International Journal of Forecasting 38 (2022) 529–544

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International Journal of Forecasting

journal homepage: www.elsevier.com/locate/ijforecast

The impact of the COVID-19 pandemic on business

expectations✩
∗
Brent H. Meyer a , , Brian Prescott a , Xuguang Simon Sheng b
a
Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree St. NE, Atlanta, GA 30309, United States of America
b
Department of Economics, American University, 4400 Massachusetts Avenue, NW. Washington, DC 20016,
United States of America

article info a b s t r a c t

Keywords: We document and evaluate how businesses are reacting to the COVID-19 crisis through
Business expectations August 2020. First, on net, firms see the shock (thus far) largely as a demand rather
COVID-19 than supply shock. A greater share of firms report significant or severe disruptions to
Demand shock
sales activity than to supply chains. We compare these measures of disruption to their
Inflation
expected changes in selling prices and find that, even for firms that report supply chain
Pandemic
Supply shock disruptions, 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 impacted 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 have remained relatively stable.
© 2021 International Institute of Forecasters. Published by Elsevier B.V. All rights reserved.

‘‘Now we see a big shock to demand, and we see core time we’re going to be struggling against disinflationary
inflation dropping to 1%. And I do think for quite some pressures rather than against inflationary pressures.’’
— Chair Powell. Post–FOMC Press Conference. July 29,
✩ Acknowledgement: We are indebted to Nick Parker for his 20201
outstanding survey expertise and direction on question wording. We
also thank Patrick Higgins, an associate editor, and two anonymous 1. Introduction
referees for helpful comments. We thank the participants at the Inter-
national Institute of Forecasters (IIF) virtual workshop, titled ‘‘Economic
Forecasting in Times of COVID-19’’ the 40th International Symposium By mid-March 2020, it was clear that a novel coron-
on Forecasting and the 23rd Dynamic Econometrics conference, for avirus (COVID-19) had reached the shores of the United
their valuable comments and criticisms. We would also like to thank States. State-mandated lockdowns temporarily shuttered
members of the Atlanta Fed’s research department for their comments
on these findings through internal briefings. The views expressed here
many nonessential businesses, the U.S. government insti-
are the authors’ and not necessarily those of the Federal Reserve Bank tuted travel bans to many countries, and, among busi-
of Atlanta or the Federal Reserve System. nesses still open, many saw depressed levels of sales
∗ Corresponding author.
E-mail addresses: [email protected] (B.H. Meyer),
[email protected] (B. Prescott), [email protected] 1 https://www.federalreserve.gov/mediacenter/files/
(X.S. Sheng). FOMCpresconf20200729.pdf.

https://doi.org/10.1016/j.ijforecast.2021.02.009
0169-2070/© 2021 International Institute of Forecasters. Published by Elsevier B.V. All rights reserved.
B.H. Meyer, B. Prescott and X.S. Sheng International Journal of Forecasting 38 (2022) 529–544

activity.2 Indeed, economic activity as measured by real Bertrand, Cullen, Glaeser, Luca, and Stanton (2020) find
GDP contracted at an annualized rate of 5% in the first that respondents cited reductions in demand to a much
quarter and by an astounding 32% in the second quarter, larger degree than supply chain issues as reasons for tem-
marking the COVID-19 crisis as the swiftest and most se- porary closures. And Meyer, McCord, and Waddell (2020)
vere economic shock the U.S. has experienced in modern find that firms’ most pressing concerns are overwhelm-
times. ingly centered on flagging demand and declining sales
Amid supply chain disruptions and alongside wide- revenue, with the ‘‘health of the economy’’ coming in at a
spread shutdowns, production has been crimped. How- distant second and ‘‘supply chain concerns’’ registered as
ever, demand appears to have taken a bigger hit, as those a much lower issue.4
emergency shutdowns have also left households shut- The other strain of literature relies largely on inference
tered in their homes, consumer spending has fallen dra- rather than direct responses from business decision mak-
matically, and business investment spending has dried up. ers to conclude the pandemic as a supply shock. Brinca,
Given the backdrop of low inflation since the onset of the Duarte, and Faria-e Castro (2020) use structural econo-
Great Recession, the behavior of inflation expectations is metric methods to decompose changes in hours work-
of particular interest. In a recent speech, Fed governor ing into supply and demand shock contributions, finding
Lael Brainard noted, ‘‘With underlying inflation running that the supply shock contribution outweighs the demand
below 2% for many years and COVID contributing to a fur- shock contribution. Candia, Coibion, and Gorodnichenko
ther decline, it is important that monetary policy support (2020) suggest that some firms (and most households)
inflation expectations that are consistent with inflation see the pandemic as a supply shock, coming to that view
centered on 2% over time’’.3 through the lens of aggregate inflation expectations. Diet-
In this paper, we utilize the Federal Reserve Bank of rich, Kuester, Muller, and Schoenle (2020), while focused
Atlanta’s Business Inflation Expectations Survey to uncover on households, reach the same conclusion through survey
how firms are perceiving and reacting to the COVID-19 research that elicits expectations for the COVID-19 pan-
pandemic. Our analysis focuses on how this shock has demic’s impact on aggregate inflation. Importantly, our
affected their inflation expectations going forward. First, results, like Hassan et al. (2020), take a more holistic and
we examine whether firms, en masse, see the pandemic as direct approach to uncovering firms’ perceptions of the
a supply or demand shock. Our results suggest that, while pandemic.
elements of both a supply shock and a demand shock Second, consistent with a shortfall in demand, we
are present, firms, on net, view the COVID-19 pandemic document that the inflation expectations of businesses
as a demand shock. These findings are based on a series (like those of professional forecasters) have fallen precipi-
of quarterly and special questions that assess the level tously. In fact, both firms’ perceptions of current inflation
of disruption that COVID-19 has inflicted on sales activ- and their year-ahead inflation expectations fell to an
ity, business operations, and supply chains; quantitative all-time low (going back to October 2011) in April, as
assessments of firms’ sales levels relative to ‘‘normal’’; the pandemic grew in severity. We also document that
firms’ expected price changes over the near-term; firms’ household survey measures of inflation expectations—
experienced and expected wage changes; and changes specifically the University of Michigan’s Survey of Con-
in the inflation expectations from before to during the sumers and the New York Fed’s Survey of Consumer
pandemic. Expectations—registered sharp increases in expectations
The literature disentangling firms’ perceptions of the relative to the pre-COVID period. We offer evidence that
COVID-19 pandemic is nascent, mixed, and can be loosely suggests households are disproportionately responding to
grouped into two strains. The first strain—which argues a relative price shock to grocery store items, rather than
that demand shocks dominate—takes a broad approach to viewing the COVID-19 pandemic as a negative shock to
uncovering the perceptions of firms regarding the nature aggregate supply.
of the pandemic, eliciting direct evidence of changes in Third, despite the magnitude of the decline in their
firms’ behavior, perceptions, and expectations. Hassan, near-term inflation perceptions and expectations, firms’
Hollander, van Lent, and Tahoun (2020) analyze tran- longer-run expectations appear to be relatively stable. The
scripts of quarterly earnings calls held by public firms relationship between a firm’s change in one-year-ahead
across the globe and find concerns over a negative de- expectations and the change in its longer-run inflation
mand shock are nearly twice as prevalent as mentions of expectations from the pre-COVID period to during the
supply chain disruptions. In a survey of small firms, Bartik, crisis appears to be modest at best. Moreover, while the
distribution of firms’ one-year-ahead inflation expecta-
2 Based on a new big data index developed by Brave, Butters, and tions has shifted markedly lower, this downward shift is
Kelley (2019), Li and Sheng (2020) identify COVID-induced recession not evident in firms’ longer-run (five- to ten-year-ahead)
beginning in March 2020. Indeed, high-frequency data on small firm inflation expectations, suggesting that firms’ longer-run
closings and activity from HomeBase (https://joinhomebase.com/blog/ expectations are reasonably well anchored.
real-time-covid-19-data/), as well as high-frequency data from Op-
portunity Insights (https://tracktherecovery.org/) described in Chetty,
Friedman, Hendren, and Stepner (2020), point to a sharp contraction 4 Balleer, Link, Menkhoff, and Zorn (2020) find strikingly similar
in activity beginning in mid-March. results to our work in a survey of German firms, finding that demand
3 Lael Brainard. ‘‘Navigating Monetary Policy through the Fog of shortfalls far outweigh supply issues, leading these firms to anticipate
COVID’’. July 14, 2020. Remarks given via webcast to the NABE. https: cutting prices. These results open the possibility that the COVID-19
//www.federalreserve.gov/newsevents/speech/brainard20200714a.htm. shock hit firms located in industrialized countries in a similar way.

