week. Remarkably, in every major industry sector except retail and wholesale trade, firms anticipate that WFH will account for one-tenth or more of full workdays by full-time employees, far above prepandemic levels. These shifts toward more remote work are driving a reallocation of jobs across industries and locations, contributing to fewer jobs, lower sales tax revenues, and lower property values in city centers. Our results suggest that these effects are likely to persist.

May 4, 2020

U.S. Firms Foresee Intensifying Coronavirus Impact

In late March—even before many states had issued shelter-in-place, stay-at-home, or shutdown orders—we noted that firms were bracing for a huge negative impact on sales revenues from developments surrounding the coronavirus. Results from our March Survey of Business Uncertainty (SBU)—a national survey of firms of varying sizes and industries—revealed that disruptions stemming from COVID-19 had led to sharp declines in expectations for year-ahead sales growth.

Our April survey, which was in the field from April 13 to April 24, suggests that year-ahead sales growth expectations have only grown bleaker and more uncertain. Exhibit 1 shows that year-ahead sales growth expectations followed up the largest one-month decline in the history of the SBU (which goes back to October 2014) with another sizable decline. Since February, sales growth expectations have fallen by nearly 7 percentage points, and firms' collective view is that by this time next year, aggregate sales levels will be about 2 percent lower than they are now.

At the same time, firms' confidence in those expectations has continued to deteriorate sharply. Year-ahead sales growth uncertainty has more than doubled since the beginning of the year, dwarfing any worries firms may have attached to concerns over trade and tariffs over the previous two years.

Exhibit 1: Sales Revenue Growth Rate Expectations and Uncertainty

To better understand the impact of COVID-19 on panelists' sales outlook, we posed the following question in March and again (as a part of a larger battery of special questions) in April: "What is your best guess for the impact of coronavirus developments on your firm's sales revenue in 2020?" As exhibit 2 shows, that negative impact has intensified markedly from early March through the fourth week of April. From week to week, as the breadth and severity of COVID-19's impact on Americans' health and U.S. economic performance became clear, firms' collective judgment about the size of the impact has nearly quadrupled—from roughly a 5 percent impact in early March to around 20 percent by late April.

Exhibit 2: Anticipated Coronavirus Impact on 2020 Sales Revenues, Percentage Amounts

Not only can we see the growing intensity and widening reach of the pandemic in the mean responses, but a cross-section of respondents also makes it evident. In early March, just two-thirds of the panel reported being negatively affected by the outbreak (with a mean COVID-19 impact in that group smaller than minus 10 percent). However, by April, nearly 90 percent of the panel indicated they anticipate a negative hit to 2020 sales revenue as a result of COVID-19 (with a corresponding mean impact of minus 20 percent). Consistent with our findings regarding firms' staffing decisions, a small set (a bit more than 5 percent) of firms anticipate higher sales levels in 2020 as a result of the pandemic.

Perhaps it feels incongruous to use the word "good" as a descriptor at times like these, but perhaps the news from our analysis is that from the first to the second week of the April, the anticipated impact of the pandemic on sales revenue did not continue to worsen materially. This tentative stabilization brings up other fundamental questions regarding how firms' sales growth expectations are coalescing. Namely, when do firms think the cloud of uncertainty surrounding the pandemic will have largely dissipated, allowing them to revert to a more "business as usual" stance? And will they need to tap additional sources of funding to allow them to bridge the crisis?

In April, we first posed this question to SBU panelists about their unusually uncertain environment: "When do you think it is most likely that the coronavirus-related uncertainty facing your firm will be largely resolved?" The second question was, "In light of current conditions, for how many months can your firm continue to operate without tapping new sources of funding (credit lines, emergency loans, debt markets, etc.)?" Exhibit 3 shows the responses to these questions.

Exhibit 3: Statements Regarding When COVID-Related Uncertainty Will Be Resolved and How Long Firms Can Persist in This Environment without Further Help

Roughly three-fourths of surveyed firms expect COVID-19-related uncertainty will be in the rearview mirror by the end of the year. However, the tail of this distribution is quite long, with a few of the more pessimistic respondents anticipating COVID-19-related uncertainty to linger through 2022.

Interestingly, responses to the question regarding the need for additional funding vary quite widely. The typical respondent indicated they would be able to hold out until the start of the fourth quarter without needing to tap new funding sources, should these exigent circumstances persist. And more than a quarter of our panel indicated they'd be able to hold out for at least a year.