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B.H. Meyer, B. Prescott and X.S. Sheng International Journal of Forecasting 38 (2022) 529–544

The rest of the paper proceeds as follows. Section 2 of firms covaries strongly with the inflation expectations
briefly discusses the data set. Section 3 analyzes how of professional forecasters, yields an inflation perception
the COVID-19 shock affects firms’ sales levels, business that mirrors current inflation trends, and is highly cor-
operations, expected price changes, and wage changes. related with a national measure of probabilistic infla-
Sections 4 and 5 focus on firms’ short-run and long-run tion expectations from the Survey of Business Uncertainty
inflation expectations during the crisis. Section 6 con- (SBU).6
cludes. While this paper is about understanding how firms
are responding to the COVID-19 shock, we acknowledge
2. About the survey that many readers will view the paragraph above as in-
congruent with the widely cited survey literature from
We use the microdata and special question results Coibion, Gorodnichenko, and co-authors (2018, 2020) on
from the Federal Reserve Bank of Atlanta’s Business Infla- firms’ aggregate inflation expectations and it is necessary
tion Expectations (BIE) survey. The BIE is a monthly sur- to lay out an alternative viewpoint.7
vey of firms in the Sixth Federal Reserve District (which Much of the confusion around survey measures of
covers most of the southeastern United States) that has inflation expectations is tied directly to the survey re-
been fielded continuously since October 2011. Broadly spondents’ understanding of the concept of ‘‘inflation’’
speaking, the Sixth District mirrors the US in terms of and its usefulness in their decision making (i.e., whether
cross-industry and cross-firm size breakdowns of busi- the respondent understands the concept, has well-formed
ness activity (sales revenue and employment). By design, expectations, and whether the expectations they hold
the panel composition of the BIE roughly reflects the meaningfully impact their behavior).8 For the BIE sur-
makeup of the national economy at the two-digit NAICS vey, the choice to elicit unit-cost expectation instead of
level (see Appendix Table B.1. Panels A and B).5 ‘‘aggregate’’ inflation expectations (or price change ex-
Of particular interest in disentangling firms’ percep- pectations) was motivated by a variety of theoretical,
tions of the nature of the pandemic is whether COVID-19 empirical, and survey design factors.
and the efforts to control the spread of the virus impacted The microfoundations of the New Keynesian Phillips
Sixth District firms to a similar degree as it did the nation Curve suggest that firms make price-setting decisions on
as a whole. To that end, while there are some differences the basis of future nominal marginal (unit) costs; see
between the Sixth District and the nation in the number Sbordone (2005). Under general conditions, an expecta-
of COVID-19 cases and deaths attributed to the virus (see tion of ‘‘aggregate’’ inflation will be an input (embedded)
Appendix H, Figure 27), high-frequency data on the strin- into a firm’s unit cost expectations (although, from an
gency of government response to the virus, measures of individual firm’s perspective, this is not a necessary con-
retail and workplace mobility, interpersonal engagement, dition). Still, if we hold to this view, each firm’s unit cost
and restaurant bookings in the Sixth District broadly mir- expectation is the sum of their aggregate inflation ex-
rored the nation (see Appendix H, Figures 28, 29, and 30). pectations and a firm-specific error term, reflecting firm-
The direct regional prevalence of and response to COVID- specific cost structure.9 Under reasonable assumptions,
19 determine the likely disruption to business operations
e.g., with many firms, the averaged unit cost expectation
(i.e., mandated shutdowns, temporary closures, employee
absenteeism, shift toward a remote working posture, etc.)
located and headquartered in the Sixth District. However, 6 See Altig et al. (2020a) for an overview of the SBU survey and its

it is important to note that many of the firms located in properties. At the SBU’s inception, the survey elicited one-year-ahead
unit-cost (inflation) expectations from firms using a question design
the U.S. southeast have a national or international sales
that differed from that of the BIE in the choice to allow respondents to
presence and exposure to the pandemic through globally input both the support points and associated probabilities, rather than
interconnected supply chains. assigning probabilities to fixed bins. Meyer et al. (2021) evaluate the
Since its inception, using a method popularized by aggregate responses of the two surveys, finding that the two different
methods yielded very similar expectations and uncertainty estimates.
Manski (2004), the BIE survey has focused on the forward-
7 Meyer et al. (2021) build on the survey work by Bryan, Meyer,
looking unit costs (nominal marginal costs) of firms, elic-
and Parker (2015) to show: question wording matters a great deal
iting firms’ probabilistic unit cost expectations for the to respondents’ interpretation of the concept of inflation; in this low
year-ahead on a monthly basis and longer-run (five- to inflation environment the U.S. has experienced since 2011 firms may
ten-year-ahead) probabilistic unit-cost expectations on a be rationally ignorant of ‘‘prices in general’’ or ‘‘prices overall in the
quarterly frequency. To state it plainly, our view is that economy’’; and that eliciting firms’ unit cost expectations yields a
time-series inflation expectations measure that is highly correlated
firms’ unit-cost expectations are their inflation expecta- with professional forecasts, uncorrelated with household forecasts, and
tions, and aggregating up firms’ unit-cost expectations far superior in terms of forecasting ability than current household
yields a measure of inflation expectations that is consis- measures of inflation expectations.
tent with firm behavior. As shown in Meyer et al. (2021), 8 See Armantier, Bruine de Bruin, van der Klaauw, Potter, Topa, and
this probabilistic measure of the inflation expectations Zafar (2013) and Meyer, Parker, and Sheng (2021) for a deeper discus-
sion of question wording (‘‘prices in general/overall in the economy’’)
and expectations for aggregate inflation based on a price index (like
5 Additional assurances of response quality and external validity the CPI or PCE). For evidence of the (lack of) importance firms place
such as survey response rates, tenure effects, the impact of question in aggregate inflation, see Candia et al. (2020) and Meyer et al. (2021).
wording, responses to cognitive interviews, and the relationship of BIE 9 Afrouzi (2020) provides evidence that firms in highly competitive
responses to other national surveys can be found in Meyer, Parker, and environments tend to hold more well-formed ‘‘aggregate’’ inflation
Sheng (2021). expectations.

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B.H. Meyer, B. Prescott and X.S. Sheng International Journal of Forecasting 38 (2022) 529–544

across firms is a proxy for aggregate inflation expecta- paper, we make use of firms’ quantitative assessments of
tions. The evidence provided in this paper shows that the their sales ‘‘gap’’—current sales levels relative to normal—
aggregated unit-cost expectations of firms are strongly as well as a series of special questions designed to uncover
related to the inflation expectations of professional fore- firms’ assessments of disruptions that incurred due to
casters (see Appendix Figure 16). Moreover, we show the novel coronavirus, their expectations for their own
that the aggregated unit-cost perceptions of firms covary price changes, and what they anticipate for the path of
strongly with actual inflation (see Appendix Figure 15).10 the virus. A detailed discussion of the data, the specific
Another consideration when choosing to elicit proba- form of the questions we pose to respondents, and survey
bilistic unit cost expectations instead of a notion of ‘‘ag- descriptions can be found in the appendix.13
gregate’’ inflation expectations for firms is that both in
cognitive interviews and survey responses (see Appendix 3. How do firms view the COVID-19 shock?
Figures 23, 24, and 25) firms indicated that unit-costs
were more directly relevant to their price-setting deci- While early news reports of empty grocery shelves
sions than ‘‘aggregate’’ inflation.11 have made it clear that the pandemic is crimping some
One further consideration that is particularly relevant supply chains, at the same time, widespread efforts to
at the moment is that many surveys of aggregate inflation control the spread of the virus caused schools, restaurants,
expectations ask respondents about ‘‘prices in general’’ or and hotels to temporarily close, leading many farmers and
‘‘prices overall in the economy’’. Given the vagueness of food producers to destroy unused food products amid the
the wording, these survey questions are likely to elicit free-fall in demand.14
expectations about particular salient price changes (such Cochrane (2020), Kharas and Triggs (2020), and others
as prices of grocery store items or of gasoline). Armantier all point out that the COVID pandemic is unlike a stan-
et al. (2013), Armantier, van der Klaauw, Topa, and Zafar dard recessionary (aggregate demand) shock or a typical
(2016) provide evidence that changes in wording around inflationary supply shock (oil prices shock). This ‘‘health
the concept of inflation have a material impact on the shock’’ has characteristics of both. Guerrieri, Lorenzoni,
responses. Moreover, Bryan et al. (2015) and Meyer et al. Straub, and Werning (2020) present a model that suggests
(2021) highlight that when firms are presented with lan- that severe negative supply shocks (like the COVID-19
guage that clues them in to the idea that ‘‘aggregate’’ shock) can lead to a shortfall in aggregate demand that
inflation or ‘‘prices in general’’ means changes in the outweighs the effects of the initial supply shock. On the
Consumer Price Index, the typical biases tend to dissipate. other hand, Abo-Zaid and Sheng (2020) present a dynamic
This is also true of a new survey of firms’ inflation expec- general equilibrium model with a health shock, finding
tations from Olivier Coibion and Yuriy Gorodnichenko.12 that, while health shocks have significant supply-side ef-
As we discuss in Section 4, we view this pandemic as fur- fects on economic activity, the demand-side effects are
thering the distinction between business and household considerably bigger, particularly for shorter horizons and
inflation expectations. more rigid prices. In relation to both papers, the question
In addition to its core focus on inflation expectations, is whether firms see the COVID shock, on net, as more of
the BIE survey elicits firms’ qualitative judgments and a supply shock or a demand shock. If firms view the pan-
quantitative estimates regarding firms’ sales levels, mar- demic largely as a supply shock, standard theory would
gins, and other factors thought to drive businesses’ pricing expect their unit (marginal) costs to increase amid higher
decisions. The questionnaire also contains space for re- input prices and wages. Firms would also be likely to
searchers to ask special questions that are policy-relevant, attempt to pass on these unit cost increases by increasing
topical, or related to broader academic research. In this prices and, ultimately, lead firms to anticipate higher in-
flation in the future. Firms experiencing a demand shock
10 Meyer et al. (2021) also provide evidence in the cross-section would behave conversely (experience lower costs, lower
that individual firms’ unit cost expectations are correlated with their wages and prices, and anticipate lower future inflation).15
expectations for aggregate inflation based on a particular price index The overwhelmingly negative nature of the shock to
(the core CPI) and uncorrelated with their expectations for ‘‘prices firms’ sales levels is evident in Fig. 1. Recovering from the
overall in the economy’’ or ‘‘prices in general’’.
11 Further evidence comes from Coibion, Gorodnichenko, and Kumar 2007–2009 financial crisis and recession, firms’ quantita-
(2018). They find that managers devote few resources to collecting
tive sales gap measure had slowly been moving toward
information about aggregate inflation measures and, instead, find infor- zero (or ‘‘normal’’ sales levels) alongside solid gains in
mation regarding aggregate inflation statistics useful for their shopping
experiences.
13 Further information can be found here: https://www.frbatlanta.
12 See https://www.firm-expectations.org. The inclusion of the par-
org/research/inflationproject/bie.
enthetical ‘‘(for the Consumer Price Index)’’ in the question ‘‘What do
14 https://www.nytimes.com/2020/04/11/business/coronavirus-
you think will be the inflation rate (for the Consumer Price Index)
over the next 12 months?’’ essentially clues firms in to the specific destroying-food.html.
inflation concept the researchers wish to investigate. Incidentally, this 15 While there are some clear examples of costs incurred by firms
is nearly identical to a special question posed to the BIE panel back due to the pandemic (i.e., personal protective equipment and plexiglass
in July 2015 (see https://www.frbatlanta.org/research/inflationproject/ barriers), it is not clear that firms impacted by these cost increases
bie/special-questions?pub_year=2015). Importantly, in aggregate, this view them as higher marginal or fixed costs. Conversely, there were
measure of firms’ inflation expectations falls precipitously following offsetting cost decreases for many firms (lower energy prices, move-
the onset of the pandemic, mimicking the behavior of BIE inflation ments to a work-from-home posture, and dramatically lower travel
expectations and running counter to the sharp increase in households’ costs as external meetings moved online). As we show below, many
‘‘prices in general’’ expectations. firms experienced lower labor costs.