Taking a step back and viewing our April survey results as a whole, for the most part firms appear to indicate a relatively optimistic baseline outlook. Year-ahead sales growth expectations, though negative, are nowhere near as bad as the expected impact of COVID-19 on 2020 sales levels. This disparity suggests firms see a very strong snapback in sales activity in late 2020 through the first quarter of 2021, consistent with their collective statement on when COVID-related uncertainty will end. Although that narrative is appealing, let's keep in mind that firms' collective outlook for the year ahead can only be described as "highly uncertain."


May 1, 2020

COVID-19 Caused 3 New Hires for Every 10 Layoffs

Reports about the economic fallout from the coronavirus pandemic and efforts to slow its spread make for grim reading. One especially grim statistic is the number of layoffs. Since early March, just over 28 million persons have filed new claims for unemployment insurance benefits (roughly 30 million if you seasonally adjust).

Some analysts anticipate that as a result, the unemployment rate for April will be above 20 percent. By way of comparison, the unemployment rate peaked at 10 percent in October 2009 in the midst of the Great Recession and 24.9 percent (by one measure) during the Great Depression.

The extraordinary scale of recent job losses commands attention, and rightly so. But there's more to the story of recent labor market developments: quite a few firms are also hiring new workers in response to pandemic-induced demand increases. In fact, the latest Survey of Business Uncertainty (SBU) says that, for the U.S. economy overall, the COVID-19 shock caused three new hires for every 10 layoffs.

In the latest wave of the SBU (fielded from April 13–24), we posed two special questions about staffing changes. The first question asks how developments related to the coronavirus caused firms to alter their staffing levels since March 1 across five categories: permanent layoffs, temporary layoffs and furloughs, new hires, cuts to the number of contractors and leased workers, and additions to the number of contractors and leased workers. A follow-up question asks panelists what staffing changes they plan to make over the ensuing four weeks in response to coronavirus-related developments.

The chart below examines all of the changes firms can make in staffing levels (layoffs, hiring, changes in contractors, etc.) and isolates the percentage changes associated with each type of action. These changes include total (or gross) reductions, gross additions, and the net impact on staffing levels (that is, gross additions minus gross reductions). The results presented in the chart are striking. Between March 1 and mid-April, firms implemented gross staffing reductions equal to 10.9 percent of employment. During the ensuing four weeks, they plan additional cuts equal to 4 percent of employment. The sum of these two figures yields gross staffing reductions over two and a half months equal to 14.9 percent of March 1 employment—a staggering job loss rate, to be sure.

But there's another aspect to the story. In the same span of two and a half months, coronavirus-related developments caused firms to increase gross staffing levels by an amount that equals 4 percent of March 1 employment. In other words, the COVID-19 shock led to roughly three new hires for every 10 layoffs. The exact ratio is a bit less than 3 to 10, especially if we include contractors and leased workers. This result aligns with news reports of large-scale hiring at firms like Amazon, Walmart, CVS Healthcare, Domino's Pizza, and other companies that saw increased demand in reaction to the pandemic and partial shutdown.

There are good reasons to think that our survey results actually understate the true extent of gross staffing gains and losses in reaction to the pandemic. First, the SBU undersamples younger firms. (We know from other research that young firms have higher gross staffing gain and loss rates on average.) Second, highly stressed firms are less likely to respond to surveys, which means that our results probably understate gross staffing reductions. Third, our survey does not capture hiring by new firms. U.S. Census Bureau statistics (derived from administrative sources) say that business formations continue even in the wake of the pandemic. Since the latter part of March, applications for new businesses that the Census Bureau regards as having a "high propensity" to hire workers in the near future are running at about two-thirds of the 2019 pace.

The chart also sheds light on the nature of staffing reductions from the employer perspective: More than three quarters of these reductions are temporary layoffs and furloughs, implying that most workers will return to their old jobs, which can happen more quickly than hiring new employees (or those individuals finding a new job). However, this expectation warrants some skepticism. As we reported last month, SBU panel members express record-high levels of uncertainty in the outlooks for their firms, a reading that sounds right to us. No one yet knows how rapidly the pandemic will recede, or how much permanent economic damage it will cause.