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B.H. Meyer, B. Prescott and X.S. Sheng International Journal of Forecasting 38 (2022) 529–544

Fig. 1. Firms’ percentage below ‘‘normal’’ sales levels.

Source: Federal Reserve Bank of Atlanta’s Business
Inflation Expectations Survey.

Fig. 2. Firms’ mean quantitative sales gap by firm size.

Source: Federal Reserve Bank of Atlanta’s Business
Inflation Expectations Survey.

output growth and previously strong job gains. However, core survey questionnaire. Our line of questioning began
that all changed in April 2020. Firms surveyed from April with attempting to elicit direct responses on the nature
6 to 10, showed an extraordinarily large decline in sales of the COVID-related disruption to operations, sales ac-
levels relative to normal—from 2.5% below normal in the tivity, and supply chains. We then related their responses
first quarter to 32% below normal in April (see the charts). to these questions to changes in expected prices, actual
The decline in sales had an impact on firms of all sizes, and anticipated changes in wages, and changes to firms’
but smaller firms reported a much larger hit to sales than inflation perceptions and expectations.
did firms with more than 100 employees, as evidenced in In April, we asked firms to assess the level of disrup-
Fig. 2. Firms’ assessment of sales gaps rebounded some- tion by the pandemic to their business operations, supply
what in July, but remains solidly negative. These results chains, and sales activity on a scale of ‘‘no disruption’’
are very similar to the pattern we see in high-frequency to ‘‘severe disruption’’.17 As shown in Fig. 3, more than
and macroeconomic data we have in hand thus far into half the firms surveyed indicated severe disruption to
the pandemic.16 These patterns are also consistent with their sales activity and another 18% indicated ‘‘significant’’
other business survey findings that elicit the anticipated disruption to sales activity. This compares to just over 10%
impact the coronavirus will have in 2020 (see Altig et al. of firms that indicated severe disruption to supply chains.
(2020b) and Bloom, Fletcher, and Yeh (2020)). Of course, The median respondent indicated moderate disruption to
a sharp widening in the sales gap could be due to either supply chains stemming from the pandemic.
a supply shock or a demand shock. Table 1 relates a firm’s response to their level of dis-
To disentangle whether firms see COVID-19 as mainly ruption across business operations, sales activity, and sup-
a supply or demand shock, we asked a series of special ply chains. The mean sales gap across these categories
questions starting in April 2020 as a supplement to our aligns most closely with disruption to sales activity. In-
deed, even firms that indicated no supply disruption had a
16 See Chetty et al. (2020) or visit tracktherecovery.org; Homebase
data at https://joinhomebase.com/blog/an-update-on-small-business- 17 In April 2020, we asked about disruption to sales activity and
as-covid-19-cases-rise/; Cajner et al. (2020); and Barrero, Bloom, and business operations. In May 2020, we asked about disruption to sales
Davis (2020). activity, supply chains, and staffing levels.

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B.H. Meyer, B. Prescott and X.S. Sheng International Journal of Forecasting 38 (2022) 529–544

Fig. 3. Level of disruption by activity type. Notes: There were 243 observations to the business operations question, 235 to the sales activity question,
and 212 to the supply chains question. The supply chains questions did not contain responses corresponding to ‘‘Minimal’’ or ‘‘Too soon to tell’’. The
correlation between responses to operations and sales activity: 0.54, and the correlation between supply chains and sales activity: 0.22. The specific
questions asked are given in Appendix A.
Source: Federal Reserve Bank of Atlanta’s Business Inflation Expectations Survey, April and May 2020.

sharply negative sales gap. Among those firms experienc- Table 1

ing severe disruption, sales levels fell to roughly one-half Mean quantitative sales gap by level of disruption.
Source: Federal Reserve Bank of Atlanta’s Business Inflation Expectations
relative to normal sales conditions. Similar to Barrero Survey, March and April, 2020.
et al. (2020), these results suggest that the disruption Operations Sales Supply
associated with the outbreak has not hit all firms equally.
None 3% 7% −16%
There is evidence of dispersion (reallocation) across firms, ‘‘Minimal’’ −10% 4% –
as a small share of firms that indicated they are experi- Moderate −20% −7% −18%
encing low levels of disruption are seeing stronger-than- ‘‘Significant’’ −19% −15% −43%
usual sales levels.18 Our findings also related favorably to Severe −51% −52% −55%
a national survey of CFOs, which, in June 2020, elicited Notes: Responses from the financial industry are excluded. There
firms’ most pressing concerns over the previous three are 206 observations from ‘‘operations’’, 193 from ‘‘sales activity’’,
and 166 for ‘‘supply’’. The correlation between the quantitative sales
months in an open-text format, finding six times more
gap and sales distribution, disruption to operations, and supply chain
frequent mentions of concerns over flagging demand than disruption is −0.64, −0.48, and −0.35, respectively. The missing value
over supply chain concerns.19 The pandemic led firms to in the Supply column is due to that month’s survey having one fewer
lower prices. In April 2020, we followed up the disruption response option than the operations and sales questions. The specific
questions with a question regarding firms’ expectations questions asked are located in Appendix A.
for their own selling prices over the next six months.
The intention was to evaluate firms’ anticipated price
changes by their disruption to sales activity. As Table 2(A) as with sales gaps, there is quite a bit of dispersion in
indicates, the majority of firms anticipated holding prices expectations, the thrust of price pressures has a defi-
constant over the next six months, though nearly twice as nite downside tilt. Firms, on average, anticipate lowering
many firms anticipated decreasing their selling price than prices by 2.2% over the six-month period from April to
increasing it. For those firms expecting to change their October; see Table 2(B).
price, the magnitudes are sizeable. The median expec- Table 2(C) also offers further evidence that firms see
tation among those anticipating to decrease prices over the pandemic as a demand shock. The right-hand ta-
the next six months is −13.5%. For those anticipating to ble shows the mean expected price change by level of
increase, the median expectation is a 5% increase. While, sales disruption. Firms indicating no negative disruption
to sales activity anticipate increasing selling prices by 4.6%
18 Firms that indicated experiencing stronger-than-normal sales were on average (nearly every firm expecting to increase prices
disproportionately in industries that correspond to the strong shifts in indicated ‘‘no’’ negative sales disruption in April), while
demand that we have seen in Census and high-frequency data (grocers, those experiencing severe disruption to sales activity an-
construction firms, transportation and warehousing, non-durable goods ticipate lowering prices by 3.2% on average.
manufacturers, etc.). Panels (A) and (B) in Table 3 corroborate the notion
19 For details: https://www.richmondfed.org/research/national_ that firms see COVID-19 largely as a demand shock. These
economy/cfo_survey/research_and_commentary. When the topic of a
survey question is wide-ranging, the open-text approach (evaluated
tables compare mean expected price changes by variety
using text analysis) tends to be less biasing than having firms choose degrees of sales gap and the severity of supply chain
from a set of response options. disruption. Interestingly, and counter to what standard
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B.H. Meyer, B. Prescott and X.S. Sheng International Journal of Forecasting 38 (2022) 529–544

Table 2 Simply documenting that firms expect to lower prices,

Firms’ response to expected price change questions. on average, over the next six months is insufficient evi-
Source: Federal Reserve Bank of Atlanta’s Business Inflation Expectations dence, on its own, to conclude that firms view COVID-19
Survey April 2020.
as a demand shock. For one, a six-month window is short
Panel A: Share of firms expecting a price change enough to be affected by nominal price-stickiness (see
Change in price Share of firms Bils and Klenlow (2004)), assuming price-setting behav-
Increase 15.0% ior is time-dependent (see Klenow and Kryvtsov (2008)).
Decrease 26.0%
Remain the same 59.0%
Fairness considerations may also have stayed the hands
of firms that would have otherwise increased prices (see
Panel B: Expected price change over the next six months
Kahneman, Knetsch, and Thaler (1986)). And, as Gagnon
Statistic Expected price change
and Lopez-Salido (2020) point out, this may be particu-
Mean −2.2%
Median 0.0% larly true of firms’ price-setting strategies surrounding an
P10 −20.0% unexpected (and large) demand shock.
P90 5.0% Still, our evidence suggests that firms’ expected near-
Panel C: Expected price change by level of disruption to sales term pricing decisions are related to whether their sales
activity activity has been negatively disrupted by COVID-19. This
Level of sales disruption Expected price change is just one piece in a collection of evidence (including
None 4.6% firms’ direct responses to questions regarding supply and
‘‘Minimal’’ −2.5% demand shocks, their current and forward-looking wage
Moderate −0.8%
‘‘Significant’’ −1.3%
decisions, and their inflation expectations) that indicate,
Severe −3.2% on net, firms’ view the pandemic as a demand shock.
In addition to firms’ expected price changes, we also
Note: There were 239 observations for the responses in Panels (A)–(C).
The specific questions asked are located in Appendix A. offer evidence from firms’ wage-setting behavior that
corroborates the view that firms see COVID-19, on net,
as a demand shock. In August 2020, we asked firms in
the BIE to, first, characterize their workforce between
Table 3 ‘‘high-skilled’’ and ‘‘low-skilled’’ labor and followed up
Firms’ expected price change by quantitative sales gap and level of
with questions eliciting what share of their (high-and-
supply chain disruption.
Source: Federal Reserve Bank of Atlanta’s Business Inflation Expectations low skilled) workforce has seen increases, decreases, or
Survey April 2020. no change in their wages since the onset of the COVID-
Panel A: Expected price change by mean quantitative sales gap 19 pandemic. We followed with a similar question on
Sales gap Expected price change anticipated wage changes from the current period until
≥0% −0.5% the end of 2020.20
[−25%, 0%) −2.5% Fig. 4 shows that firms cut nominal wages for 10% of
<25% −4.7% continuing employees, a result that is nearly identical to
Panel B: Expected price change by level of disruption to supply what Cajner et al. (2020) find using administrative pay-
chains
roll data. The apparent lessening of downward nominal
Level of supply chain disruption Expected price change rigidity during the COVID-19 pandemic is quite unusual.
None 7.3%
As Cajner et al. note in their paper, the prevalence of these
‘‘Some’’ −2.1%
‘‘Significant’’ −2.0% wage cuts is roughly twice what continuing employees
Severe −15.5% experienced during the entirety of the Great Recession.21
Interestingly and perhaps somewhat worrisome, our re-
Note: There were 239 observations for the responses in Panel (A) and
189 for the responses in Panel (B). Of the firms experiencing severe sults suggest that firms anticipate further negative wage
supply chain disruption in Panel (B), all of them noted significant or adjustments by the end of the year.
severe sales disruption as well. The specific questions asked are given Fig. 5 sheds further light on the nature of the COVID-19
in Appendix A. shock. Firms hit the hardest by the shock are those that
are disproportionately engaging in wage cuts. This holds
both for the severity of the sales disruption and for the
theory would suggest about supply shocks, firms that severity of the shortfall in a firm’s quantitative sales gap.
indicated they were experiencing supply chain disruption These responses on the part of business decision makers
anticipated lowering prices over the next six months, to cut wages given dramatic declines in sales activity
rather than increasing them. For firms experiencing se- and amid severe disruption due to the pandemic further
vere supply chain disruption, the mean expected price
change was a striking −15.5%. And here, a further ex- 20 See Appendix A for the specific wording to these and all survey
amination of the microdata indicates that all of the firms questions used in this paper.
experiencing severe supply chain disruption experienced 21 This phenomenon is also unusual in the history of the BIE. While
significant or severe sales disruption as well. Firms that not directly comparable to our current results, in September 2018 we
were doubly impacted by supply chain and sales disrup- elicited firms’ year-ahead probabilistic wage growth expectations. Only
one respondent at the time indicated the potential for negative wage
tions indicated lowering prices, on average, suggesting
growth in a ‘‘lowest-case’’ expectation. See the BIE’s special question
that COVID-19 has been much more of a demand than a archive for 2018 (https://www.frbatlanta.org/research/inflationproject/
supply shock. bie/special-questions.aspx?pub_year=2018) for more details.

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Fig. 4. Firms’ experienced and expected wage changes. Notes: Respondents were only asked about their wage changes for a skill level if they
indicated the presence of a low-skill or high-skill workforce. There were 160 responses for the low-skill experienced and expected wage change, 175
for the high-skill experienced wage change, and 176 for the high-skill expected wage change. The specific questions asked are given in Appendix A.
Source: Federal Reserve Bank of Atlanta’s Business Inflation Expectations Survey, August 2020.

Fig. 5. Firms’ experienced and expected wage changes by quantitative sales gap and level of sales disruption. Notes: The low-skill expected and
experienced values are based on were 149 responses, 164 and 165 responses to the high-skill questions, and 332 responses for the all sales disruption
category. Additionally, the sales gap category had 152 responses for the low-skill expected and experienced values, 167 and 168 responses to the
high-skill questions, and 338 responses for the ‘‘all’’ category. The specific questions are given in Appendix A.
Source: Federal Reserve Bank of Atlanta’s Business Inflation Expectations Survey July and August 2020.

bolster the claim that demand shocks are overpowering view the enormous impact that the pandemic is having
supply shocks. If supply shocks were dominating, stan- on economic activity as, on net, a demand shock. On av-
dard theory would suggest upward pressure on wages. erage, firms anticipate lowering prices in the near future
These results stand in contrast to the findings by Brinca and much of that downward price pressure is stemming
et al. (2020) that use a structural Bayesian VAR to de- from firms disproportionately impacted by the virus (even
compose changes in hours worked by sector into supply among those that noted significant or severe supply chain
and demand shock contributions and conclude that the disruption). These findings are supported by the material
supply shocks dominate. Our results indicate that firms (and unusually high) share of negative nominal wage
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Fig. 6. Distribution of firms’ short-run inflation expectations from January to August 2020. Notes: There were 690 and 1,113 responses in the
pre-COVID and COVID time periods, respectively. The specific question is given in Appendix A.
Source: Federal Reserve Bank of Atlanta’s Business Inflation Expectations Survey; January to August 2020.

adjustments that we have seen so far during this crisis April 2020.23 Prior to April, the majority of firms’ expec-
and those that firms anticipate over the remainder of the tations were centered on 2% and there was very little
year. Moreover, other business surveys, such as in Bartik mass in the tails. We can also see this downshift in the
et al. (2020) tell a consistent story. In fact, they note, mean probabilities assigned to each bin. After the onset
‘‘Respondents that had temporarily closed [early in the of the pandemic, the mean probability assigned to the
pandemic] largely pointed to reductions in demand and lowest bin (corresponding to negative cost growth) nearly
employee health concerns as the reasons for closure, with doubled—from 6% to 11%.
disruptions in the supply chain being less of a factor’’.22 Fig. 7 compares one-year-ahead inflation expectations
We view these results as corroborating evidence. And across businesses (from the BIE survey), professional fore-
while the Business Response Survey shows the breadth casters (SPF survey), and households (from the University
of demand vs. supply shocks, our work is able to further of Michigan and from the New York Fed’s Survey of Con-
disentangle how firms perceived these shocks through sumer Expectations (SCE)).24 The yellow shaded area cor-
their behavior and expectations. responds with the COVID-19 pandemic. The stark contrast
in responses between firms and professionals (sharply
4. COVID-19’s impact on inflation expectations lowering expectations) and households (sharply increas-
ing expectations) is clear. It is worth noting that all three
Alongside the freefall in demand, COVID-19 has also of these groups held higher inflation expectations in 2018,
had a significant impact on inflation expectations. Specif- a period marked by escalating tension over global trade,
ically, the pandemic has lowered businesses’ and pro- increased tariffs, and higher costs of production. Fig. 8
fessional forecasters’ inflation expectations over the year plots one-year-ahead uncertainty measures from these
ahead, while simultaneously causing household inflation three groups, and, again, the difference between the reac-
expectations to increase markedly. In this section, we pro- tion from businesses and professionals to that of house-
vide evidence that firms and households view COVID-19 holds is clear. By May 2020, household one-year-ahead
in fundamentally different ways, with firms and forecast- inflation uncertainty in the SCE had jumped up to a series
ers responding to the shock by ratcheting down their high (the series began in mid-2013). On the other hand,
expectations in sharp contrast with the expectations held inflation uncertainty measures of firms and professional
by households. forecasters ticked up, but remained below their respective
Consistent with firms’ collective judgment that COVID- levels in 2018–19. Firms, in particular, do not appear to be
19 is more of a demand than a supply shock, they have overly uncertain about the likely direction over the com-
ratcheted down their inflation expectations markedly. ing year. Despite the severity of the crisis and consistent
Businesses’ probabilistic one-year-ahead inflation expec- with lower demand, on net, firms expect inflation to slow.
tations fell to a series low of 1.4% in April 2020. Fig. 6
shows the distribution of respondents’ expected values.
23 Many view the beginning of the COVID pandemic as occurring
A clear downshift in expectations is evident starting in
on March 13, 2020 and corresponding with shelter-in-place orders
happening across the country. The March BIE was in the field from
22 The BLS very recently released the results of its 2020 Business March 2–6, prior to this period. Moreover, a special question posed
Response Survey (BRS), which finds that 56% of establishments (ap- to the panel in March asked if the recent coronavirus outbreak had an
proximately 4.7 million) experienced a decrease in demand during the effect on a number of aspects of business activity. The results indicated
pandemic (through September 2020), while only 36% of establishments that, apart from a few firms, the majority of the business community
(or 3.1 million) experienced a shortage of supplies or inputs (for details, had yet to be impacted.
see: https://www.bls.gov/brs/2020-results.htm). 24 For background on the SCE, see Armantier et al. (2013).

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Fig. 7. Inflation expectations of consumers, firms, and professionals. Notes: The yellow shaded regions begin in March 2020 and signal the onset of
the COVID-19 pandemic in the U.S.
Source: Federal Reserve Bank of Atlanta’s Business Inflation Expectations Survey, Federal Reserve Bank of New York’s Survey of Consumer Expectations,
Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters, and the University of Michigan’s Survey of Consumers.

Fig. 8. Inflation uncertainty of consumers, firms, and professionals. Notes: Uncertainty for the BIE is measured as the mean of the variance of firm
inflation expectations, while it is measured as the dispersion between the forecasts for the SPF. Additionally, the SPF series is re-scaled to the level
of the quarterly BIE. The yellow shaded regions begin in March 2020 and signal the onset of the COVID-19 pandemic in the U.S.
Source: Federal Reserve Bank of Atlanta’s Business Inflation Expectations Survey, Federal Reserve Bank of New York’s Survey of Consumer Expectations
and Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters.

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Fig. 9. Consumer price index component price change distribution. Note: We are reporting the annualized percent change over the time period
spanning March to August 2020.
Source: Bureau of Labor Statistics; authors’ calculations.

These results do raise the question as to why well- upper tail of the Consumer Price Index price-change dis-
known measures of household inflation expectations have tribution from March through August 2020 is dominated
risen sharply in the wake of the COVID-19 pandemic. by these salient consumer goods (see Fig. 9). Consistent
Here, we highlight that the recent household survey lit- with Binder (2020a), it may be the case that those most
erature around the pandemic’s impact on inflation expec- concerned by the coronavirus are those most vulnera-
tations finds mixed results. A high-frequency consumer ble to spikes in food prices. Among respondents to the
survey conducted by the Cleveland Fed, designed to un- University of Michigan’s survey, the sharpest increase in
derstand how consumers are reacting to COVID-19, in- inflation expectations has come from those individuals in
dicated early on that consumers anticipate inflation to the lower tercile of the income distribution. Given the
increase by roughly five to seven percentage points over substantial amount of disinflation in the overall CPI since
the next year as a result of the COVID-19 shock.25 Ar- the onset of the pandemic—slowing from a year-over-year
mantier et al. (2020) find the COVID-19 shock had a growth rate of 2.3% in February to just 1.3% as of August—
disparate impact on demographic groups, with higher it certainly appears that households may be overreacting
educated (and, presumably, higher income) individuals to surging grocery store prices.
actually lowering their inflation expectations. Following
However, the COVID-19 pandemic has led to a dra-
a probabilistic approach used by the BIE and in the NY
matic shift in consumer preferences and expenditures—
Fed’s SCE, Coibion, Gorodnichenko, and Weber (2020) find
–replacing experiential spending at restaurants, tourist
that households under lockdown actually lowered their
locations, and other service-based spending with durable
inflation expectations moderately.26 In addition Binder
goods and increase spending at the grocery store. In-
(2020a) finds that household inflation expectations vary
deed, many of the very categories that have registered
by their level of concern regarding the effect of COVID-
large price increases are those that are experiencing the
19 on the U.S. economy, with those concerned tending to
largest changes in spending (see Fig. 10). Moreover, these
have much higher inflation expectations.
The divergence between the inflation expectations of changes in expenditures are not captured using the CPI’s
businesses and households may be partly due to how ‘‘fixed-basket’’ weighting methodology. Unlike the CPI,
sensitive these two groups are to particular relative price the Personal Consumption Expenditures (PCE) Chained-
changes in the economy. Consistent with a notion for- Price Index does account for changes in spending patterns.
warded in Coibion et al. (2020), households may be The market-based variant of the PCE price index (the
(over)reacting to spiking grocery store prices. Indeed, the closest comparison to the CPI) has slowed by 40 basis
points on a year-over-year basis, a smaller decline than
the overall CPI. While this is not the central focus of
25 https://www.clevelandfed.org/en/our-research/indicators-and-
the paper, the enormous impact that the pandemic has
data/consumers-and-covid-19.aspx.
26 They note, ‘‘asking specifically about inflation, because asking had on retail prices and consumer spending patterns has
about prices might induce individuals to think about specific items further highlighted the notion that households may be
whose prices they recall rather than about overall inflation’’. responding to salient relative price changes instead of
539
B.H. Meyer, B. Prescott and X.S. Sheng International Journal of Forecasting 38 (2022) 529–544

Fig. 10. Pandemic impact on price indexes: changes in expenditure share/relative importance. Note: The data reported are in percentage points and
span from December 2019 to August 2020.
Source: Bureau of Labor Statistics; Bureau of Economic Analysis; authors’ calculations.

‘‘aggregate’’ inflation when asked to give their expecta- demand shock. We turn next to firms’ longer-run (five- to
tion about ‘‘prices in general’’ or ‘‘prices overall in the ten-year ahead) inflation expectations.
economy’’.27
Firms, in contrast to households, appear to be respond- 5. Long-run inflation expectations appear anchored for
ing to changes in their own unit costs rather than salient now
items in the consumer market basket. Appendix Figures
17 and 18 show that firms’ perceived changes in unit costs The pandemic has led firms, en masse, to lower their
and unit cost expectations vary by industry group but, near-term inflation expectations in a manner consistent
once aggregated, mirror changes in overall inflation and with a demand shock. However, as shown in Fig. 11 firms’
align well with the expectations of professional forecast- longer-run inflation expectations are little changed. On
ers. One piece of evidence that corroborates the view that average, firms’ longer-run expectations ticked down by
firms appear to be responding to changes in their own 0.1 percentage points from March 2020 to June 2020.
There is little evidence of a large shift in the cross-
unit costs comes from an excellent decomposition of the
sectional distribution during these early months of the
ex food and energy (‘‘core’’) PCE price index into COVID-
pandemic. Perhaps more importantly, firms that lowered
sensitive and insensitive sectors by Shapiro (2020). This
their inflation expectations between March 2020 and June
decomposition reveals a sharp decline in COVID-sensitive
2020 do not appear to have ratcheted their longer-run
inflation driven by sizeable declines in both price and
expectations down in concert. Exploiting the panel struc-
quantity, consistent with a demand shock.
ture of the BIE, Fig. 12 reveals no meaningful relationship
While it is not entirely clear what is driving common over the pandemic period between a firm’s change in their
measures of household inflation expectations higher,28 it short-run expectations and the change in their longer-
is apparent that firms, like professionals, have lowered run expectations. In the parlance of Fedspeak, businesses’
their year-ahead inflation expectations consistent with a inflation expectations remain well anchored.

27 It should be noted that when comparing aggregated expecta- 6. Conclusion and short discussion
tions of households, firms, and professional forecasters, each group
is responding to different but seemingly related economic concepts. Since mid-March 2020, the coronavirus pandemic has
For households in particular, the differences in their expectations for had a profound impact on the U.S. as efforts to stem the
‘‘prices in general’’ and the growth rate in the Consumer Price Index spread of the virus led to shutdowns of large swaths of
(CPI) have been often documented at least as far back as Bryan and
Venkatu (2001).
the economy. Business operations, sales activity, and (to
28 Kamdar (2019) finds that sentiment is a key driver of household a lesser extent) supply chains have all been disrupted.
macro-expectations, and that many households equate ‘‘bad times’’ Our results suggest that firms, on net, have viewed this
with ‘‘high inflation’’. See also Binder (2020b). crisis largely as a demand rather than a supply shock.
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Fig. 11. Distribution of firms’ long-run inflation expectations from January to June 2020. Notes: There were 228 and 204 responses in the pre-COVID
and COVID time periods, respectively. The specific question is given in Appendix A.
Source: Federal Reserve Bank of Atlanta’s Business Inflation Expectations Survey, January and June 2020.

Fig. 12. Changes in long-run and short-run inflation expectations. Notes: Both the x-axis and y-axis report the difference in percentage points. The
solid fitted line belongs to the period December 2019 to March 2020 (pre-COVID) while the dashed fitted line belongs to the period from March to
June 2020 (COVID). There were 192 respondents who completed both the September and December 2019 surveys, 188 respondents who completed
the December 2019 and March 2020 surveys, and 173 respondents who completed the March and June 2020 surveys. The specific questions asked
are given in Appendix A. The x-axis is truncated at the [−5, 5] interval to more clearly show the variation between short- and long-run expectations.
The fitted lines are computed separately as follows: ∆πfE,t ,t +ℓ = α + β ∆πfE,t ,t +1 + ϵft . The slope of the fitted line for the period 2019:Q3 to 2019:Q4
is 0.40. The slope of the fitted line for 2019:Q4 to 2020:Q1 is 0.20. The slope of the fitted line for the period 2020:Q1 to 2020:Q2 is 0.23.
Source: Federal Reserve Bank of Atlanta’s Business Inflation Expectations Survey; September 2019, December 2019, March 2020, and June 2020.

Responding to this demand shock, firms have lowered business ability to operate. Ramelli and Wagner (2020)
wages for a material share of their workforce, anticipate show that firms’ stock prices were adversely affected
further wage cuts before the end of 2020, and anticipate when they were more dependent on international trade,
lowering selling prices over the near-term. global supply chains, and financial markets, with these ef-
Also, consistent with a demand shock, firms (like pro- fects becoming more pronounced by March. Alfaro, Chari,
fessional forecasters) lowered their one-year-ahead infla-
Greenland, and Schott (2020) and Fahlenbrach, Rageth,
tion expectations. Concurrently, inflation expectations of
and Stulz (2020) find similar results. Bartik et al. (2020)
households have moved sharply higher, consistent with
find similar operating and liquidity concerns for small
households’ keying off salient prices. Alternatively, house-
holds may be concerned with how vulnerable their nomi- businesses that have been especially affected by enforced
nal income is to the pandemic and their ability to manage lockdowns yet employ nearly 50% of American workers.
in the face of sharp food price increases. Dingel and Neiman (2020) also show that the effects may
Our findings contribute to the rapidly emerging lit- be heterogeneous, as the proportion of jobs that can still
erature that examines direct effects of the pandemic on be done under lockdown measures varies by industry.
541
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Fig. 13. Cumulative share of the expected number of months until operations return to normal Notes: The responses are smoothed using a 1st
degree polynomial smoother and are truncated at the 99th percentile. The specific question is given in Appendix A.
Source: Federal Reserve Bank of Atlanta’s Business Inflation Expectations Survey, April and July 2020.

Fig. 14. Firms’ experienced and expected wage changes by expected duration of the pandemic. Notes: The low-skill expected and experienced values
are based on 135 responses, 148 and 149 responses to the high-skill questions, and 300 for the ‘‘all’’ category. The specific questions asked are given
in Appendix A.
Source: Federal Reserve Bank of Atlanta’s Business Inflation Expectations Survey, July and August 2020.

From a monetary policy standpoint, perhaps the only and other sources suggest that economic activity has flat-
point of solace here is that longer-run inflation expec- tened out and begun, in some cases, to show signs of
tations of firms appear to be relatively well anchored. slowing. Here our findings are, perhaps, less comforting
However, since mid-June, the path of the virus has ac- to policymakers (see Table 4).
celerated and we have seen more and more hotspots In April 2020 and again in July 2020, we asked firms
emerging across the U.S. At the same time, the high- to predict when the coronavirus would be behind them
frequency data of Brave et al. (2019), Chetty et al. (2020), such that they could get back to normal operations. Back
542
B.H. Meyer, B. Prescott and X.S. Sheng International Journal of Forecasting 38 (2022) 529–544

Table 4 Armantier, O., Bruine de Bruin, W., van der Klaauw, W., Potter, S.,
Expected number of months until business operations return to normal. Topa, G., & Zafar, B. (2013). Measuring inflation expectations. Annu.
Source: Federal Reserve Bank of Atlanta’s Business Inflation Expectations Rev. Econ., 5, 273–301.
Survey, April and July 2020. Armantier, O., van der Klaauw, W., Topa, G., & Zafar, B. (2016). The
Mean Median P10 P25 P75 P90 price is right: Updating inflation expectations in a randomized price
April 2020 5.1 4.0 2.0 3.0 6.0 10.0 information experiment. Rev. Econ. Stat., 98(3), 503–523.
July 2020 9.3 9.0 3.0 6.0 12.0 18.0 Armantier, O., Koşar, G., Pomerantz, R., Skandalis, D., Smith, K., Topa, G.,
et al. 2020. How economic crises affect inflation beliefs: evidence
Notes: There were 220 observations in April 2020 and 198 in July 2020. from the COVID-19 pandemic. Federal Reserve Bank of New York
The specific question is given in Appendix A. staff report No. 949.
Balleer, A., Link, S., Menkhoff, M., & Zorn, P. (2020). Demand or supply?
in April, firms gave us responses that aligned well with Price adjustment during the COVID-19 pandemic. In Institute of
Bartik et al. (2020). At the time, half of the panel expected Labor Economics DP No. 13568.
Barrero, J. M., Bloom, N., & Davis, S. J. (2020). COVID-19 is also a
normal operations would resume by August 2020, and
reallocation shock. Forthcoming in Brookings Papers on Economic
the most pessimistic firms (90th percentile) saw the coro- Activity.
navirus lasting until March 2021. However, firms have Bartik, A. W., Bertrand, M., Cullen, Z. B., Glaeser, E. L., Luca, M.,
grown much more pessimistic since then. We repeated & Stanton, C. 2020. The impact of COVID-19 on small business
this question in July, and as Fig. 13 indicates, the typical outcomes and expectations. Harvard Business School working paper
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Bils, M., & Klenlow, P. (2004). Some evidence on the importance of
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also those that have indicated cutting a greater fraction of
Bloom, N., Fletcher, R., & Yeh, E. (2020). Forthcoming work using
their employees’ wages. These findings suggest that firms’ the stanford-stripe survey. For slides see: https://siepr.stanford.edu/
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Bryan, M. F., & Venkatu, G. (2001). The curiously different inflation
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Cajner, T., Crane, L. D., Decker, R. A., Grigsby, J., Hamins-Puertolas, A.,
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the pandemic recession. NBER working paper No. 27159.
Candia, B., Coibion, O., & Gorodnichenko, Y. 2020. Communication and
The authors declare that they have no known com- the beliefs of economic agents. In Conference draft for Kansas City
peting financial interests or personal relationships that Federal Reserve’s Jackson Hole Symposium. 2020.
could have appeared to influence the work reported in Chetty, R., Friedman, J. N., Hendren, N., Stepner, M., & the Opportunity
this paper. Insights Team (2020). How did COVID-19 and stabilization poli-
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